Pinduoduo’s Temu jumps into S-E Asia e-commerce arena

TEMU, an e-commerce platform affiliated with Chinese tech company Pinduoduo (PDD), entered South-east Asia first via the Philippines on Aug 26, then Malaysia on Sep 8. This adds another competitor that incumbents Shopee and Lazada have to square off against.

The platform has a different business model to the incumbents here, being a cross-border e-commerce play. Rather than host a marketplace for local merchants, Temu operates on a consignment basis with merchants in China.

This was something another new entrant, TikTok Shop, was reportedly attempting to do in Indonesia. But TikTok Shop appeared to backtrack in response to concerns from an Indonesia government minister. It is also likely to be curtailed by new rules to separate social media and e-commerce in Indonesia.

There are some differences in the shopping experience on Temu, mainly the longer shipping times customers will have to endure to get their product. There are differences in shoppers, with incumbent platforms attracting those that shop with a purpose, said Willy Chang, partner at consultancy Bain & Company.

“Temu generally offers highly affordable products and deep discounts and recommends users a set of products – usually focused on discovery of new items that may spark their interest,” he added.

Branded products are also generally not as available on Temu compared to regional rivals Shopee and Lazada. While TikTok has been hamstrung in Indonesia, the country remains the main battleground for e-commerce marketplaces.

Indonesian e-commerce marketplace Tokopedia, for instance, is trying to convince not just users, but merchants as well to continue to their site according to Chen Weihan, insights lead at consultancy Momentum Works.

“People are racking their brains to see how to balance retaining users and keeping merchants engaged on the platform,” said Chen.

Temu has avoided Indonesia for now, as the government looks to protect its local merchants from cross-border e-commerce. Singapore, however, could be a potential next market. The Philippines and Malaysia were chosen as entry markets due to the majority of those populations understanding English and cross-border e-commerce, according to Momentum Works.

But Singapore lacks the scale that Temu might want, even if the market has the highest purchasing power in South-east Asia. Chen shares that Temu initially considered launching in the region before deciding on the US because the average order values here were too low.

Coupled with the number of e-commerce platforms already available here, Singapore is unlikely to move the needle for Temu.

“I don’t think it is a key focus based on how Temu is expanding, they just want to get a bit from everywhere, because ultimately their prized market is still the US and all the other more affluent and bigger western markets,” said Chen.

Competition among e-commerce platforms will likely turn fierce, with discounts and free shipping possible sweeteners to keep customers. But such tactics are unlikely to do as well as before, notes Chen, as Temu has the deeper pockets of PDD to rely on.

Indeed the race to zero is unsustainable in the long-term, and e-commerce platforms should continue building up their competitive advantage through localisation efforts according to Huy Nguyen-Tuong, partner at consultancy, Boston Consulting Group (BCG).

“To defend their market share, current players should continue building their competitive advantage by offering localised assortments, and building a strong local seller base,” he said.

Platforms should also look to increase monetisation and sustain profits, and look beyond market share in gross merchandise value terms, notes Bain’s Chang. Being clear on target customer segments and retaining them through continuous engagement would also be key.

“In addition to commissions on transactions, platforms should explore how to deliver more value-added services to customers, such as buy now pay later, embedded device protection plans, and more,” he said.

While e-commerce platforms begin to battle it out for customers, the ancillary services around the e-commerce ecosystem in South-east Asia could receive a boost. Third-party logistics providers for instance, could see a boost in parcel volume and more demand for cross-border fulfilment.

Before logistics players can rejoice, Momentum Work’s Chen notes that the uplift would only happen if players like Temu and TikTok Shop decide not to build out their own logistics system. But with South-east Asia’s fragmented markets and less than ideal road networks, it’s unlikely to be cost efficient for them to build their own logistics network right now.

“Because most people who shop on Temu tend to buy a lot of products at once due to long shipping times, logistics players could see an increase in terms of parcel size and volume,” she said.

Other services like e-commerce enablers could see more opportunities as well, according to Bain’s Chang, as brands begin to explore the various e-commerce channels.

“For brand principals, the market landscape will become more complex with more channels to manage, hence value added services from e-commerce enablers that help with channel management, marketing campaign management, and fulfilment across various platforms would also have more opportunities,” he said.

But the impact of these new entrants on the e-commerce ecosystem is still dependent on factors outside their control. Mainly if consumers here are receptive to buying on these new platforms.

While e-commerce is set to heat out, things in the long-run might be more tepid than boiling.

“As a whole, the industry will feel the impact of new entrants like Temu entering the e-commerce landscape in the short-term, but this will not reach the disruptive stage given the strong presence of existing players in the market,” said BCG’s Nguyen-Tuong.