Author: Danyun Xiao
Intern: Yixu Zhao
The road to Temu's exit has been full of twists and turns from the very beginning.
In the past two years, Temu has actively expanded into the Southeast Asian market. Since launching its sites in the Philippines and Malaysia last year, it has added Thailand, Vietnam, and Brunei this year. Currently, Temu has achieved half of its market expansion goals in the ten ASEAN countries.
However, in the process of continuous expansion, Temu also faces the "encirclement" from multiple governments.
Failed to enter Indonesia for the third time. Met with "Ban"
In October, Budi Arie Setiadi, Indonesia's Minister of Communication and Information, publicly stated that Temu’s business model—allowing foreign manufacturers to sell products directly to Indonesian consumers—poses a serious threat to local small and medium-sized enterprises (SMEs). He believes that banning Temu is part of the government's effort to protect Indonesian SMEs from unfair competition by foreign companies. Since foreign markets supply goods directly from factories at lower prices, this creates an unfair advantage over Indonesian businesses. Budi Arie Setiadi also pointed out that Temu had failed to obtain the Electronic System Provider (PSE) license and will not be granted one in the future. The Indonesian government questioned Temu's full-commission business model, arguing that it violates Presidential Regulation No. 29 of 2021, which explicitly prohibits manufacturers from selling goods directly to consumers without distributors. The government has also requested that the App Store and Google Play Store remove Temu from the Indonesian market.
Currently, the Temu app has been banned in Indonesia, and Indonesian users are unable to use the app normally. Although it is still available for download, users cannot select Indonesia as a shipping destination in the settings.
Indonesia was the first Southeast Asian market that Temu aimed to enter. The company began applying to enter the Indonesian market as early as September 2022. Subsequently, Temu expanded into the Philippines, Malaysia, Thailand, Vietnam, and Brunei. However, the Indonesian market has remained resistant. Even during this process, Temu changed its registered entity from its Chinese headquarters to a local company. On July 22, 2024, Temu submitted its third registration application, but has yet to receive formal approval to operate.
Looking back, Indonesia's restrictions on social e-commerce platforms began some time ago. Since 2021, the Indonesian government has imposed strict limitations on social e-commerce platforms, prohibiting them from engaging in e-commerce activities and implementing tax regulations on e-commerce platforms. In 2023, Indonesia introduced Trade Ministry Regulation No. 31, which bans social media platforms from serving as retail channels for goods and requires imported products to obtain a whitelist approval before being sold. In 2024, Indonesia raised safeguard tariffs on some imported goods to 100%-200%. It is not only Temu that has been targeted; cross-border e-commerce operators are also facing similar challenges under the Indonesian government's policies aimed at protecting local SMEs.
Facing a Multi-Nation "Siege," Temu's Expansion Road Remains Rocky
In addition to Indonesia, Temu is facing increasingly severe regulatory challenges globally, especially in Europe, the United States, and Southeast Asia.
In Thailand, Temu faced mounting regulatory pressure after launching at the end of July 2023. The Thai Prime Minister personally ordered an investigation to determine whether Temu was complying with Thai laws and paying the necessary taxes. Moreover, Thai authorities are taking steps to intensify their oversight of Temu in order to protect local businesses from the influx of low-priced Chinese products. In Vietnam, the government has required Temu to complete its registration by the end of November, or else it will block the app’s internet domain and its access.
In October, Temu was also investigated by the European Union for allegedly violating consumer protection laws. EU regulators accused Temu of engaging in misleading practices such as false discounts, fake reviews, and limited-time promotions, potentially breaching product safety regulations, which could result in substantial fines. This marks the second investigation by the EU into Temu, with a prior probe focusing on whether the platform violated the Digital Services Act. Furthermore, Temu has been added to the EU's priority monitoring list, with plans to abolish the duty-free policy for goods from non-EU countries, which could further impact Temu's competitiveness in international markets.
Figure 1: In October, Minister of Communication and Information Budi Arie Setiadi confirmed that the Temu application has been banned in Indonesia and will no longer be able to operate. Source: Voice of Indonesia.
However, despite facing a "siege" from multiple countries, Temu continues its unstoppable overseas expansion. Behind this lies the rapidly growing global e-commerce market.
Riding the Global E-Commerce Wave, Temu Competes on Logistics in Vietnam
Currently, Vietnam and Thailand are the fastest-growing e-commerce markets in Southeast Asia. Over the past four years, Vietnam's e-commerce market has maintained an annual growth rate between 16% and 30%, with the Gross Merchandise Volume (GMV) increasing by as much as 52.9% year-on-year, making it the third-largest e-commerce market in Southeast Asia. This growth has undoubtedly attracted Temu's entry into the market (Figure 2).
Figure 2: E-commerce Market Size in Southeast Asia. Source: EqualOcean Analysis.
According to Vietnamese media reports, Temu announced on October 22 that its affiliate marketing program was officially launched in the Vietnamese market. The program offers new users more attractive discounts and commission structures than its main competitors, Lazada and Shopee. This strategy quickly garnered widespread attention on Vietnamese social media.
To rapidly penetrate the market, Temu continued to implement its previous low-price strategy and incentive measures, such as free shipping subsidies, 90-day free returns, and product discounts of up to 90%. In addition, Temu introduced a series of "spend-and-save" promotions, offering discounts of VND 70,000 on purchases over VND 750,000, VND 170,000 on purchases over VND 1,250,000, and VND 250,000 on purchases over VND 1,850,000, further boosting its market appeal. Temu also offers a referral bonus of up to VND 150,000 (approximately USD 6) for new users, with referrers earning an additional 20% commission on secondary referrals. For product sales, Temu provides a generous commission rate of up to 10%-30% of the product's price, significantly higher than the average commission rate of 1.5%-2% offered by Vietnamese e-commerce platforms like Shopee, and even surpassing the maximum 30% reward program promoted by TikTok Shop. This high-return commission structure has attracted a large number of Vietnamese internet users to promote Temu, creating a strong user growth momentum.
Temu's aggressive expansion strategy in Vietnam bears a striking resemblance to Pinduoduo’s early approach in China, quickly building its user base through high commissions and multi-tier referral incentives. Through this strategy, Temu aims to rapidly increase brand awareness and establish an extensive distribution network, ultimately securing a foothold in a highly competitive market.
In addition, Temu's logistics efficiency in Vietnam has recently seen significant improvements. In the past, due to shipments being sent from China, the standard free shipping service typically had an estimated delivery time of 8 to 12 days, while expedited delivery would take 5 to 9 days. Thanks to efficient overland transport from Guangzhou to Vietnam (Figure 3), the delivery time for Temu’s Vietnamese site has been reduced to just 4 to 7 days, a significant improvement compared to the 5 to 20 days required for shipments to Malaysia and the Philippines.
Figure 3: Overland Transportation Route from Guangzhou to Vietnam for Temu. Source: Google Maps.
Since August of last year, Temu has surpassed Amazon to become the number one app by download volume in the U.S. App Store (Figure 4). By August of this year, Temu's user base had reached 91% of Amazon’s, with global downloads exceeding 735 million, and it is expected to surpass Amazon by the end of this year (Sensor Tower). According to TechCrunch, from January to October this year, Temu has consistently ranked first in the app download chart among U.S. Gen Z users aged 18-24 (Figure 5).
Figure 4: The download rankings of Chinese e-commerce platforms in the Apple App Store are as follows: Temu (1st), TikTok (4th), and Shein (9th). Source: meagans-newsletter.
Figure 5: Temu consistently ranks first in the app download chart among U.S. Gen Z users aged 18-24.
In addition to the growing user base, Temu’s user engagement continues to rise. As of now, the average shopper on the Temu platform spends $247 annually, with a shopping frequency of six times per year, and 70% of users are repeat customers (Numerator). Furthermore, 41% of Gen Z consumers make at least one purchase on Temu each month (Omnisend).
Temu’s international expansion is accelerating, with one key strategy being the shift to a semi-managed model. The implementation of this model allows Temu to expand its product categories, transitioning from a reliance on white-label sellers to a greater focus on brand operations.
From Full-Managed to Semi-Managed: Temu Competes with Amazon for Market Share
In March this year, Temu adjusted its traditional business model and launched a pilot program for the semi-managed model in the U.S. The initiative focuses on improving its overseas warehousing and distribution systems, even targeting local inventory sellers. This model offers local delivery services for products that do not meet the conditions for direct cross-border shipping, with expected delivery times reduced from the traditional 7-14 days to 4-9 days.
Previously, in September 2022, Temu launched its full-managed model, which quickly gained traction in the U.S. market through aggressive pricing and efficient operations. The platform attracted over 200,000 merchants and ships nearly 4 million packages daily from more than 60 consolidation warehouses in China. This success helped Temu attract 467 million global users. Other platforms such as AliExpress, Lazada, Shein, TikTok, and Shopee followed suit by launching their own full-managed services (Figure 6). The core of this model is that “sellers only need to provide products, while the platform handles the rest,” significantly simplifying the seller’s operations, reducing costs, and allowing inexperienced domestic sellers to focus on product quality and cost control.
The full-managed model simplifies the complex processes of traditional trade. Compared to the cumbersome export procedures of the past, B2C cross-border e-commerce reduces intermediaries and improves transaction efficiency. The full-managed model, based on the F2C (Factory to Consumer) concept, directly connects manufacturers with consumers via the platform, strengthening distribution channels and offering more cost-effective products to overseas buyers. At the same time, Temu takes on warehousing, logistics, operations, and other aspects, reducing sellers' inventory risks. This encourages them to sell products at lower profit margins, stimulating intense market competition and enabling Temu to secure lower product prices compared to other e-commerce platforms.
Figure 6: Logistics Process of Temu’s Full-Managed Model. Source: EqualOcean Analysis.
Temu's full-service model, while offering convenience to sellers, presents relatively high hidden barriers. This model requires sellers to have high-quality products, robust delivery capabilities, and sufficient capital, making it especially suited for merchants with stable supply chains or their own factories. To succeed under this model, sellers must continuously introduce new products and ensure timely delivery. However, even the best-performing sellers in this model face the risk of being replaced. Temu constantly compares prices and directs traffic to sellers offering similar products at lower prices, which makes it difficult for sellers with weaker competitive power to remain profitable. In the full-service model, sellers lose control over pricing and must rely on the platform’s bidding system, passively bearing inventory risks. The platform becomes the price setter, shifting the sales risk onto the sellers. This mechanism creates a conflict of interest between the platform and the sellers, which undermines the sustainability of the model. Additionally, this model limits product variety and average order value. Due to its reliance on air freight for timely delivery, the platform typically selects only small, lightweight items, while high-value or large products are difficult to integrate into the supply chain.
The limitations of Temu’s full-service model in terms of logistics efficiency and product variety impact its potential for further expansion. Compared to local overseas platforms, Temu exhibits a significant gap in logistics efficiency. For instance, Amazon boasts local warehouses in the U.S. and a robust logistics network, typically delivering products within 2 to 3 days. Amazon’s SKU count ranges from 30 million to 60 million, ten times that of Temu, with nearly half of its best-selling products sourced from Chinese sellers. This efficient logistics system gives Amazon a clear advantage in the market. Moreover, Amazon reduces shipping costs for large items by leveraging its overseas warehouses.
In March this year, possibly inspired by the success of Amazon, Temu launched a pilot project for a semi-fulfillment model, focusing on improving its overseas warehousing and distribution systems. The company began targeting sellers with local inventory, transitioning from a fully-managed model to a semi-fulfillment model. Temu's semi-fulfillment model is particularly aimed at large sellers on Amazon US and independent platforms, who have approximately $30 billion worth of inventory to clear. By leveraging Amazon's mature logistics system, Temu helps these sellers efficiently clear their stock, creating a market impression of "equal quality, lower prices."
The semi-fulfillment model of Temu focuses on sellers from Amazon China and independent platforms, offering attractive recruitment conditions and flexible onboarding policies. For example, the platform reduces initial deposits, charging them only after sales targets are met, and provides shipping subsidies for each order. This strategy has attracted a large number of merchants. Additionally, Temu provides 70% of market traffic support to these sellers, along with relatively lenient quality control policies. This approach has not only facilitated seller growth but also driven daily order volume to 500,000, with sales accounting for 10% of the total volume. As entry barriers lower, more merchants are choosing to join Temu.
Through this model, Temu has begun to open up to a full range of product categories, including items that were previously difficult to handle, such as food. This strategy has expanded the variety of products and the number of SKUs. In terms of logistics and delivery, the semi-managed model provides sellers with greater flexibility, allowing them to choose local warehouses and logistics services. This change is expected to reduce delivery times from the original 7-14 days to 4-9 days.Regarding profit margin control, the semi-managed model enables large brand sellers to more effectively manage their gross margins and cost structures. They can independently set prices and promotional activities based on market demand and their own strategies.
Additionally, from a risk mitigation perspective, with increasing regulatory scrutiny on Chinese platforms in Western countries, Temu is facing a growing number of policy risks. Changes in tax policies in the U.S. and Europe could raise the cost of cross-border direct shipping, impacting profits. The implementation of the semi-managed model has prompted Temu to accelerate the construction of local warehousing and delivery systems, thereby reducing its reliance on international logistics and enhancing its ability to withstand policy risks.
Figure 7: Full-Managed vs Semi-Managed Models on Major E-Commerce Platforms
Currently, Temu has attracted 60% of Amazon's Chinese sellers, intensifying the competition between the two platforms. In response, Amazon has quietly launched a low-price marketplace called "Haul," which can only be accessed via mobile search. The interface and the pricing strategy seem to mimic Temu, particularly its aggressive promotion of "crazy low prices." Some products are priced even lower than on Temu, such as a set of three phone screen protectors for just $1.99, with a sales tactic of "only 5 items left per product" to attract customers (Figure 8). As Amazon promotes this low-price model in the U.S., sellers on its main platform will face increased competition in the internal market.
Figure 8: Amazon Launches "Haul" Low-Price Marketplace.
Is Temu in Trouble?
Temu is currently facing severe challenges on a global scale. Not only does it have to contend with increasingly strict regulations from governments around the world, covering everything from product safety to market access, but nearly every few days new rules emerge that it must adapt to. This regulatory environment means that Temu must exercise extreme caution as it expands into international markets, adding complexity to its operations.
In addition to the political and regulatory challenges, Temu must also contend with fierce competition from industry giants like Amazon. These e-commerce behemoths not only have a massive user base and dominant market positions but also boast highly sophisticated logistics systems. For Temu, this means the need to carve out a unique market positioning and develop innovative strategies to break through in a highly competitive overseas market and capture and retain customer attention.
So, is Temu really in trouble?
According to sources close to Pinduoduo, despite being banned in several countries, Temu continues to push forward with its international expansion, working to improve logistics efficiency and attract more merchants to its platform.
In fact, many of these "bans" are more political posturing than substantial business barriers. Overseas consumers have already developed a reliance on Temu, which has allowed the platform to continue growing despite external pressures. This situation is somewhat similar to how former President Trump often targeted TikTok with harsh rhetoric, while simultaneously using the platform to run political campaigns and attract young voters during the U.S. presidential election.
Despite facing numerous challenges and intense competition, Temu's strategic adjustments and expansion efforts show no signs of slowing down. Public controversies have not significantly hindered its progress; on the contrary, they may even serve as a catalyst for its further global expansion. This resilience and adaptability may very well be the key to Temu's continued growth in the fiercely competitive global e-commerce landscape.