The overseas expansion journey of Chinese e-commerce giants is in full swing. HSBC believes that by 2025, the overseas GMV of Chinese e-commerce platforms will reach $500 billion, a significant increase from $350 billion in 2023 and $155 billion in 2019.
Under PDD, Temu, although relatively late to go global, is expected by HSBC to achieve the fastest growth rate compared to Alibaba, Shein, and Tiktok, with an expected GMV of $140 billion by 2027, thanks to its full-line low-price strategy from clothing to children's toys and aggressive marketing tactics.
According to HSBC's estimation, in developed markets in the United States, Europe, and Asia, Temu is expected to gain a market share of 3-6%. In 2023, Temu contributed 23% of PDD's total revenue, a figure expected to rise to 43% in 2024 and surpass 50% in 2025.
<h2>Temu has already gained a 1% market share in the United States in just one year</h2>
HSBC points out that Temu has strong bargaining power throughout the supply chain, enabling it to differentiate from competitors with ultra-low prices (e.g., clothing, toys usually priced below $10). Temu's proactive and efficient marketing activities, along with its solid execution capabilities, are the driving forces behind its robust growth.
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Despite starting operations in September 2022, Temu has maintained exponential growth. In just one year, it has expanded from the United States to 49 countries, becoming the most downloaded shopping app globally.
We expect it to achieve a global GMV of $16.5 billion in 2023. Our estimates indicate that after just one year of operation, it has gained a 1% market share in the United States.
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Specifically, HSBC believes that Temu's success is attributed to the following four characteristics:
1) Innovative business model - The full-service model allows it to reach a large number of small and medium-sized merchants seeking overseas expansion;
2) Affordable products based on its strong supply chain in China;
3) Proactive marketing activities;
4) Strong management execution.
<h2>From full-service to semi-service, Temu's magic weapon for expanding territory</h2>
Temu currently operates in 49 countries under a full-service model. In this model, the platform sells products for suppliers, but inventory is managed by the suppliers.
<h2>As a result, merchants do not need to handle the complex marketing, fulfillment, and customer service work in foreign markets, as they can entrust everything to Temu, attracting many small and medium-sized businesses to join Temu.</h2>
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Fully managed services have significantly enriched Temu's products in a short period of time, ensuring consumers have a consistent shopping experience, such as receiving different orders in a single combined shipment, professional customer service, and product introductions. HSBC believes that it is the fully managed service model that has facilitated Temu's rapid expansion globally.
In addition to the fully managed service model, Temu is also targeting mature suppliers with larger scale and overseas warehousing capabilities.
According to media reports, Temu plans to launch a semi-managed service model in the United States in March 2024, followed by expansion into the European Union. In the semi-managed service model, merchants are responsible for fulfillment processes.
HSBC points out that merchants with local warehouses can deliver products to consumers more quickly, improving the consumer experience on the Temu platform. Generally, merchants with warehousing capabilities usually sell large items such as home appliances and furniture. After the promotion of the semi-managed service model, it can also increase Temu's Average Order Value (AOV) and accelerate its market share growth.
<h2>A Winning Strategy Similar to PDD</h2>
In overseas markets, Temu sells products similar to PDD, including various inexpensive &#34;white-label&#34; household items, electronics, clothing, and shoes, with most products priced at less than $10.
HSBC analysts point out that products on Temu are usually 60-80% cheaper than those on Amazon. From PDD to Temu, the low-price mentality is the consistent winning strategy for this company.
Moreover, Temu also relies on free delivery services to attract users. Simultaneously, active marketing on social media platforms (such as Facebook and Google) and major events (such as the Super Bowl) have contributed to Temu's rapid growth. Data from 2023 shows that Temu is the most downloaded shopping app globally, with a large user base.
How can consumers have a better shopping experience while keeping product prices low?
By leveraging the strong merchant network of its parent company PDD and robust management with numerous logistics partners domestically and internationally, Temu can not only secure the lowest prices but also possess comprehensive cross-border transportation and warehousing capabilities. The company also implements strict policies in supplier management similar to those in China to ensure a positive consumer experience.
For example, in the early days of its establishment, it took 2-3 weeks for Temu to deliver goods from China to American consumers, but after a year of operation, the delivery time was reduced to about one week. In terms of return policies, Temu is also generous and lenient: supporting a 90-day return period, while Amazon only offers 30 days.
In addition to having a large number of merchants, Temu's merchant management policies are particularly strict, as analysts wrote:
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Through the platform's bidding system, merchants are forced to continuously lower prices in exchange for traffic exposure. Furthermore, if there are delays in shipping or customer complaints, merchants will be fined.
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If merchants are unable to fulfill orders due to insufficient product inventory, they will also face penalties. The fines can amount to tens of thousands of RMB, up to five times the sales amount.
In 2025, Pinduoduo's overseas revenue is expected to exceed half.
How big can Temu grow?
HSBC analysts predict that its strong growth will continue until 2024, with Temu's GMV expected to double this year to around $48 billion. Under basic assumptions, Temu's GMV is projected to reach $140 billion by 2027.
Moreover, given Temu's high receipt rate (estimated by HSBC at 48%), Temu's contribution to Pinduoduo's total revenue may increase from 23% in 2023 to 43% in 2024, becoming a major driver of Pinduoduo's revenue growth.
Additionally, HSBC also believes that with the increase in platform AOV, Temu will attract more user downloads and more merchants to join, helping to reduce Temu's loss. The bank expects Temu to achieve profitability in 2025.

HSBC predicts that Temu is expected to gain a market share of 3-6% in developed markets in the United States, Europe, and Asia. By 2025, Temu may achieve profitability, with its contribution to PDD's revenue expected to exceed 50% by then.

HSBC: Pinduoduo may achieve profitability by 2025, with overseas revenue accounting for over half. | The Four Little Dragons Going Global series.