Since launching in late 2022, Temu has captured the attention of millions of shoppers worldwide with its promise to allow customers to “shop like a billionaire” at rock-bottom prices.

The Temu app was the most downloaded free app in the US in 2023, and in December 2023, it became the second-most visited commerce site in the world, trailing only Amazon. Its sales topped US$ 5 billion in 2023, just one year after launch.

However, Temu’s exponential growth has raised concerns within the business community. In this article, we delve into the company’s background, its remarkable growth, concerns surrounding its business model, and the implications of its expansion.

What is Temu?

Temu (pronounced ‘tee moo’) is a discount e-commerce platform with an app and website that launched in the UK in April 2023. The platform sells ultra-cheap products across a range of segments – from tech to kitchen gadgets to clothing – shipped directly from China. It has been compared to other discount e-commerce sites like Ali Express, Wish and Shein. Shoppers are encouraged to buy with “lightning deals”, clearance sales and free shipping; at the time of writing, some of the lightning deals on offer included a 13-piece make-up brush set for £1.07 and an insulated drinks tumbler with handle and straw (similar to the viral Stanley Cups that have been dominating Instagram and TikTok) for £5.67.

The platform keeps prices low by shipping directly from a network of small manufacturers and independent sellers, avoiding the need to spend on warehousing. The low value of most individual orders also means that it avoids UK customs duties, which only kick in on shipments valued above £135. From 15 March 2024, Temu will open its marketplace to sellers in the US, followed shortly by Europe. Like eBay or Etsy, products will ship directly from these sellers, theoretically reducing shipping times for consumers (and saving Temu money on logistics).

Temu supported its launch with a massive marketing push, including spending huge sums on ads on social media platforms – reportedly spending $1.2 billion on Meta platforms (e.g., Facebook and Instagram) alone – and taking out two TV spots during Super Bowl LVII in February 2023 (reportedly costing more than $14 million).

Who owns Temu?

Temu is operated by PPD Holdings, best known for its flagship e-commerce platform Pinduoduo. Starting out life as a group-buying platform for agricultural produce, Pinduoduo has surpassed expectations and taken a leading position in China’s e-commerce market, with a particularly strong customer base in third and fourth-tier Chinese cities. Its focus remains on cheaper products (often daily essentials rather than the discretionary products pushed by Tmall and JD.com) and repeat custom – something that appeals to bargain-savvy consumers in lower-tier cities.

As it has grown, Pinduoduo has created a vast network of manufacturers and suppliers in China, and Temu has drawn on this network to scale quickly. The success of both platforms propelled PPD Holdings to overtake Alibaba as the largest Chinese e-commerce company by market capitalisation for the first time in December 2023, with PPD valued at US$185 billion (although Alibaba is not far behind at US$184 billion).

What are the criticisms of Temu’s business model?

Temu’s rapid growth has generated much conversation in the business community.

Some have raised questions about the long-term viability of the business. A Wired investigation in May 2023 found that Temu was losing an average of $30 per order and may lose up to RMB 6.73 billion per year in total. It is also putting a lot of pressure on Chinese manufacturers, which are already feeling the pinch from China’s slower-than-expected post-Covid economic recovery, to cut costs or even supply products for free.

As with Shein, environmental groups have criticised Temu’s sustainability credentials, arguing that its business model encourages impulse purchases that lead to waste, and that parcels come in excessive, un-recyclable packaging. Organisations such as Greenpeace have noted that it is difficult to find concrete information about Temu’s climate impact or its environmental commitments on its (or PDD’s) websites.

Of course, the same criticisms have long been levelled at Western fast-fashion companies like Zara and H&M. And proponents of Shein and Temu’s models say that by gathering data on what consumers are buying and then directly feeding it back to manufacturers, they can reduce the production of unwanted items. Nevertheless, the computing power required to process this data also contributes significantly to carbon emissions.

Like other Chinese platforms, Temu is facing scrutiny about the collection and use of data, especially in the US. A report published by the US-China Economic and Security Review Commission in April 2023 accused platforms like Temu of “data risks, sourcing violations and trade loopholes”.

The future of Temu

There is no doubt that Temu’s rapid expansion makes it a successful example of a Chinese brand “going global”. Nevertheless, its focus on bargain basement pricing could be a barrier to success in the long run. The cheap products might tempt people in, but if the quality isn’t there, they won’t return. Indeed, research by Goldman Sachs suggests that Temu’s retention rate is under 30% – Amazon Prime’s, in comparison, is over 90%. Therefore, Temu may have to shift its strategy in the long term if it wants to be a permanent fixture in the Western market.

The post “Shop like a billionaire”: Inside the rapid rise of Temu appeared first on Focus - China Britain Business Council.

Who or what is Didi?

Didi, officially known as Didi Chuxing Technology co., is an online vehicle-for-hire-service. Its services include taxi-hailing, private car-hailing (including different levels of vehicles, up to premium luxury cars), bike-sharing, and van hire for freight and logistics. In China, the app — which can also be accessed via mini-programmes in the WeChat and Alipay apps — is available in Chinese and English.

Didi was founded in 2012 by Will Cheng, who remains on board as CEO. Softbank’s Vision Fund is the largest shareholder, with 21.5% ownership, followed by Uber, which retains a 12.8% stake following Didi’s acquisition of Uber’s China arm in 2016.

Is Didi popular in China?

Didi has an estimated 90% share of the ride-hailing market in China, operating in around 400 cities. According to its IPO prospectus, it has 377 million annual active users as of 2021, and 156 million average monthly active users from January to March 2021. Outside of China, Didi operates in 15 countries, including Brazil, Mexico, and Russia.

What is the background to Didi’s IPO?

Didi filed early stage IPO paperwork with the US Securities and Exchange Commission on 10 June. The filing highlighted the company’s recovery from the coronavirus pandemic, reporting a net income of RMB 196 million (£21.9 million) in Q1 2021, up from a loss of RMB 4 million (£447.7 million) the previous year.

The company completed its IPO in New York on 30 June 2021, raising $4.4 billion (£3.19 billion) at $14.14 a share (1% up from the offer price of $14), giving it a valuation of around $70 billion. By contrast, Uber’s share price dropped more than 7% on the first day of trading.

Why has Didi come under investigation?

The Cyberspace Administration of China (CAC) opened an investigation into Didi on 2 July, citing national security and cybersecurity laws to “guard against risks to national data security” and “protect the public interest.” The move was not completely out of the blue — regulators had already cautioned Didi to delay its IPO earlier in the year.

The specific security and privacy issues that led to the investigation have not been made public, although it is related to the collection and use of personal data. Didi collects data such as user location and ride duration, which is all stored on data servers in China.

While the review is ongoing, the platform is not allowed to register new users. On 4 July, Didi was ordered to remove its app from app stores and other platforms, although existing users were able to continue using the app. 

In a response on Monday, 5 July, Didi said, “The Company will strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users.”

The CAC also announced a similar investigation of two truck rental apps, Yunmanman and Huochebang, operated by Full Truck Alliance and Kanzhun Ltd.’s Boss Zhipin, the largest online recruitment platform in China. Both companies went public in the US earlier in 2021.

How much has Didi’s stock price dropped?

In the statement mentioned above, Didi said that it expects the app takedown to have “an adverse impact on its revenue in China.” When Wall Street reopened for trading after the Independence Day holiday on Tuesday, 6 July, shares were down more than 20% at $12, wiping billions off its market value.

Although existing users can continue to hail cars and taxis via the Didi app, anecdotal evidence from the days following the app takedown suggest longer wait times for people using the app, presumably as some drivers move to competitors such as Caocao Zhuanche and Yidao Yongche. Competing platforms such as Meituan Chuxing and Gaode Map (which aggregate services from different ride-hailing platforms) were offering deep discounts in the first week of July.

What happens next?

The cybersecurity review of Didi is likely to last at least 30 days. Since the review was announced, the State Council stated that it will tighten controls on illegal securities activities and strengthen the protection of sensitive data related to overseas listings. This may lead to long wait times for companies planning IPOs.

The post What’s happening to Didi in China? appeared first on Focus - China Britain Business Council.

There’s a new app in town and it is taken the nation by storm, but it’s not Angry Birds or Candy Crush that are keeping tens of millions of users glued to their little screens. Instead, people in restaurants, on subways and even in the classroom are earning points on Study the Great Nation – an app promoting the thought of Xi Jinping and the Party.

The patriotic app, which was launched earlier this year and has become the most downloaded app on the Apple Store in China claims to have over 100 million users and counting. And the users are learning about President Xi, watching videos about international delegations and answering quizzes on government policy and news – all whilst accumulating points.

The app was developed by China’s Propaganda Department and Alibaba and bolsters awareness of China’s history, geography and culture but its main purpose is to make sure citizens brush up on their politics and answer questions and watch videos. Points are gained by answering quizzes correctly or watching full episodes of online videos with titles such as ‘Xi Time’.

Schools, government departments and companies are all encouraging their staff and students to build up their points tally by playing the game frequently

The app is designed to encourage loyalty to the nation, the party and to Xi Jinping at a time when President Xi himself has said that the party could lose its grip on power if it does not master digital media. Some have said Study the Great Nation app is similar to Mao’s Little Red Book – a collection of Mao’s political thoughts that everyone was encouraged to read and carry on them at all times during the 1960s. But the difference between the Little Red Book and Study the Great Nation is that the app records people’s scores. The Propaganda Department keeps the data on users’ rankings and points, and questions are being asked as to whether it links in with the Social Credit System that ranks citizens on their spending, social and political behavioural habits.

Schools, government departments and companies are all encouraging their staff and students to build up their points tally by playing the game frequently. Some staff are being told to share screengrabs as evidence of their diligent playing and point-scoring. Workers and students with low scores are publicly shamed or told to write criticisms, and some workers have complained that if certain points targets are not hit then they are met with threats of salary deductions or bonuses being withheld. Conversely, those with exceptionally high scores have been praised in the media and hailed as local heroes.

China is aware that it needs to be on top of technology to be on top of its people and in an era of surveillance, monitoring and data collection, Study the Great Nation wraps all of that up in one handy device.

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