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Summary:The competition between the new and the old is still undecided.

"In the past, when colleagues met, they would discuss whether the goods were sold to Taobao or JD.com. Now, the discussion has become whether the goods are sold to the United States or Europe." Lin Sheng (pseudonym), a "second-generation factory worker" from China's mold hometown, has clearly sensed this change.

Chinese merchants are heading for wider seas. According to data released by the General Administration of Customs on July 12, in the first half of 2024, the total value of my country's import and export of goods was 21.17 trillion yuan, a year-on-year increase of 6.1%, setting a record high for the same period in history.

The cross-border e-commerce platforms that link supply and demand have played an indispensable role in this growth. Among the current "Four Little Dragons" (SHEIN, AliExpress, Temu, and TikTok Shop), Temu, a cross-border e-commerce platform under Pinduoduo Group, is a rising star. In less than two years, it has repeatedly refreshed market expectations with its rapid development momentum, stirring up the industry landscape like a catfish.

Relevant data shows that in December 2023, the number of independent visitors of Temu reached 467 million, which is comparable to the size of AliExpress under Alibaba, ranking second in the world, second only to the industry leader Amazon.

How has Temu been able to make rapid progress in the overseas e-commerce market dominated by giants?

Build a "ship" to go out to sea

In Lin Sheng’s own factory warehouse in Huangyan District, Taizhou, Zhejiang, cardboard boxes of all sizes with foreign logos are stacked together. Inside are various storage boxes produced on the automated production line, which will soon be shipped to users around the world.

In Lin Sheng’s own factory warehouse, cardboard boxes of all sizes with foreign language labels are piled together.

Lin Sheng and his family are no strangers to going overseas. In the past, they were engaged in traditional foreign trade, and a small storage box often had to go through several hands before it could reach overseas consumers. When the market was good, there were e-commerce platforms in China, and orders from trading companies were stable.

"After the outbreak of the epidemic, the foreign trade environment has been greatly affected, orders have become increasingly difficult to find, and domestic homogeneous competition has become more obvious." At that time, Lin Sheng, who was studying logistics management abroad, turned his attention to cross-border e-commerce platforms.

The initial trial was not smooth. Despite having supply chain advantages, it did not make any splash in price calculation, logistics warehousing, marketing and promotion due to the lack of mature experience and sufficient capital.

It was not until the emergence of Temu that they started to go overseas. As soon as the platform was launched, it was the first in the industry to launch a full hosting model for merchants, which directly solved the pain points of a large number of merchants.

"The platform is responsible for pricing, warehousing, transportation, distribution, after-sales and other aspects. Manufacturers only need to focus on production and deliver the goods to Temu's domestic warehouse." As one of the first e-commerce sellers among the owners of Chenghai toy factories, Chen Zhe (pseudonym) has opened his store very quickly, from joining the Pinduoduo main site to "try out the new thing" on cross-border e-commerce platforms.

Under this model, sellers are more like large suppliers of Temu. The platform purchases goods from the source, reduces the middlemen, and forms a link of "supply chain-platform-overseas consumers". Chen Zhe, who has e-commerce experience, got started easily. "For more source manufacturers, the threshold for selling toys overseas has been lowered a lot."

The goods are being loaded.

A large number of companies established cooperative relationships with buyers, especially factories and integrated industrial and trade sellers, who joined the overseas expansion. E-commerce peers could not sit still. Three months later, AliExpress, a subsidiary of Alibaba, announced that it would provide full hosting services. Since then, Shopee and TikTok Shop, which focus on the Southeast Asian market, have also launched full hosting services.

This is just the starting point, and the model changes that affect merchants, platforms and consumers continue to occur. Since last year, many platforms have successively launched semi-hosted models, seeking to establish a more complete supply chain system and product ecology.

Compared with the full hosting model, the semi-hosting model gives merchants more autonomy. Based on the actual operation of the platform, some of the links in the chain that were originally responsible are released to the merchants, which is more suitable for entities with certain e-commerce operation capabilities.

For example, AliExpress itself has a strong "partner" - the Cainiao international express logistics network. With the logistics advantage, the platform is still responsible for warehousing logistics and after-sales service, while store operations and product pricing are the responsibility of the sellers.

Temu's logistics infrastructure is still being improved. By releasing warehousing and logistics rights, it can attract merchants who have already set up warehouses overseas and have the ability to ship goods "from one place to another" (goods are shipped overseas and fulfilled by themselves). This flexible model is expected to attract more merchants to settle in and optimize fulfillment efficiency and user experience.

"For sellers with weak capabilities, we provide a nanny-style full-hosting service, and for sellers with strong capabilities, we provide a more flexible semi-hosting service." Chen Lei, chairman and co-CEO of Pinduoduo Group, said that only by solving the pain points of merchants in a differentiated manner can we fully mobilize the enthusiasm of various foreign trade operators and jointly make the overseas pie bigger.

Lin Sheng noticed that after the semi-hosting model was launched, more large-scale products appeared on the platform. "For example, mobile prefabricated houses used on construction sites. If the platform had to ship such large items by sea, the cost would have been too high. The entry of merchants with logistics capabilities has filled the gap in the category."

Do it to the extreme

Building a "ship" is the foundation for going overseas. Whether there is motivation for sailing far depends on the customer acquisition ability of the cross-border e-commerce platform.

In China, Pinduoduo's main website has opened up a gap in the market with Taobao and JD.com, relying on its extreme cost-effectiveness and combining social networking and advertising to spread the word. This successful model has been replicated overseas, setting off a new wave of consumption.

"From a business operations perspective, Temu has done everything to perfection," Lin Sheng said with emotion.

Temu is not the first cross-border e-commerce platform to adopt a low-price strategy, but Temu relies on the sophisticated operation of a fully managed model to maximize its price advantage and efficiency.

Merchants on the platform have all gone through the price review mechanism. Buyers not only compare between suppliers, but also refer to the prices of similar products on the domestic wholesale e-commerce platform 1688. One merchant told reporters that if the quotation is found to be too high, it is necessary to explain the reason and the buyer will re-evaluate.

At the same time, Temu has invested heavily in developing fission-style social networking and advertising communications to capture more consumers' attention. Lin Sheng told reporters that the platform's buyers also arranged for foreign photographers to go to the factory to shoot "down-to-earth" videos, which were then released to overseas media, and clicked to jump to the platform or product link.

Lin Sheng’s factory produces various storage boxes.

Behind the scenes, there is also the empowerment of digital technology. In the past, most merchants judged market consumption trends based on their own experience. "Duoduo cross-border platform can quickly identify consumer preferences in different overseas markets based on market feedback, and help factories adjust production plans and strategies." Chen Lei introduced.

In the second half of 2023, the movie "Barbie" became a big hit. At the suggestion of the buyer, Lin Sheng decided to develop a "Barbie-style" storage cabinet. "Generally speaking, launching a new model requires the development of a set of molds, and the cost ranges from hundreds of thousands to millions of yuan. The unit price of the storage box is not high, so we are very cautious in developing new molds." The platform's research and judgment and past sales gave Lin Sheng confidence, and the product was launched as expected and sold well.

Can the Rush Continue?

Since its launch on the market, Temu has used data to prove its development potential.

In less than two years since its launch, the platform has penetrated into more than 100 manufacturing industrial belts in Guangdong, Zhejiang, Shandong, Anhui and other places, and entered more than 70 countries and regions in North America, Europe and Asia, exporting more than 400,000 parcels every day, with an average daily cargo weight of about 600 tons.

The popularity of the platform has been transmitted to merchants. "My wish is to push Chinese toys to a larger market." At present, the toys sold by Chen Zhe on Duoduo Cross-border are not only from his own factory, but also from 100 local factories in Chenghai, which are constantly designing, selecting, optimizing and shipping. "Toys have obvious off-seasons and peak seasons in the overseas market. There are more festivals in the second half of the year, and sales are greater. We hope to develop some regular models this year to tap into the daily needs of overseas consumers."

Looking at the entire overseas market, the biggest rival of domestic cross-border e-commerce companies is Amazon. According to statistics, it occupies about 40% of the US e-commerce market and is the absolute industry leader.

However, under the strong offensive of the new platform, the old giants had to respond.

Amazon previously set up a price comparison system. If a seller is found to have a lower price on other platforms, he or she may face penalties, such as being marginalized in traffic distribution. Under pressure from Temu, Amazon removed Temu from the price comparison system to prevent it from affecting its own ecosystem. At the same time, Amazon stabilized the traffic of products with many SKUs (stock keeping units) and high repurchase rates by reducing the commission for clothing sales, thereby reducing the operating costs of sellers.

The competition between the old and new forces has not yet been decided. In the eyes of industry insiders, this is a comprehensive competition in terms of logistics infrastructure and supply chain, and also an opportunity to improve overseas operation capabilities. Whether cross-border e-commerce companies can continue to soar in the future depends on whether they can continue to innovate and optimize strategies while maintaining their existing advantages and genes, and better achieve a balance between consumers, platforms and merchants.

It is understood that Temu is focusing on improving its supply chain, compliance and service capabilities to cope with market changes and challenges. "We will continue to explore high-quality merchants and products, adapt to local conditions, provide appropriate fulfillment links, improve supply chain efficiency, and provide consumers around the world with a wide range of products at affordable prices," said Chen Lei.