Temu's Entry Creates Ripples in SEA: Cheers and Concerns

Written by Chester

As Southeast Asia's Cross-Border E-commerce Seller Willison heard about Temu's entry, there were mixed reactions.

Last week, Temu's official website unveiled the Philippines as a new region selection. This pivotal move marks Temu's official entry into the Southeast Asia market, with its first site launch in the Philippines. Impressively, the freshly launched Temu Philippines site has promptly displayed sales exceeding 100,000 units across multiple products, accompanied by over a thousand comments.

The buzz about Temu's venture into the Southeast Asian market has been circulating since June of this year. However, what factors led Temu to make the Philippines its first destination in the region? Furthermore, how is Temu's entry expected to reshape the e-commerce landscape in Southeast Asia?

Unveiling the Hidden Gem: Philippines' Surprising E-commerce Potential

When Southeast Asia is discussed, the mind often turns to the substantial Indonesian market, the swiftly advancing Vietnam, and even the Chinese-influenced Singapore and Malaysia. Among entrepreneurs setting their sights on international expansion, the Philippines isn't typically the top pick. Yet, in actuality, many firmly recognize the untapped potential of the e-commerce market in the Philippines.

The Philippines' e-commerce market boasts the highest growth rate in all of Southeast Asia, with a compound annual growth rate of 20%. This makes it an incremental market. A significant portion of this growth comes from the emergence of new e-commerce users," said Victor Yang, founder of TikTok data analysis and seller service platform Dida Dog, who is deeply involved in the Philippines market.

Furthermore, the Southeast Asia Internet Economy Report jointly published by Temasek, Bain, and Google has mentioned the Philippines for two consecutive years. As per the 2022 report, the digital economy development across Southeast Asia is anticipated to undergo sustained and comprehensive growth, and the Philippines is one of the future leaders in this aspect: the Philippines' digital economy GMV growth rate between 2022 and 2025 is higher than that of any other Southeast Asian country except Vietnam. By 2030, the GMV scale of the digital economies of Vietnam and the Philippines is expected to enter the top three in Southeast Asia. Based on the 2021 report, the Philippines' market has demonstrated an impressive average compound growth rate of 93% in recent years, setting a remarkable pace in the region.

These figures reflect the Philippines' rapid growth, which has also been confirmed by entrepreneurs. A current store owner, Dianzhu, working in the Philippine internet industry stated, "Temu's choice to establish its first Southeast Asian site in the Philippines is a recognition of its market potential. With a population of approximately 120 million, the Philippines stands as the second most populous country in Southeast Asia, trailing only behind Indonesia. The population structure is favorable, with a high proportion of young people. Based on my observations, I've noticed that young Filipinos exhibit a stronger inclination towards consumption compared to individuals with similar income levels in China." Victor added, "The median age in the Philippines is 25 years old. Among these young people, smartphone and internet penetration rates exceed 90%, providing a solid foundation for e-commerce users."

Dianzhu also highlighted the positive impact of the 'build build build' policy during Duterte's tenure, which led to tangible improvements in infrastructure, including roads, within the Philippines. This enhancement has contributed to the growth of complementary e-commerce sectors like express logistics. Additionally, he suggests that Temu's decision to establish its first Southeast Asian site in the Philippines is influenced by language considerations. English is widely spoken in the Philippines, and Temu's prior entry into markets like the United States has already provided them with familiarity with English-language markets. Opting for the Philippines enables a seamless transition without the immediate need for language localization, as would be the case in countries like Indonesia or other parts of Southeast Asia.

The Philippines, profoundly impacted by American culture, stands out as one of the Asian nations with exceptional English proficiency. It is even recognized for its strong business English capabilities. In the Philippines, the rural population is predominantly non-English speaking, while a significant portion of e-commerce enthusiasts and digital economy participants are young individuals embracing Westernized lifestyles. For Temu, which has already entered European and American markets, these Westernized consumer habits are more familiar. Additionally, the localization costs for Temu's social media marketing, website, and app will be lower.

Furthermore, many entrepreneurs venturing into Southeast Asia have been mentioning the growth potential of the Philippine e-commerce market for the past two years and are very optimistic about it:

• "If we look at the cross-border model, we highly recommend the Philippines, where the site is performing exceptionally well."
• "The Philippines is the market with the fastest recent growth; its recent performance has been outstanding. For example, some sellers can invest one dollar and get an order worth eleven dollars, a very favorable ratio."
• "One characteristic of Filipinos is that their thinking is more Westernized, and they prefer proactive consumption. This is a distinct consumption habit that is very positive for the development of e-commerce."
• "The Philippines' purchasing power is actually between that of Indonesia and Thailand, and there are many cross-border sellers in the Philippines who can aggregate orders. The development speed of our Philippine overseas warehouse is five to six times that of our Thailand overseas warehouse."

Temu's Familiar Pinduoduo Approach: Stirring Up a Fresh Round of Price Wars?

As a cross-border e-commerce platform under Pinduoduo, Temu's debut in the Philippines market retains Pinduoduo's signature style. On its homepage, the "Recommended" and "Best Seller" sections feature a list of products that closely mirror Pinduoduo's signature style, ranging from home essentials to small appliances, electronics, clothing, and more. Even the product images bear a striking resemblance.

Moreover, Temu is offering discounts of up to 90%, various markdowns, and free refund benefits, with most products priced between 50 to 1500 Philippine pesos (approximately $0.80 to $26). Additionally, Temu has introduced a promotion where customers can receive cashback for price drops within 30 days of purchase.

Interestingly, Swift Rabbit Express, once known as the "Pinduoduo of the express delivery industry" in China, has become Temu's logistics partner in the Philippines. According to Temu's official page, delivery durations range from 5 to 10 days, and in case deliveries extend beyond the 10-day mark, customers can receive 250 pesos ($4.41) in points within 48 hours. Furthermore, Temu has introduced time-limited free shipping and a no-cost refund within 90 days.

Facing such a pricing strategy, Dianzhu in the Philippines expressed little surprise. "Temu's price wars are a consistent strategy, spanning from beyond Beijing's Fifth Ring Road to the U.S. market. The 'billion-yuan subsidy' tactic has proven effective. Given the relatively modest income in the Southeast Asian market, I believe Temu will continue with its low-price strategy to capture more market share."

According to TiChoo statistics, the average order value for TikTok Indonesia stores is $2-4, while stores in Thailand, Malaysia, and Vietnam average $4-6, and Philippines stores range from $1-2. Temu's arrival could potentially intensify the pricing battles between e-commerce platforms.

In the eyes of Southeast Asian cross-border e-commerce seller Willison, Temu's entry into the region is a positive development for established brands or suppliers known for their history of offering low pricing. However, this new wave could lead to many trading-focused sellers being edged out. "Only those who have control over their entire supply chain, from design and production to sales, will be able to extract some profit. Fortunately, our company has transitioned into managing our supply chain this year; otherwise, we would truly be forced out or struggling to survive."

Willison worries that Temu's entrance might not only lead to a reshuffle among sellers but also among operational roles. "Many roles related to operations will likely be affected. With full-service operations like Temu, one person can manage multiple stores or product listings. All marketing and flow of traffic are handled by the platform, leaving little for operational tasks."

Fueling Southeast Asia's E-commerce Landscape: Embrace or Anxiety?

In contrast, Victor, the founder of TikTok data analytics and seller service platform Dida Dog, holds a different perspective on Temu's entry. "I believe there's a high likelihood that it won't spark a new round of price wars. Due to Shopee's flow distribution mechanism favoring low-priced products (Shopee has once dubbed the 'Southeast Asian version of Pinduoduo'), the supply chain in the Philippines is already quite compressed, with very low profit margins. Unless there are sustained high subsidies, it's hard for consumers to perceive significant differences in such price gaps."

Should Temu find itself reliant on sustained and substantial subsidies to maintain its market share, Victor believes the platform will struggle to profit from it and might even intensify internal competition, further squeezing the interests of existing practitioners. Furthermore, even if Temu offers massive subsidies, Victor believes it still won't disrupt the current competitive landscape, stating, "After all, platforms like TikTok and Shopee have also been offering subsidies."

Currently, Shopee, Lazada, and TikTok continue to dominate the Southeast Asian e-commerce ecosystem. Shopee achieved its first-ever quarterly profit in Q4 2022. Its parent company, Sea Group, has also announced plans to increase investment in its e-commerce division, Shopee. Meanwhile, Lazada secured over $1.1 billion in investment from Alibaba this year alone. Simultaneously, Shopee, represented by Lazada and Shopee, has launched a full-service model this year, providing sellers with various benefits, including commission-free sales and product subsidies.

On the other hand, TikTok has also been making significant strides. In June of this year, TikTok announced plans to invest billions of dollars in Southeast Asia over the next few years. Part of this investment, $12.2 million, will be directed towards small and medium-sized businesses (including micro-businesses) in rural and suburban areas over the next three years. This initiative aims to provide cash subsidies, digital skills training, and advertising credit to 120,000 small and medium-sized businesses, aiding them in their digital transformation.

Moreover, even Shein is engaging in subsidy activities in Southeast Asia. According to Measurable AI data, Shein's average order value in the Philippines is approximately $11, with an average subsidy of around $1.2 per order for Filipino users.

Meanwhile, Dianzhu working in the Philippines believes that Temu's arrival will enrich the Southeast Asian e-commerce ecosystem while intensifying competition. However, they view the former as being of greater importance than the latter. "The current e-commerce market in Southeast Asia, especially in the Philippines, is far from saturated. The penetration of mobile internet, from major cities like Manila to smaller ones like Angeles, down to provinces, municipalities, barangays, and even rural areas, is an ongoing process. Southeast Asian consumers need choices beyond Shopee, Lazada, and TikTok Shop. Temu, therefore, steps in to meet the market's demand for further expansion and reach in Southeast Asia."

(Dianzhu and Willison are nicknames of the interviewees)