Shinsegae Group Chairman Chung Yong-jin arrives at Incheon International Airport on Sunday following a meeting with US President-elect Donald Trump at his Florida resort last week. (Newsis)
Shinsegae Group Chairman Chung Yong-jin arrives at Incheon International Airport on Sunday following a meeting with US President-elect Donald Trump at his Florida resort last week. (Newsis)

Korean retail giant Shinsegae Group is establishing a joint venture with Alibaba International, a subsidiary of China's Alibaba Group, to regain its competitive edge in the increasingly challenging domestic e-commerce market.

Sources from the nation's investment banking sector revealed Thursday that Shinsegae’s E-Mart convened a board meeting for the joint venture establishment, with both companies contributing equally through in-kind investments and co-managing the new entity.

Set to launch next year, the joint venture will incorporate Gmarket and Alibaba Group's e-commerce platform, AliExpress Korea. Despite the collaboration, the two platforms are expected to continue operating independently. Shinsegae plans to invest its 80 percent stake in Gmarket through E-Mart, while Alibaba will provide its stake in AliExpress Korea along with a cash contribution of 300 billion won ($230 million). The joint venture's estimated valuation is approximately $4 billion.

The two parties have reportedly agreed to pursue a public listing for the joint venture within three years. Should an initial public offering prove unfeasible, Alibaba has committed to acquiring Shinsegae's stake in Gmarket. But when a Shinsegae official was asked, he emphasized that there is currently "no specific timeline for the IPO" and that the primary focus is on the "successful establishment of the joint venture."

AliExpress intends to capitalize on Gmarket's network of roughly 600,000 sellers to strengthen its position in the domestic market, while Gmarket sellers are anticipated to accelerate their expansion into international markets using Alibaba's extensive global sales network and advanced IT capabilities.

Nevertheless, some experts have cautioned that the dynamic nature of the e-commerce industry and the challenges of aligning Korea and China's differing consumer preferences could pose significant risks.

"There are substantial opportunities for mutual benefit, but if the joint venture cannot reconcile the varying consumer demands and market characteristics of the two countries, which are very different, it may encounter operational challenges," said Lee Hong-joo, a consumer economics professor at Sookmyung Women’s University.

"If ongoing quality concerns about AliExpress products persist, it could undermine Shinsegae’s reputation. Furthermore, changes in the political relationship between Korea and China could create unexpected risks for the business."

In 2021, Shinsegae Group acquired Gmarket for 3.44 trillion won. However, Gmarket failed to deliver significant market gains and recorded operating losses of 65.4 billion won in 2022 and 32 billion won in 2023, according to the Financial Supervisory Service's electronic disclosure system.

According to market tracker WiseApp Retail Goods, as of last month, AliExpress ranked second in the e-commerce app market with 9.67 million monthly active users since first entering Korea in 2018. However, it remains far behind Coupang, which leads with 32.19 million MAUs. Gmarket, ranking fifth with 5.62 million MAUs, trails competitors like 11th Street and Temu.