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The successful overseas expansion of Chinese e-commerce companies represented by Shein and Temu in the European and American markets in recent years has not only led to another wave of export booms for my country's small and medium-sized enterprises, but also attracted the attention of global business people to the development of Chinese e-commerce. After years of development, China's e-commerce model has undoubtedly become one of the benchmarks for the development of e-commerce in the world. Of course, with the development of Chinese e-commerce, European and American regulators have also paid more attention to the business practices of Chinese e-commerce companies in their local markets.

Recently, as the long-delayed Shein listing issue has entered a new stage, Guanchazhe.com had an in-depth exchange with Mr. Bryce Whitwam, former CEO of Wunderman Thompson Greater China and former CEO of MRM McCann China, who has lived in Shanghai for 17 years, on the changes that the Chinese e-commerce model has brought to the world and the future development prospects of Chinese e-commerce in Europe and the United States, and discussed the future opportunities for Chinese e-commerce to go overseas.

【Text/Observer.com Tang Xiaofu】

Observer.com: Shein is trying to promote its IPO. The media believes that once the listing is successful, it will become the world's largest IPO this year. But why is it still uncertain which stock market will be listed on such a large IPO project?

Wan Wenxin:I don't know much about the IPO, but Western media are now talking about the geopolitical considerations behind Shein's IPO. As we all know, Shein has been trying to IPO for 2 years and secretly submitted an application for an initial public offering in the United States in November last year.

But since U.S. lawmakers did not support the proposal, it began trying to push for an IPO in London and Hong Kong. In May, The Wall Street Journal reported that Shein was considering an IPO in London after the U.S. Securities and Exchange Commission told the retailer that it would not accept its listing application unless it made it public. Generally speaking, companies submit listing applications confidentially to ensure that important information about their companies is not disclosed.

Chinese online fast fashion brand Shein's first offline store in Japan - Visual China

I think if Shein wants to IPO in the US stock market, it will definitely need to meet the relevant US requirements. Therefore, it is necessary to submit the documents required for listing so that its listing materials meet the high business transparency required by most global stock markets around the world.

In addition, some other legal issues have also apparently hindered Shein's IPO process in the United States. According to CNBC reports, US officials have repeatedly accused Shein of labor issues in its supply chain and its use of loopholes in the US tax law exemption system. In the United States, packages worth less than $800 are not subject to import tariffs and are not subject to the same degree of supervision by US Customs, so this has affected Shein's listing process in the United States. In addition, laws like HR7521 may also have some side effects on this process.

Guancha.com: From your perspective, how did Shein suddenly become popular and surpass Temu to become the world's most popular shopping platform? What is the difference between it and Temu, Amazon, Uniqlo, ZARA, H&M and other different types of shopping models? Are there similar companies competing in the same field in China?

Wan Wenxin:Temu's business model is very simple. It sells cheap non-branded goods from Yiwu and other places directly to European and American customers through the Temu platform. Temu's user profile is very similar to China's PDD: low-income people who are willing to buy non-branded goods. Temu is bankrupting chains such as Dollar Store and Family Dollar by selling a large number of cheap and rich goods.

However, due to the long shipping distance of Temu, customers have to wait for weeks to receive their products. This makes people avoid Temu when they need to buy urgent goods such as alarm clocks.

Temu is similar to Shein in that they do not manufacture goods but instead ship directly using their network of suppliers, but in my opinion Shein’s business model is more sophisticated because it listens and responds quickly to clothing trends and provides the latest clothing to Generation Z at very affordable prices.

On Shein's website, they proudly state that their digital supply chain can quickly resolve the mismatch between customer demand and product supply. According to their own statement, the company will initially launch a small batch of 100 to 200 products for new product testing, and then evaluate customer feedback in real time and replenish products according to demand.

This highly automated process ensures that its supplier partners produce the products that customers want while minimizing overproduction, which means they can reduce waste while offering customers more affordable prices. Because it is more closely connected to the Chinese clothing industry, it has a shorter response time and lower prices than other fast fashion retailers such as ZARA, Uniqlo or H&M.

Shein Business ModelShein Official Website

This description reminds me of the OODA loop, or observe, orient, decide, and act. This four-step decision-making approach focuses on filtering available information, then contextualizing it and making the most appropriate decision quickly.

OODA loop data diagram

Shein's small-batch delivery strategy and close connection with China's digital supplier network enable it to have a faster advantage in decision-making and action than its competitors, making it easier to complete an OODA business cycle in a relatively short period of time. Therefore, Shein can meet consumer needs in a shorter period of time.

Guancha.com: You have lived in China for a long time and have a lot of feelings about Chinese e-commerce. We can see that with the update and iteration of Chinese e-commerce, e-commerce platforms based on social media are growing rapidly. From your research, what is the difference between this type of e-commerce platform and traditional e-commerce platforms such as JD.com and Pinduoduo? According to your previous research, only 0.37% of browsing on traditional e-commerce platforms is converted into paying customers, while the conversion rate of social platforms such as Douyin, Kuaishou, Xiaohongshu, and WeChat has reached 6-10%. Why is there such a big difference in customer conversion rates between these two types of platforms?

Wan Wenxin:JD.com, Taobao, and Pinduoduo provide a low-cost and fast transaction opportunity for all kinds of merchants and passers-by, and people can quickly go in and out to buy the items they need. Overall, most Chinese consumers still prefer to choose brands they trust when buying expensive goods, rather than sitting down and watching live commercial programs on Douyin or recommendations from various Internet celebrities.

Moreover, by browsing e-commerce platforms such as JD.com, Taobao and Pinduoduo, people can quickly compare different products from different brands, and the subtle differences between different products become important. Therefore, the conversion rate of these platforms is lower, but the final total transaction amount is much higher.

In contrast, although the conversion rate of social media channels is higher, the total transaction volume is much lower. This is because the customers there are more purposeful, and many of them have already selected a certain type of product or category and are just waiting for a better price or trying to wait for a brand to update its products.

In addition to Douyin, Xiaohongshu is also increasingly becoming a platform for Chinese consumers to learn about new products and their features. However, customers may not necessarily buy products on Xiaohongshu, but will jump directly to Taobao to complete the purchase. Products sold on Taobao, JD.com and Pinduoduo also have a large number of product review areas, which are comments made by people who have used these products on the quality and reliability of the products. This exchange and supplement of information also makes these platforms difficult to replace.

Observer.com: Some people believe that Shein and the previously popular Temu seem to be still in the shopping model of the previous era in China, while China's shopping model based on social media and live streaming seems to be becoming mainstream. Do you agree with this view?

Wan Wenxin:I do not completely agree that China has achieved a generation gap with the United States in terms of e-commerce models. This is because social commerce based on social media and live streaming is just a newer form of e-commerce. Although the shopping mentality is different, it does not constitute a generation gap.

People still see social apps as platforms for discovering new things, education and entertainment, rather than shopping apps, even though 63% of U.S. shoppers will make purchases through social media in 2022, according to Wunderman Thompson. [Editor's note: The countries with the largest proportion of social commerce users among all e-commerce users are Thailand (88%), India (86%), UAE (86%) and China (84%). By 2030, global social commerce revenue is expected to reach $6.2 trillion. ]

Social commerce users will account for the proportion of all e-commerce users in 2022 Tido

Social commerce is like a new entry point for e-commerce, but it has not replaced the previous e-commerce model. According to US data, 57% of American adults discover new brands on social media, and 66% of millennials and Generation Z will actively buy products recommended by online opinion leaders such as influencers. The birth of social media has indeed completely subverted the traditional marketing channels of brands, but it is ultimately only a part of all channels.

Even in China, most e-commerce still happens on traditional e-commerce platforms like Taobao, JD.com or Pinduoduo. Many times, consumers already know what they want to buy, and they don’t need to look through influencer videos and live shopping channels to find what they want.

Social commerce undoubtedly provides consumers with a way to learn about new products, but it also means that most people spend more time looking for certain specific products. At the same time, integrated platforms like Shein and Temu can also allow influencers to open live broadcast rooms on the platform to introduce new products and consumer trends, thereby effectively attracting consumers to their respective platforms. Ultimately, various forms of e-commerce may develop simultaneously or even merge.

Guancha.com: Compared with traditional American shopping platforms such as Amazon, what innovations and obvious advantages do Chinese shopping platforms have? How are these advantages formed, and what impact will they have on American shopping platforms?

Wan Wenxin:The success of Shein and Temu is based on the comprehensive success of their supplier networks, rather than just the success of a few technological improvements.

Temu and Shein offer a unique e-commerce shopping experience compared to what Americans experience on Amazon. While Amazon already has a rich selection of clothing, Shein uses a more sophisticated algorithm to connect young consumers with the latest fashion trends. The algorithm can tailor selections for customers based on their previous searches and purchases. At the same time, its user interface also encourages return visits to ensure that users are kept up to date with the latest trends and prices, so that customers can take advantage of attractive promotional offers to make impulse purchases.

Platforms like Shein and Temu are designed based on the experience of the Chinese market, so the reasons for their competitive advantage are very Chinese. Shein and Temu use the Chinese gamification shopping model (Editor's note: including the "cut one knife" model) to enhance the overall shopping experience of customers and drive customers to repeat purchases by giving incredible discounts.

And thanks to Chinese companies' in-depth exploration of the Chinese market, Chinese applications are updated very quickly, which means that software from China has the same or even better quality as similar applications from Western companies in a very short period of time.

It turns out that the business experience in China also applies to Western consumers. Although Amazon has a huge distribution scale and millions of members and a highly loyal Amazon Prime platform, Amazon will also begin to distribute Shein products and begin to feel the competitive pressure from Temu. I expect Amazon to start using its supplier network in China to offer price discounts similar to what Temu currently offers.

Due to the commercial success of Shein and Temu, I suspect these platforms will force Amazon to make a shift in user experience, forcing them to adopt some of the same features as Shein and Temu.

Guancha.com: According to your research, 20% of Generation Z in the United States spend 5 hours a day on TikTok. At the same time, the e-commerce model based on social media platforms is becoming the most important blue ocean market for European and American e-commerce. In your opinion, has this impact led to the United States accelerating the ban on TikTok?

Wan Wenxin:I believe that the current TikTok ban has nothing to do with the platform's potential e-commerce function; HR7521 is more concerned with the issue of how Generation Z Americans get their news. Like China, US law does not allow foreign companies to control important news media channels.

The way TikTok natives get their news and TikTok's powerful algorithms give them different perspectives than older generations get from watching traditional media, creating a generational divide that will be amplified in an election year.

Screenshot of the video of the passage of the HR7521 bill involving TikTok earlier this year

At the same time, I think TikTok, like other social platforms, has caused concerns among the Chinese and American governments due to its addictive use. Previously, because these platforms have huge businesses in the United States, US government leaders have not passed laws to restrict them. But as a Chinese company, TikTok, which has been downloaded by more than 130 million Americans, is undoubtedly an easier target than other social media companies.

Guancha.com: We have recently observed that both Temu and TikTok have been suppressed by the European and American governments. Will Shein face similar suppression in the future? What do you think about the future prospects of Chinese brands such as TikTok, Temu and Shein in Europe and the United States? For the vast majority of developing countries, can TikTok, Temu and Shein help narrow the digital divide and break the supply chain monopoly?

Wan Wenxin:I think Shein's recent partnership with Amazon will help ease some potential business concerns, especially considering that Shein has no business in China and its headquarters and operations are based in Singapore, so there will be less pressure. Shein is doing everything it can to prove that it is not a Chinese company; if it succeeds in proving itself to US regulators, it will have much less business pressure in the US.

Temu, on the other hand, is a Chinese company that is part of Pinduoduo. Pinduoduo's business practices are known to be highly secretive, and this secrecy will undoubtedly affect its business development in the United States. Washington is calling for it to increase transparency, and Temu will face scrutiny from members of Congress. These members of Congress will put pressure on lobbyists for Amazon and other retailers to say that Temu is competing unfairly with them.

Meanwhile, Republicans are asking Congress to take action to stop Temu from exploiting supply chain loopholes that allow duty-free entry of goods worth less than $800. Many people think this could lead to restrictions on Temu's business in the U.S., but since the app creates a lot of value in the U.S., I think this issue will eventually be resolved.

But it must be pointed out that Temu is burning money to expand its market share. Morgan Stanley estimates that Temu's marketing spending in 2023 will cause it to lose an average of $7 per order. Pinduoduo is financially strong, but I don't know how long Temu can last.

Temu Products CNBC

I think Chinese platforms have helped to improve the digital divide in China by bringing together small suppliers across the country onto one platform, allowing them to sell directly to consumers. I am glad to be able to buy my favorite Puer tea directly from the farmer I once met while visiting a farm in Yunnan.

But can these platforms improve the digital divide in developing countries? If TikTok repeats its model of building a platform and connecting local producers and consumers in other countries as it has done in China, then it can. But if it just sells cheap products from China, I don’t see how this will improve the digital divide in developing countries.

I support Temu and Shein because they allow consumers to buy cool and fashionable products for very little money. I believe that everyone can benefit from buying high-quality products at low prices. However, I don't see how this can improve the digital divide in developing countries.

Guancha.com: The e-commerce model based on social media seems to occupy the most important part of the e-commerce market in China and the United States in the future. As we all know, the social media in China and the United States are different. In your opinion, for cross-border e-commerce, will the future e-commerce models of China and the United States evolve in a similar way or go their separate ways? Why?

Wan Wenxin:So far, the e-commerce markets in China and the U.S. have developed at different paces, but as both countries reach parity in terms of technology platforms, we will eventually see the convergence of social commerce, and I think this will be led primarily by TikTok.

Since the launch of TikTok Shop in September last year, TikTok has started to become more and more like Douyin. I asked my students to compare TikTok and Douyin, and they found that the two are very similar and becoming more and more the same. Therefore, I think platforms other than TikTok and Douyin will also begin to absorb other elements from China.

Of course, there are still significant differences in the e-commerce environment between China and the United States. The Chinese market has developed social commerce more deeply than the US market, while the US market has a shorter history of such e-commerce based on short videos and live broadcasts. This makes there are some significant differences between China and the United States now: for example, by 2023, social commerce will account for 14.4% of all e-commerce sales in China, while the figure in the United States is only 4.4%. In 2021, social commerce in the United States will account for only one-tenth of China's total sales ($351.64 billion vs. $36.62 billion).

In November 2022, TikTok launched its online store TikTok Shop.

At the same time, the roles played by influencers in social commerce in China and the United States are also different: Americans value their relationship with influencers more than Chinese, while Chinese tend to focus more on product quality and attractive prices. 67% of Generation Z Americans trust influencers, and 44% have purchased products from them. So in the United States, you can see people shifting from trusting brands to trusting influencers.

So companies like Meta, which is known for copying other companies' good ideas, and YouTube, will look at what's happening in China and take some elements from it, just as Chinese companies did in the 2010s, when nascent Chinese platforms took elements from the West.

Therefore, although there are cultural differences, with the integration of technology, the development paths of both e-commerce will have more similarities. Compared with the differences between the audiences, social software is more important in terms of its system operation logic, mobility, and algorithms.

Currently, Douyin e-commerce is more about offering low-priced, non-branded products, using short videos to drive quick, impulsive sales conversions. Chinese consumers take longer to make purchase decisions when buying more expensive goods, so they tend to buy on larger, more traditional e-commerce platforms. China also has a very convenient return policy, and couriers can pick up returned goods at home. However, this does not work in the United States, where shoppers must leave their products at external distribution points for recycling.

There is still huge growth potential to be tapped in the current US social commerce market. TikTok may need to encourage more branded goods to be sold through its platform to accelerate growth in the US e-commerce sector. But so far, many brands have been reluctant to join. However, looking back at history, it took China about nine years to develop social commerce to its current level. We can still expect the United States to follow a similar trajectory, and China's development experience is a hopeful signal for the future development of social commerce in the United States.

Therefore, the interaction between China and the United States based on business models and technologies will lead to a symbiotic relationship in the development of e-commerce between the two countries.

This article is an exclusive article of Guancha.com. The content of the article is purely the author's personal opinion and does not represent the platform's opinion. It cannot be reproduced without authorization, otherwise legal liability will be pursued. Follow Guancha.com WeChat guanchacn to read interesting articles every day.