The rise of online shopping has become an indispensable part of modern life. Over the past decade, the domestic e-commerce market in China has experienced rapid development. However, as penetration rates increase, the previous high-speed growth momentum has waned, and the domestic e-commerce market has transitioned from growth to maturity.
As the e-commerce game enters the second half, domestic e-commerce giants are setting their sights on broader overseas markets. The &#34;Four Little Dragons of E-commerce Going Global,&#34; including PDD and BABA-SWR, are venturing abroad to seek new markets and faster growth.
Temu, with its &#34;ultimate low-price&#34; strategy, made a splash last year, becoming the most downloaded app in over 20 countries including the United States, the United Kingdom, and Germany. The overseas market has become a growth engine for BABA-SWR, with its subsidiary Lazada recently named the second-largest e-commerce platform in ASEAN. Fast-fashion retailer Shein has rapidly risen, boasting over 200 million shoppers globally. TikTok has 1.1 billion users worldwide, showing enormous potential for social e-commerce development.
The momentum of e-commerce expanding overseas is just beginning. In a report last month, HSBC pointed out that the $2.6 trillion overseas market provides ample opportunities for China's cross-border e-commerce. China's share of the global e-commerce market is expected to further increase, with the total transaction volume (GMV) of China's e-commerce overseas market projected to reach $500 billion by 2025. The best growth opportunities lie in markets such as the United States, Western Europe, South Korea, ASEAN, and Latin America.
HSBC stated that the &#34;Four Little Dragons&#34; each have unique characteristics and development models, striving to find growth space in the global market. Temu, with its low-price strategy, strong supply chain, and improved logistics structure, is expected to increase its GMV to $140 billion by 2027, the highest among the &#34;Four Little Dragons.&#34; By 2027, BABA-SWR's overseas e-commerce GMV could reach $118 billion, Shein's GMV may grow to $100 billion, and TikTok's GMV is projected to reach $111 billion.
<h2>Strong Momentum in E-commerce Going Global, Competing for a Billion-Dollar Market</h2>
In recent years, domestic e-commerce giants have accelerated their expansion overseas, with total transactions and market share rapidly increasing. According to HSBC's calculations:
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In 2019, China's e-commerce overseas GMV was only $155 billion. By 2023, the GMV had increased by nearly $350 billion, and it is estimated that by 2025, China's cross-border B2C e-commerce GMV will reach $500 billion.
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In 2022, the total transaction volume of domestic cross-border e-commerce accounted for about 12% of overseas e-commerce transactions. The market share is expected to rise to 12.5% in 2023 and further increase to 13.7% and 14.7% in 2024 and 2025, respectively.
When it comes to the strong momentum of domestic e-commerce competition, HSBC points out three reasons:
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Major domestic e-commerce giants such as PDD and BABA-SWR are increasing their investments in overseas markets to accelerate acquiring more users and improving logistics infrastructure;
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With the continuous rise in inflation pressure, China's &#34;high cost-performance ratio&#34; products are becoming increasingly popular in overseas markets;
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Innovative business models, such as full-service management, can enable small Chinese merchants to participate better, provide a better user experience, and enhance the attractiveness of cross-border e-commerce.
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Where will domestic e-commerce go when going global, or which markets have the greatest development potential?
HSBC points out that the global e-commerce retail total in 2022 is $21 trillion, with 77% or $16 trillion coming from regions outside China. In terms of market size and e-commerce penetration rate, the United States and Western Europe are the two largest markets, with South Korea ranking third. Although its size is relatively small and penetration rate is high, China's e-commerce is expected to further expand market share, with the ASEAN region and Latin America ranking fourth and fifth respectively.
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The United States is the world's largest retail market, with a scale of $4.8 trillion, accounting for 23% of the global market share. In 2022, the annual e-commerce sales in the United States reached $1 trillion, with a relatively low penetration rate of only 22%; eMarketer predicts that e-commerce sales in the United States will grow at a compound annual growth rate of 10% from 2022 to 2025, reaching $1.4 trillion in 2025.
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Western Europe ranks second in size, accounting for 18% of the global market share. The annual sales in 2022 were $583 billion, with a lower penetration rate of about 16%, indicating significant opportunities for retail digitalization; Euromonitor International predicts that e-commerce retail sales in Western Europe will increase from $583 billion in 2022 to $703 billion in 2025, with a compound annual growth rate of 6%.
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It is worth mentioning that besides the huge growth potential, the competition level in these two markets is relatively low, with the top five e-commerce companies in the United States holding 54% of the overall market share, and the top five e-commerce companies in Western Europe holding 40% of the country's overall market share.
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As a single market, South Korea also has a relatively large market size, with a high online penetration rate of about 27%. China's cross-border e-commerce can achieve further growth by gaining more market share.
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ASEAN and Latin America are smaller markets compared to South Korea, but these two markets have the highest growth potential in the next three years. The Middle East and Africa seem promising, but their size is much smaller compared to other markets.
In this regard, the lower penetration rate is the main driving force for the growth of overseas e-commerce. HSBC pointed out that the online shopping penetration rate in overseas markets is increasing. It is expected that the global e-commerce penetration rate will increase from 21% in 2022 to 23% in 2025. However, this is still far below China's penetration rate of 37% in 2022. It is expected that by 2025, the e-commerce penetration rates in South Korea, the United States, and ASEAN and other three major markets will reach 32%, 26%, and 22% respectively.
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<h2>&#34;Four Little Dragons&#34; Stirring up the E-commerce Landscape - What are their respective advantages and challenges?</h2>
In recent years, Chinese e-commerce giants have accelerated their &#34;going global&#34; strategy, with the emergence of the &#34;Four Little Dragons&#34; - Temu, TikTok Shop, SHEIN, and AliExpress, quietly reshaping the original landscape of the global e-commerce market.
Temu is the overseas version of Pinduoduo, leading in growth with a full-line low-price strategy from clothing to children's toys and active marketing methods; Alibaba-SWR's international business is gradually maturing, holding important positions in the EU, ASEAN, South Korea, and Latin American markets. Fast-fashion retailer Shein is also growing rapidly, expanding from women's fashion to other product categories, and the short video platform TikTok is monetizing its massive traffic from e-commerce live streaming.
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<li>Temu</li>
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As a newcomer to the market, Temu has rapidly developed through ultra-low prices, clever customer service, and aggressive marketing. Competitive pricing, a versatile supply chain, and improvements in logistics structure are key drivers of Temu's growth. HSBC estimates that by 2027, Temu's GMV will grow to $140 billion, surpassing Alibaba-SWR, Shein, and TikTok, achieving the highest GMV growth rate in China's cross-border e-commerce.
According to HSBC's estimates, Temu is expected to gain a market share of 3-6% in developed markets in the United States, Europe, and Asia. In 2023, Temu contributed 23% of Pinduoduo's total revenue, a figure that is expected to rise to 43% in 2024 and exceed 50% in 2025. However, the geopolitical risks faced by Temu are its biggest growth challenge.
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<li>Alibaba-SWR</li>
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Alibaba-SWR's overseas e-commerce business has gradually matured. HSBC predicts that by 2027, with its large user base in the EU (including the key market of Turkey), ASEAN, South Korea, and Latin America, Alibaba-SWR's overseas e-commerce GMV could reach $118 billion.
<h2>Alibaba-SWR International can flexibly utilize local e-commerce merchants in regions such as ASEAN and Thailand, strategically avoiding the U.S. market to better cope with geopolitical risks. In addition to the synergies with its B2B business, the stable logistics services provided by the Cainiao department are another major advantage for Alibaba-SWR International. However, potential changes in management and the uncertainty brought by a relatively less aggressive expansion approach are among the main challenges facing its growth story.</h2>
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<li>Shein</li>
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Shein was originally an online fashion retailer with a highly responsive supply chain that efficiently designs, produces, and rapidly distributes fashionable and affordable clothing. According to HSBC's analysis, category expansion and mergers may help its GMV grow to $100 billion by 2027. However, the main risks Shein faces are the lack of experience in third-party businesses and non-apparel categories, as well as geopolitical risks.
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TikTok plans to replicate Douyin's expansion path in overseas markets. Its key advantages are massive user traffic, high return on investment, and a new shopping experience brought by live streaming. However, to expand overseas, TikTok faces challenges such as cultural differences and different consumer behavior patterns, which may affect the acceptance of social e-commerce by overseas consumers. HSBC predicts that TikTok's GMV will reach $111 billion in 2027, with the United States and ASEAN being the main growth markets.
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Here are specific analysis articles on Temu, BABA-SWR International, Shein, and TikTok from the &#34;Overseas Four Dragons Series&#34; by Jiemian:
Temu: &#34;HSBC: Temu may be profitable by 2025, by then PDD's overseas revenue will account for more than half | Overseas Four Dragons Series&#34;
Shein: &#34;HSBC: Shein's GMV will exceed a trillion by 2027, with the supply chain as its core competitiveness | Overseas Four Dragons Series&#34;
BABA-SWR: &#34;Cainiao is powerful, HSBC expects BABA-SWR's overseas e-commerce GMV to exceed $110 billion by 2027, doubling in five years | Overseas Four Dragons Series&#34;
TikTok: &#34;High profits and high sales? TikTok replicates Douyin's path in the United States | Overseas Four Dragons Series&#34;
<h2>Whose cake is being moved by the e-commerce going global? Who will benefit from it?</h2>
As Chinese e-commerce expands overseas, local markets will inevitably face more competition, impacting Amazon and local discount retailers. On the other hand, as competition intensifies, e-commerce companies increase spending on advertising, benefiting social media platforms like Meta.
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From a competitive perspective, according to the analysis by HSBC, Amazon can defend its market share in the United States with its own advantages. Due to the overlap of users and product supply, discount-oriented or value-focused retailers may be the first to face challenges. Local e-commerce companies in South Korea have key defensive lines in competition, while social e-commerce platform TikTok is bringing significant impact to most e-commerce players.
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Amazon will defend its market share in the United States by competing with its rivals through brand products, excellent logistics services, and membership programs. Amazon has three advantages: 1) Differentiated product supply, especially branded goods; 2) Providing excellent customer service in logistics and return policies; 3) Defense mechanisms, such as recent reductions in clothing commission rates to maintain competitiveness. The possibility of tariffs and taxes on cross-border small parcels is also favorable for Amazon.
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Discount-oriented or value-focused retailers may first feel the pressure from Chinese competitors targeting the same consumers and offering similar products. For example, due to Temu's expansion, the market share of the &#34;Dollar Store&#34; in the United States has declined. However, the impact of competition is expected to vary by country/region.
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In South Korea, infrastructure differences and the member ecosystem are key defensive lines for local companies. The impact is expected to vary by product category, and local companies' core businesses may be more resilient as customers have high expectations for fast delivery.
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Social e-commerce may pose the biggest threat, especially in ASEAN. TikTok's strong traffic and large user base, along with its user-interest-driven live e-commerce model, enable it to quickly gain market share in ASEAN. Amazon seems to be insufficient in responding to competition from social e-commerce. Regulatory risks may be the biggest hindrance to growth, as measures to protect local manufacturing and small businesses accelerate industry consolidation, such as the merger of TikTok's e-commerce business in Indonesia and local e-commerce company Tokopedia.
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The intensification of competition in the e-commerce sector may lead to an increase in marketing expenses, with platforms like Meta being the biggest beneficiaries. HSBC pointed out:
Taking Temu as an example, we expect its sales and marketing expenses to reach $6 billion in 2023 and $13 billion in 2024, accounting for 1.5% and 3.0% of Meta and Google's total advertising revenue in 2023 and 2024, respectively.
Looking at the net additional value, its contribution becomes more significant: Temu's average annual additional marketing expenses account for 17% and 16% of Meta and Google's total net additional advertising revenue.
We believe that local e-commerce companies may also increase marketing expenses to defend their market share, further driving the growth of advertising revenue for media platforms.
In addition, Meta has repeatedly mentioned that advertising revenue from China has been strong. In 2023, revenue from Chinese advertisers accounted for 10% of Meta's total revenue, contributing 5 percentage points to Meta's overall revenue growth.
<h2>Risks and Challenges Go Hand in Hand</h2>
Returns often come with risks. As the &#34;Four Little Dragons&#34; experience rapid growth, they also face increasing risks. HSBC pointed out that geopolitical and regulatory risks are the main obstacles that could hinder the growth of China's cross-border e-commerce.
However, it is worth noting that the &#34;Four Little Dragons&#34; are also aware of the corresponding risks. For example, Temu has expanded to 49 countries in the past year to achieve revenue diversification and reduce dependence on the U.S. market. In addition, the international expansion of the &#34;Four Little Dragons&#34; also faces other risks, such as lack of logistics infrastructure, differences in shopping habits, and fluctuations in foreign exchange rates.

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HSBC predicts that by 2027, TemuGMV will increase to $140 billion, the highest among the "Four Little Dragons"; BABA-SWR's overseas e-commerce GMV could reach $118 billion, Shein's GMV may increase to $100 billion, and ByteDance's GMV will reach $111 billion.

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HSBC: Next year, China's four major e-commerce giants are eyeing a $500 billion overseas market | Going global series