After years of fierce competition in Southeast Asia, Chinese online retailers are gearing up to tap more mature markets in North America and Europe.
Alibaba Group Holding launched a new platform, Miravia, in Spain in December to target middle- and high-income earners, while its AliExpress is struggling to gain traction in the US. Rival Pinduoduo is reportedly preparing to launch its Temu e-commerce site in Canada and Spain, following its entry into the American market last September.
Even ByteDance-owned TikTok is getting in on the action: The short-video platform rolled out its TikTok Shop in the US late last year and is also reportedly looking to launch in Spain soon.
The timing of such moves might come as a surprise given the current geopolitical climate. US-China tensions, particularly over tech, are running high, and TikTok specifically has been the target of intense scrutiny from Washington over data security issues.
The presence of entrenched leaders like Amazon in the US and fashion giant Inditex in Spain is another potential hurdle for Chinese challengers. But industry insiders and analysts say there are reasons the strategy makes sense.
Alex Zhang is senior vice president at Xingyun Group, a Shenzhen-based startup that helps Chinese businesses sell directly to overseas consumers. Zhang said the slowing user growth at home is spurring Chinese online retailers to accelerate their overseas push — and they have taken note of the considerable number of Chinese sellers on Amazon.
Amazon accounts for 37.8% of total e-commerce sales in the US, with Walmart a distant second, according to a report by eMarketer in June last year. The e-commerce giant closed about 3,000 Chinese online merchant accounts in 2021 over fake reviews, and some other Chinese sellers started to leave the platform afterward. These merchants may find a new home on marketplaces like Temu or fashion brand Shein, according to Zhang.
“It’s also easier for Chinese sellers to communicate with Chinese e-commerce platforms. Chinese supply chain sellers, as well as their clients, are accelerating their overseas push these [past few] years. That’s another motivation for the expansion of the online retailers,” he added.
Chinese e-commerce merchants and some of the largest online platforms have chosen Spain as a gateway to the European market, owing to the country’s relatively friendly business policies and convenient sea transportation. The move was also motivated by AliExpress’s relative success in Spain, according to Zhang.
Unlike rivals Alibaba and JD.com, which chose Southeast Asia as their first destination for an overseas push, Pinduoduo started its expansion with the US, where it will go up against Amazon and Shein. With the slogan “Team Up, Price Down,” Temu, like Shein, competes on ultra-low prices. It used a similar tactic to gain users in China, where it also leveraged the massive user base of its investor Tencent, operator of the popular messaging and payment app WeChat.
Eric Chen, a Shanghai-based analyst who publishes on the investment platform Smartkarma, said Pinduoduo’s strategy is a “well-thought-out” move because North America’s online shopping markets are much bigger, more lucrative and more integrated in terms of language, currency and payment and infrastructure systems compared to Southeast Asia.
“Although PCs still contribute nearly 60% of online shopping traffic in the US, mobile has been gaining traction as youngsters spend ever more time on social media and short-video apps such as TikTok,” Chen said. “New entrants to the market can leverage the structural shift in traffic pattern to employ innovative marketing playbooks to build and grow their user base.”
Gaining new customers, however, will likely take both time and money.
Shein, for example, opened pop-up stores in major cities around the world last year, including London, Tokyo, Sydney, New York and Madrid, to expand its offline presence and engage with customers.
Temu, meanwhile, will have to win over users in new markets without the help of WeChat. So far it appears to be having some success — it was the top free app for both iPhone and Android users in the US as of Feb 8 — but the company has also been advertising aggressively in the country. In the fourth quarter of 2022, Pinduoduo’s sales and marketing expenses increased 40% on the year to USD 1.98 billion, mainly due to “increased spending in promotion and advertising activities.”
Chen, the analyst, pointed to other possible challenges for the company’s overseas push.
“Temu faces a more challenging regulatory environment than Pinduoduo, which is not only driven by the strained US-China relations, but also by increasing emphasis on data privacy, fraud and ESG [environmental social and governance] issues,” Chen said. “These all may make it difficult for Temu to enjoy the efficiency edge that Pinduoduo does.”