Text: Different view of finance and economics dazzling the snow at night
In 2022, the import and export scale of cross-border e-commerce in mainland China will exceed 2 trillion yuan for the first time. Customs data shows that in the first half of 2023, the import and export volume of cross-border e-commerce in mainland China will reach 1.1 trillion yuan, of which 821 billion yuan will be exported, an increase of 19.9%. Cross-border e-commerce is in full swing and has become a bright spot in China's economic situation in 2023.
It is foreseeable that in 2024, more companies will launch their forces to seek a huge potential market. At the same time, the new generation of overseas enterprises, their embrace of the global market, and the reshaping of China's supply chain are also opportunities for China's economy to break through the current complex international environment.
Among them, Pinduoduo's Temu, ByteDance's TikTok shop, Ali International Digital Commerce (AliExpress), SHEIN and other representative enterprises known as the "Four Tigers of E-commerce Going to Sea", their experience and lessons provide reference value for more enterprises with overseas needs.
01 Extremely low price - a weapon that cannibalizes Amazon's share
According to media reports, Temu expects a GMV of $14 billion in 2023 and a GMV target of $30 billion in 2024. SHEIN's 2025 revenue target is $58.5 billion. Alibaba Group's financial report for the second quarter of fiscal year 2024 showed that Alibaba International's digital commerce revenue was 24.511 billion yuan, a year-on-year increase of 53%, making it the strongest growing business segment.
(Screenshot of Alibaba's Q2 financial report for fiscal year 2024)
In contrast, Amazon is still the giant of global e-commerce platforms, with $161.3 billion in online store sales in the first three quarters of 2023. However, its market share is being eaten away by high-growth Chinese platforms. According to the GWS survey, Amazon's daily mobile users in the UK dropped from 9.3 million in January to 8.3 million in June, a loss of more than 1 million, while the number of users in the US dropped by nearly 8 million from 54 million daily active users in April to 46 million daily active users in July. Data.ai data shows that in terms of the overall number of global users in October, Amazon increased by only 4% year-on-year, while Temu and SHEIN combined soared to 2.6 times.
The most effective weapon of China's e-commerce is "low price".
In the recent Black Friday promotion, Temu advertised "price reduction up to 90%", the number of regular SHEIN promotions has more than doubled, and the price is also constantly updated for Temu. TikTok Shop launched its U.S. site in September this year, with discounts of up to 50% and 20-50% discounts for participating merchants.
(Screenshot of Temu's official website)
Temu's ultra-low price strategy even forced Amazon's price comparison system to remove it. Because most Temu items cost less than $10. If Amazon directly compares prices with Temu, it will make it unprofitable for merchants. Temu's ultra-low price appeals to a group that Amazon doesn't fully satisfy — low-income people. According to third-party data, nearly half of Amazon's customers belong to the middle- and high-income group.
02 The essence of low prices - the comparative advantage of China's supply chain
Whether it is Amazon's low-price strategy that has adhered to for many years, or the extremely low price that the new generation of e-commerce platforms that go overseas is better, it is essentially taking advantage of China's world-leading supply chain advantages - the lowest cost, the most complete categories, and giving full play to the geographical comparative advantages. For example, Amazon, in 2022, Chinese suppliers' products accounted for 70%-80% of Amazon's products, contributing 26% of GMV.
China's supply chain has formed a competitive advantage in industrial clusters. Take the Pearl River Delta as an example, at present, the Pearl River Delta has formed five sub-industry groups of communication electronics, electrical machinery, metal manufacturing, textiles and garments and instrument cultural office.
In addition, the Pearl River Delta's well-established upstream and downstream ecosystem and a large number of high-quality practitioners can provide shorter prototype development time and lower development costs, while the huge industrial chain and manufacturing industry practitioners can form large-scale production. In addition, the Greater Bay Area also has efficient cross-border logistics center nodes, such as Nansha Port, an international port with huge throughput, and Guangzhou Baiyun International Airport, which constitute the advantages of a strong manufacturing ecosystem in the Pearl River Delta and the Greater Bay Area.
SHEIN's success is rooted in the mature garment industry supply chain in Panyu, Guangzhou. Panyu, located in the Guangdong-Hong Kong-Macao Greater Bay Area, has always retained the traditional small-scale garment production model, and SHEIN has achieved "small orders and quick reactions" through digital transformation and management of these small factories. Small order quick reversal is to try to produce a variety of styles in small batches, and quickly replenish the order of best-selling products according to the real data of market feedback, so as to effectively avoid inventory problems.
Small single fast reaction is not unique to China, the fast fashion brand Zara used this trick to hit the world. The platform uses the data chain to connect users and factories, instantly obtain status updates of new orders based on customer behavior, and send real-time inventory, production capacity and other data back, and even automatically place orders, and recommend products to more users with similar portraits at the front end.
According to Temu sellers, if the style can become popular, the factory can catch up with a batch of large goods in three to five days; At the earnings conference, Pinduoduo executives interpreted Temu's competitive logic, "We are trying to create a platform model that is different from Amazon's new generation of flexible supply chain system, where consumers from countries with different cultural backgrounds can buy goods directly from high-quality factories through our services. ”
It is by virtue of China's strong and complete supply chain that cross-border e-commerce platforms can achieve flexible production and high-frequency innovation, meet the interest and consumption of young people from different countries and cultures, and the preference needs close to regional characteristics. Looking at the world, there is no other country or region that can match the advantages of China's supply chain. Taking Vietnam as an example, although it has advantages in a single variable of labor costs, it is not comparable to China in terms of the integrity and richness of the supply chain.
Just like the small commodities in the coastal areas in the 90s, the new generation of e-commerce platforms also rely on the advantages of China's supply chain. However, the times are different, the advantages of the supply chain have also changed, and digitalization and intelligence have made China's supply chain more responsive and flexible, providing a solid foundation for small orders to return quickly and flexibly production. Among them, e-commerce platforms have become the makers of industry rules by virtue of the transaction volume gathered by hundreds of millions of users.
03 Give full play to the advantages of the supply chain - full custody
The core reason for such a huge scale to release the cost-effective advantages of China's supply chain is that China's cross-border e-commerce platform has greatly reduced the threshold for Chinese factories to go overseas through the full custody model.
The fully managed model allows the seller to be only responsible for stocking, shipping and replenishment, and other product selection, fulfillment, pre-sales and after-sales links are completed by the platform. Not all businesses have the ability to operate brands, many are "white label" merchants, relying on more than 30 years of export-oriented economy, China has a large number of small and medium-sized businesses with production capacity but lack of sales channels and factory businesses. Full hosting caters exactly to their needs. For the platform, the advantage of the full custody model is to remove the intermediate links such as agent operations and traders in the cross-border e-commerce chain, improve transaction efficiency, reduce product costs, and control all aspects of the platform to grasp the "pricing power" of goods.
Temu has been implementing the full custody model since it was launched in September 2022;SHEIN, which focuses on self-management, also opened third-party sellers to settle in at the beginning of this year and implemented the full custody model;TikTok Shop opened the investment invitation of the full custody model of cross-border e-commerce between Saudi Arabia and the United Kingdom in May this year, and launched the full custody model in the United States in August;AliExpress began to internally test the full custody model at the end of last year, and promoted the Choice channel with the full custody model in all categories in April this year.
Of course, there are pros and cons to this. At the same time, the platform takes price as the core assessment standard mechanism, guiding operators to tend to direct traffic to low prices, most products have to fight low prices, and the seller's premium space is minimal, making it difficult to operate word of mouth on the basis of low-price explosions, and gradually enhance their own brand value.
In 2023, China's cross-border e-commerce platforms will still use price wars to "roll", which still has not gotten rid of the characteristics of the times when Yiwu small commodities went to sea at the beginning of the 20th century. At present, China's economy has become the world's second largest economic entity, and when dealing with the challenges of economic structural transformation, enterprises need to not only become bigger, but also stronger and better, so as to gain more bargaining space in the global market. This is a huge opportunity, but also a huge challenge.
In the early stage of competing for global market share, e-commerce platforms use the full custody model to achieve the ultimate in low prices, which is the fastest choice, but looking to the longer term, after these platforms stabilize their market share, they should adjust the model and support more potential merchants to do a good job in branding to obtain higher gross profit margins.
04 Challenges from Localization: Market, Culture and Trade Protection
For enterprises going overseas, the challenges encountered are always endless. The most basic challenge is the market differentiation brought about by regional characteristics, and the joke of selling cold protection products in tropical countries is not unprecedented. Thanks to the digital capabilities brought by the mobile Internet, the idea of the global layout of cross-border e-commerce platforms is highly adapted to regional consumption trends.
Cultural differences are also an unavoidable problem for Chinese companies when they go overseas. For example, Indonesia is also a country with a large concentration of Muslims, and Muslim employees are required to pray five times a day, which poses a challenge for management. In mid-2022, TikTok's UK e-commerce team suffered setbacks due to cultural conflicts, labor relations disputes, management team adjustments, etc., which seriously affected TikTok's e-commerce strategy to enter the European market.
In Indonesia, TikTok encountered a more serious trade protection conflict and was banned for a time. Until December 2023, TikTok officially announced that it has reached an e-commerce strategic cooperation with GoTo Group, Indonesia's largest Internet technology company, TikTok Indonesia's e-commerce business (TikTok Shop) will merge with GoTo Group's e-commerce platform Tokopedia, the merged Tokopedia is controlled by TikTok, and TikTok e-commerce will be relaunched on December 12, Indonesia's National Online Shopping Day. According to foreign media, TikTok owns 75% of the shares of the merged entity and holds a controlling stake.
TikTok said in a statement that it will work with GoTo Group to provide a series of support in marketing, branding and internationalization to help local small and medium-sized businesses develop. On the day of the resumption of the launch, TikTok and Tokopedia will also jointly launch a "Buy Local Products" campaign to help the development of local businesses in Indonesia.
As the theme of the current era, with the intensification of global geopolitical competition and the escalation of the game between countries, trade protection policies of various countries emerge in an endless stream. The localization strategy adopted by overseas enterprises is not a mutually beneficial way to avoid a zero-sum game. SHEIN continues to cooperate with local resources such as logistics and warehousing in Latin America, and actively builds a production ecosystem, and by October 2023, 336 local factories in Brazil have cooperated with SHEIN. According to public information, SHEIN will establish cooperation with 2,000 textile factories in Brazil in the next five years, create 100,000 jobs, and invest $148 million in factory construction and personnel training.
Affected by short-term shocks such as the epidemic, inflation, sluggish growth, and geopolitics, globalization is indeed in a period of adjustment, which means that Chinese companies going overseas are facing more and more "compliance" challenges. In the past, globalization paid more attention to the pursuit of economic efficiency, and the new generation of Chinese enterprises going overseas is facing the test of globalization that needs to take into account efficiency and fairness.
In the face of the uncertainty and potential risks of globalization, industry rule-makers such as cross-border e-commerce platforms need to achieve high-quality overseas expansion, not only to export high-quality products and services, but also to achieve efficient and compliant global operation and management, highly integrate with the local industrial chain, and establish a value chain with global resource advantages.