On 21 November 2024, the Belgian-Chinese Chamber of Commerce (BCECC) organized a panel discussion with Ed Sander and Vincent Nys. Ed is a Dutch expert in China digital tech and new retail concepts, Vincent is an AI and innovation consultant from Belgium. The panel discussion was moderator by Bart Horsten, one of the board members of the BCECC.
In the past years, China’s cross-border e-commerce platforms such as Temu, Shein and AliExpress have rapidly gained global market share, disrupting traditional retail markets in Western countries. As with many China-related topics, mainstream media and the general public opinion are often rather one-sided. Some of the raised concerns are legitimate, but there are also a lot of misconceptions about Temu and similar cross-border platforms. During the panel discussion we addressed questions such as: “Are all claims and complaints about Temu’s business model correct?”, “Is Temu serious about dealing with the complaints from consumers and regulators?”, “What is Temu doing to solve these issues?” and “Should we, as European consumers, be worried about security issues and personal data?”
Temu’s disruptive strategy and business model
First, we will examine Temu’s market entry strategy. It is an excellent illustration of the way many Chinese companies initially entered their domestic Chinese market. Although the product, technology or service may not be fully market-ready yet, these Chinese companies prioritize speedy market share acquisition and penetrate the market very aggressively, while simultaneously refining their business model to align with local market dynamics and ensuring compliance with regulatory frameworks. This is exactly what they have done in Europe too: after launching the app in the USA in September 2022, Temu entered the European market about 1 year later. They disrupted the traditional online and offline retail market by offering a wide variety of products at ultra-competitive prices, directly delivered from the Chinese manufacturer to the European consumer.
Temu’s pricing strategy is supported by advanced data analytics, which helps manufacturers predict demand more accurately and minimize waste. This results in cost savings that are passed on to consumers, a cornerstone of Temu’s business model. Additionally, Temu heavily invests in social media campaigns and pay-per-click advertising, driving visibility and user acquisition at an unprecedented rate. In terms of logistics, Temu optimizes costs through a unique cross-border supply chain. By making use of tax exemptions for low-value imports and consolidating shipments, Temu can maintain low margins. Recent efforts to establish local warehouses in Europe and partnerships with third-party logistics providers aim to address concerns about long delivery times and improve customer satisfaction.
Criticism from European regulators and consumer organisations
European regulators and retailers have raised concerns about unfair competition and quality issues. The European Commission recently launched an investigation, focusing on alleged violations such as the sale of illegal or non-compliant products and insufficient transparency about sellers. Concerns have also been raised about Temu’s use of addictive design elements, such as gamified promotions, which may exploit consumers’ psychological tendencies.
Additionally, European consumers expressed concerns about product quality and personal data security. According to Vincent Nys, Temu has already addressed data security issues in the past 12 months, and adapted their algorithms accordingly. He added that there is no reason for consumers to be concerned about their personal data being misused, although he warns consumers to be vigilant about Temu’s aggressive marketing strategies.
Outlook for the future
Both Ed and Vincent explained that Temu’s speed of adaptation is an illustration of the agility of Chinese companies. Starting with a fully-managed model (logistics done by Temu), at a later stage they launched the semi-managed model (logistics done by the merchant by storing goods in European warehouses). On top of that, Temu is soon launching a third model, called the ‘platform model’. In this new model, instead of getting a margin by setting the consumer price, Temu will earn a commission (like Amazon). Or in other words, as stated by Ed Sander, while Amazon is becoming more like Temu (Amazon Haul), Temu will become more like Amazon.
This development will surely improve the level-playing field and be beneficial for European consumers. Temu’s fast growth features a shift in consumer behavior, with price-conscious shoppers looking for platforms that prioritize affordability and convenience. While Temu’s long-term success depends on overcoming challenges related to quality and trust, Temu has already made a lasting impact on the e-commerce industry. Its innovative approach and disruptive strategies signify a new era of competition and choice for consumers worldwide.
The impact for Belgian retailers and webshops
How should we deal with these new developments from the perspective of Belgian retailers and webshops? First, it is important to keep an open mind, try to understand what Temu represents and follow the developments closely, without focusing too much on stereotype accusations which are often taken out of context. Secondly, these Chinese platforms may also offer opportunities for non-Chinese merchants, such as Belgian brands. With the new platform model to be launched soon, in the near future also Belgian companies will be able to sell their products on Temu.
Please contact the Belgian-Chinese Chamber of Commerce (BCECC) in case you need more information.