In South Korea, TV home shopping market started as two companies in 1995, and there are 7 TV home shopping and 10 T-commerce companies in 2017. In the past 20 years, the number of competitors in TV home shopping industry has increased, and overall TV home shopping companies' billings sales growth has gradually slowed down since 2010. In particular, TV home shopping sales growth has been declined sharply from the year of 2013.
TV home shopping is a completely different distribution service from existing online or offline distribution channels. A home shopping company that has been approved by the Ministry of Science, and ICT as a broadcasting channel provider that specializes in merchandising and selling and showing information for purchasing goods to viewers who are consumers through a pay TV platform such as CATV or IPTV. In other words, most of retail channels can be regarded as sales channels from a manufacturer's view, but TV home shopping is a kind of communication channel that exposes product information to customers as well as sales channels.
TV home shopping is evaluated as an optimal distribution channel for small and medium-sized businesses with low awareness because sales and promotion of products are performed at the same time. In 1995, two home shopping companies were approved by the start of CATV. In accordance with the growth of the market, three new operators were granted policy objectives by granting conditions such as SMEs or food specialties. Based on this policy motive, the government approved additional home and shopping channels in 2011 and public home shopping channels in 2016. Currently, all TV home shopping companies are obliged to organize broadcasting of small and medium-sized enterprises (TVs) at a rate more than a certain amount of the total broadcasting time, and they must comply with various (re) approval conditions related to the sales of small and medium-sized enterprises.
However, even in this situation, SMEs still insist on the lack of sales channels through TV home shopping, and every time the new government is launched, they are requesting further approval of home shopping channels dedicated to SMEs. In 2001, government further approved Woori Home Shopping (now Lotte Home Shopping), which is a specialized home shopping company for SMEs, and NS Home Shopping, a specializing in agricultural and marine products. In 2011, government endeavored to secure a sales channel for small and medium enterprises and have been approved for the TV home shopping business several times.
The increase in TV home shopping channels led to quantitative growth such as an increase in the number of sales channels and an expansion of the industry size, but it did not contribute to qualitative growth such as advancement of trading practices and harmonious development of distribution industry and pay broadcasting It is true.
The domestic TV home shopping industry has been around for more than 20 years, and many researches have been conducted on the home shopping industry until now, but most of them have been research on consumer aspects, and related to purchase decision factors and satisfaction of customers. In addition, the policy reports related to the TV home shopping industry have mostly diagnosed specific problems in the relevant industries such as improvement of unfair trading practices, overseas market entry, and broadcasting law. The purpose of this study is to diagnose the issues that are the key issues in the trading practices of the TV home shopping industry and to draw policy proposals to pursue the qualitative growth of the industry.
Through researching literature related to TV home shopping and interviewing stake-holders in that industry, the authors were able to derive the following six key issues for the advancement of TV home shopping industry.
(1) Small and Medium Business Broadcasting Ratio The Ministry of Science and ICT is reflecting the fact that the TV home shopping service provider has to re-approve the program so that more than a certain percentage of the total sales broadcasts can be produced by small and medium-sized enterprises. The ratio of small and medium-sized enterprises' products in recent 5 years shows that the ratio is continuously increasing. This is because the government has focused on expanding SMEs through re-approval of business operators, which is reflected in the policy effects of SMEs.
However, despite these statistics, SMEs claim that the ratio of SMEs accepted by TV home shopping should be further increased considering the overall ratio of domestic SMEs and large enterprises. As a result of this argument, SMEs account for 99.9% of SMEs in Korea and 87.9% of workers in total, whereas SMEs in Korea are too small compared to SMEs.
As for TV home shopping companies, there are a large number of domestic SMEs and a high percentage of home shopping companies. The products that can be distributed through TV home shopping should be the quality that can pass the broadcast review through the consumer products that can be appealed to the target customers, 30's to 40's old female customers as well as quantity that can provide at least 3,000 pieces. It is difficult to find a small business satisfying these conditions.
(2) Contributions to SME Market Expansion TV home shopping is evaluated as an optimal sales channel for small and medium-sized companies because it is sold simultaneously with product promotion. Therefore, as mentioned above, the TV home shopping channel has been given the task of broadcasting ratio of small and medium enterprises. However, due to the acquisition of Woori Home Shopping(currently Lotte Home Shopping), which was approved for SMEs, in Lotte, which is a large company, it was attributed to the horizontal integration structure of large distribution groups. In the first reapproval, agriculture and fisheries home shopping (now NS Home Shopping) has also been faded due to the business difficulties and so on.
There are many cases of growing into famous national brands by entering into on-line and off-line distribution based on the success of home shopping. However, as most distribution channels including TV home shopping become dominant, it is becoming increasingly difficult for small and medium enterprises. In the prime time, competition between SMEs is intensifying as large companies and proven SMEs are focusing on products. As intangible service products that do not have management and inventory cost such as insurance, travel, and rental services are continuously discovered and organized in home shopping broadcasting, TV home shopping broadcasting opportunities for SMEs are declining relatively.
(3) Product Purchase and Sales Commission Domestic TV home shopping company's method of purchasing product is mainly entrusted transactions. Direct purchasing ratio is very low, so that the majority of the suppliers have high inventory cost. Here, the term "entrusted transaction" refers to a transaction in which a supplier delivers goods sold by a home shopping company, and after a product is sold, a seller pays a product price to a suppliers, so called "consignment transaction" in department store. To be more specific, TV home shopping has a 96.8% ratio of consigned transactions and the direct purchasing ratio is the lowest among all of the retail sector. And this point has been repeatedly pointed out by the National Assembly audit of the National Assembly, and the government is encouraging the direct purchasing increase in the process of reauthorizing the business.
According to a study by the Fair Trade Commission(2016), the average commission rate of TV home shopping in the first half of 2016 is 28%, compared to an average of 28% in the first half of 2016. It is clear that department stores are 22% higher than department stores by an average of 6%. Of course, department stores also include shipping costs that are not covered, but even considering the portion of shipping costs, it is a rather high figure.
(4) Transmission fee The transmission fee is the fee paid by the TV home shopping company to the pay TV operators such as CATV and IPTV for the use of the channel number. Accroding to Korea TV Homeshopping Association, broadcasting commissions of TV home shopping companies increased from 870.4 billion in 2012 to 1.447 trillion won in 2014, and it reached 1.99 trillion won in 2016. As the transmission fee increases, it is pointed out that these costs affect the sales commission rate increase of the home shopping partners. Since the commission fee is determined mainly by the broadcasting platform operators, there is no way for the home shopping provider to lower it autonomously to be. As described above, commission fees will continue to rise if the company continues to increase its commission rate, which is not unique to other retailers.
(5) Unfair Trade and Consumer Problems In order to solve the unfair trade which is pointed out as a typical problem in the TV home shopping industry, companies are making efforts to prevent the spread of unfair trade by operating the "Abuse Reporting Center". However, suppliers are complaining that they are undergoing unfair trade in contracts and transactions with TV home shopping companies to sell their products. There are 8 unfair trade screening standards for TV home shopping by the Fair Trade Commission as follows: ①the broadcasting contracts are invalid or delayed, ②unfair transfer of marketing expenses, ③unfair management information requests, ④unfair sales fees, ⑤unfair commission penalties, ⑥demand for unfair economic benefit ⑦unpaid or delayed payment of product cost, ⑧do not issue production expense agreement or transfer of that expenses.
(6) Social Contribution and Consumer Welfare According to the Basic Law on Broadcasting and Telecommunications Development, TV home shopping operators pay annual broadcasting and telecommunication development fund within 15% of broadcasting operating profit. According to the press release of Korea TV Home Shopping in 2016, it has paid a total of KRW 418.8 billion in broadcasting communication development funds over the past eight years and paid an average of KRW 52 billion annually. In addition, TV home shopping company spends a considerable amount of money on social contribution costs for consumer welfare. In the past three years, the social contribution cost of 77.5 billion was spent. This cost was written in the production of broadcasting contents, the production of public interest programs for small and medium enterprises, the promotion of broadcasting information, scholarships, and visits to overseas exhibitions. Surprisingly, however, most consumers are not aware of this fact, nor do they know why home-shopping companies are paying for it.
(7) Policy Considerations for Industrial Development of TV Home Shopping TV home shopping can be regarded as a "broadcast-based distribution" industry. Last two governments have licensed two more TV home shopping channels with a focus on "distribution" and opened 10 T-commerce channels through T-commerce activation policy. However, as the current government has shifted its focus to "broadcasting", there is a growing voice pointing out the scarcity of 17 sales broadcasts. Therefore, it is necessary to clearly clarify the roles between TV home shopping and T-commerce which have no substantial difference except for live broadcasting in the future. In other words, T-commerce should be able to differentiate itself from TV home shopping by adopting and applying more advanced and developmental technologies to match the 4th industrial revolution era as well as is necessary to cope with the criticism of the broadcasting aspects as the refraining of home shopping.
It is also necessary to secure financial resources for sustainable growth and development of the industry. Currently, 6 TV home shopping companies are paying 500~60 billion won annually for broadcasting development fund, and paid a total of 410 billion won over 2009~2016 years. This fund is obligatory payment by the broadcasting (based) operator, and the fund is reinvested in the field of broadcasting such as relieving mistaken bureau and supporting program production. Nevertheless, there are few funds used for the growth or development of TV home shopping industry. Therefore, in the future, investment for the development of TV home shopping industry is needed. It can be used as a policy application to implement the 4th industrial revolution technology in the TV home shopping.
In the following section, the authors analyzed IPA analysis and derived priorities for each issue and then, present policy suggestions for advancement of these issues.