Buying imported products in Korea just doesn’t pay

Lee Yeon-su, a 36-year-old housewife in Mok-dong, southwestern Seoul, during a recent trip to Japan found the same pack of Snickers bars was sold at a much lower price than at E-Mart.

“I remember the ones I buy here are 3,950 won [$3.68], whereas the same one sold in Japan was retailing at 298 yen [$2.99],” Lee says.

In addition, she found the one sold in Korea weighs less than the product sold in Japan. While the Snickers bars sold in Korea weighed 223 grams, in Japan they are 240 grams. Considering the price and weight difference, she was paying 32 percent more at home.

“While the distance it takes for the chocolate bar to travel to Korea or Japan would almost be the same, I’m being ripped off compared to the housewives in Japan,” Lee says. “If I didn’t know, it wouldn’t matter. But now that I know, it’s upsetting.”

It turns out Korean consumers are paying more, and not only for candy bars. The situation was the same in a JoongAng Ilbo field study of 13 products ranging from food to fashion items sold in Korea, Japan and the United States.

The study was made between mid-October and early November based on the closing exchange rates of Nov. 13 when the won was 1,072 against the greenback and 1,076.52 against 100 yen.

The popular Belgian fashion backpack brand Kipling’s Challenger retailed for $99 at Macy’s in New York City. But when bought in Seoul the price tag is 188,000 won ($175). The same bag at a Japanese department store is sold for 13,650 yen ($137).

Some products even triple or quadruple in price in Korea. Haagen-Dazs ice cream was four times more than in New York and twice as much as in Japan.

Experts say that a price 30 percent higher than in the United States is profiteering.

When it comes to luxury goods the difference can be astronomical.

Italian Emporio Armani watches sell for 950,000 won, 310,000 won more than in the United States and 360,000 won more than in Japan.

The finding seems to contradict the presumption that a more expensive won means lower import prices.

The won appreciated nearly 4 percent in October compared to the same month last year. The average won value against the U.S. greenback in October was 1,065.74.

But in the study, 11 of the 13 products were more expensive in Korea than in the other two countries.

Explaining the high price tags on imported goods in Seoul, experts point to the tyranny of importers with exclusive rights.

“The reason imported goods are more expensive is because of the monopoly structure of large importers,” says Kim Jung-sik, an economics professor at Yonsei University. “The price would come down to earth if smaller importers became more active like in Japan.”

To spur competition, the Korean government in 1995 allowed small importers to retail the same goods that large companies imported.

The small have no exclusive rights from foreign companies to sell the products.

However, smaller importers and large discount store buyers in charge of import goods are sometimes threatened by the big importers who can even pressure foreign companies to cut off supplies.

Foreign companies supply their products to either an exclusive importer or a small importer who then distributes it to retailers such as duty shops or department stores.

Then why then are goods more expensive in Korea?

An importer in the U.S. said the biggest reason is major importers who have exclusive distribution contracts.

“The reason the retail price of a product that should be twice the wholesale price in the U.S. quadruples in Korea is because the official importers make huge profits from it,” said the importer, who has 10 years’ experience and wished not to be named.

“Say the retail price of a product is $100, the wholesale price would be 60 percent of that or $60,” the importer said. “Even when including custom taxes and distribution costs, the product should be worth the same as the U.S. retail price or 10 percent more. But when it is sold in Korea, it is 50 percent to 200 percent more expensive.

“It is a bold strategy that uses Korean consumers’ sentiment that the more expensive the price of a product, the higher its quality.”

Small importers usually get their products from bulk purchases made through major retailers such as Wal-Mart or a U.S. wholesaler. However, foreign companies sometimes break exclusive contracts and supply products to small importers. Exclusive Korean importers then use various means - including lawsuits - to pressure foreign companies to stop.

Some importers contend that retail prices are unavoidably high due to paying commissions to department stores to stock products, rents and marketing.

On the other hand, retail and consumer experts argue that importers and overseas headquarters overprice products in the first place.

“We can’t even say a word about pricing policy,” says an food retailer who sells American products. “I’m concerned about asking them to supply products at a lower price because the headquarters might end up changing their official importer.”

Meanwhile, Japan has lowered the price of imported goods ever since it encouraged small importers to thrive more than 30 years ago. About 40 percent of net imports in Japan are through small companies.

“In Japan, sometimes importers with exclusive contracts negotiate prices with small importers when deciding price of new products,” said an Japanese import industry official.

BY CHOI JI-YOUNG, Kim ji-yoon [jiyoon.kim@joongang.co.kr]