This article was originally published in Chinese by Runze Dai of Leiphone, translated and republished with the author’s permission. You can also refer to Momentum Works’ “Who is Temu” and “Who is SHEIN” reports for structured analysis and insights about these two companies. You can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections.
Opportunities for Amazon ecommerce are running out
At 3 am, Ning, who was sleeping soundly, was suddenly awakened by the ringing of the phone. On the other end of the phone was the Temu team.
As the head of a branch of a Guangdong-based cross-border logistics company, Ning couldn’t remember how many sleepless nights he had in the past few months working with Temu.
Ning splashed cold water on his face and rushed back to the company to handle work until noon.
Soon after, the head of a certain third-level business unit of Temu came to visit the team. Without greetings or much small talk, the other party directly handed Ning a year-round capacity planning book, which prominently printed the goal of reaching a daily delivery capacity of 1 million orders by the end of 2023 in order for them to continue to take Temu’s orders.
Ning couldn’t help but inhale a breath of cold air. Currently, the daily order volume of his branch is only 100,000 orders, but Temu has given a requirement that is 10 times larger.
Not to mention whether it can be achieved, the pressure of funding advance payment alone is challenging with Temu’s three-month credit terms. What’s more – what if Temu’s order volume falls short of expectations or even collapses?
What bothers Ning even more is that another important client, SHEIN, has also started to increase its demands, requiring him to provide a daily capacity of 500,000 items by the end of the year.
The reason why these two companies have made such aggressive goals in parallel may be that they see an important window: currently, Amazon is busy raising its average order value, letting go of the vast ‘sinking markets’ 下沉市场 (i.e.: lower-income-segments of the population) with an average order value of less than $40. For Chinese cross-border ecommerce players, this is a rare opportunity.
At the same time, SHEIN, TikTok, Shopee, Alibaba, and others have joined the fray of cross border ecommerce. The “Amazon ecommerce siege war” is quietly beginning, and Temu is leading the charge.
1. Temu’s dream starts, copying SHEIN’s playbook
Let’s go back to a year ago.
In May 2022, Pinduoduo sent a team to set up an office directly opposite SHEIN’s office building in Panyu, Guangzhou.
The purpose of Pinduoduo’s move was simple: to poach employees and suppliers from SHEIN.
To lure SHEIN’s employees, the Temu team went to great lengths.
They first obtained the organizational structure of some of SHEIN’s business lines at a high cost, and then hired headhunters, offering them more than 2 times the normal commissions; they also offered SHEIN employees more than 3 times their current salary.
In order to poach SHEIN’s suppliers, the business development team visited clothing factories one by one, infiltrating every corner where suppliers could be found.
SHEIN had no choice but to respond to such tactics.
Due to factors such as tight timelines, low margins, and the need to keep inventories, the sellers were exhausted. Some factories on the brink of giving up reached out to Temu, as if they saw a lifesaving straw.
Fashion category on Temu
Temu showed great sincerity towards sellers. They promised to provide all services, and the sellers only need to bear part of the warehousing costs.
Rather than letting the products collect dust in the warehouse, sellers thought it was better to hand them over to Temu. Therefore, some sellers, desperate enough to make things work, decided to give Temu a try.
Many sellers almost cleared their few years-old inventories in less than two months without increasing their energy and manpower significantly.
The news quickly spread throughout the industry, and a large number of small-and-medium-sized sellers rushed to Temu. During those days, Temu’s staff were still busy reviewing and approving seller applications at 11 pm every night.
Everything was in Temu’s plan. Their strategy was simple: use money to buy traffic to attract users and sellers.
Pinduoduo has always been aggressive in advertising. Five years ago, Pinduoduo was the largest advertising client of Google in the Asia-Pacific region. The investment in Temu’s advertising was also aggressive, with hundreds of millions of RMB spent on the Super Bowl campaign alone.
It was rumored that due to the large spending of Temu, some Google advertising department employees had “sweet troubles”. Some “complained” that Temu had raised Google Advertising’s sales target significantly, and if Temu collapses, it will be difficult for them to meet the elevated targets.
Temu’s strategic thinking was also completed in a very short period of time.
When the news of “Pinduoduo is going global again” surfaced in the industry, Temu hadn’t even decided on its target market.
Starting from February last year, the Temu team conducted research on markets such as Europe, North America, the Middle East, and Latin America. In July last year, founder Colin Huang and Temu’s leader, Gu Pingping (with internal nickname Abu) had directly vetoed Southeast Asia, where the average order value was low and there were significant cultural differences across countries.
In the end, the team decided to launch directly into the United States.
With a steady and precise strategy, Temu had a beautiful opening victory. In just two months, the industry’s attitude towards Temu had changed from skepticism and indifference to observation.
2. From non-standard products to standard products, Temu has found a new path
Temu’s initial positioning was “overseas Taobao,” focusing on fashion / women’s clothing. However, it faced several challenges.
First, the marketing cost of using women’s fashion to attract customer traffic was too high, such as the placement during the Super Bowl. Second, there was a severe shortage of fashion clothing supply for cross border expansion, and SHEIN had taken up a lot of low-unit-price production capacity.
Several months in, SHEIN’s business appeared to be unaffected by Temu. Multiple data sources showed that the overlap between Temu and SHEIN users was only 2%.
This means that Temu needs to pivot in a timely manner.
In terms of SHEIN’s moat, it has a large number of loyal users (who have been with SHEIN for up to ten years), a 90-day repurchase rate of up to 60%, these advantages are difficult to match in the short term.
SHEIN has a supply chain system that is highly regarded within the industry. Many who tried to copy SHEIN found that although they can recruit SHEIN’s people and copy SHEIN’s source code, but without the large order volume to support, all of that is useless.
Moreover, for years, SHEIN and its suppliers, logistics providers, and others have formed strong partnerships.
For example, Zongteng Group is a loyal partner who has been working with SHEIN for many years. During peak periods, 30% of the orders of the group’s subsidiary Yuntu Logistics come from SHEIN.
It is said that Wang Zuan, the chairman of Zongteng Group, is a close friend of SHEIN’s founder Xu Yangtian. SHEIN’s US office is just opposite Zongteng office, and the two men often go out for drinks after work.
In the industry’s view, SHEIN and Zongteng are like brother companies.
In contrast, Temu is a newcomer in the US, which, by itself, is already challenging. Pinduoduo’s old friend J&T has yet to gain a foothold in the US market, and its cooperation with Zongteng is still under negotiation.
What’s even more annoying is that the employees recruited from SHEIN with high salaries have not brought in the expected results.
SHEIN is essentially a fashion / clothing company – its business processes are broken down to a very granular level; the vast majority of its employees are also in execution positions and do not participate in decision-making. Most of the employees recruited by Temu are lower-level employees who could not share strategic insights with the team.
By chance, the Temu team discovered that daily necessities priced at a few cents had extremely high sales and did not require extra marketing costs.
This category is the foundation of Pinduoduo, which not only holds a large number of suppliers but also happens to be able to challenge Amazon’s dominance on standard products. (“Standard products” is a Chinese term referring to goods that are produced according to government standard catalogues – including electronics and mobile phones; “non-standard products”, in contrast, refers to goods that vary greatly according to needs – including fashion, shoes etc.).
Some of the popular products on Temu
At this point, Temu has shifted its focus to household and personal care products, and has gradually increased its average order value to $40.
In order to increase the repurchase rate, Temu used various methods, such as including promotional pamphlets directly in the shipping packages. This resulted in a high repurchase rate of 50%.
Through massive subsidies and various burning to test out product categories, Temu’s first-order conversion rate has reached 10%, far exceeding the industry average of 2%.
However, behind its glory, Temu has also paid an astonishing cost. Some analysts in the industry once calculated that as of Black Friday last year, Temu was losing $30 per order.
3. Make good use of human nature to test its partners
“Burn and subsidise aggressively in the early stage; Cut operating and customer acquisition cost in the later stage; ultimately, achieve profitability.”
Temu has adopted DuoduoMaicai (Pinduoduo’s fresh grocery subsidiary in China)’s logic and processes.
DuoduoMaicai has been extremely ruthless in cost control.
This is particularly prominent in terms of the selection of products. For example, DuoduoMaicai’s requirements for product selection are very simple: delicious and cheap. For example, for cucumbers, since there is no significant difference in taste and quality between straight and bent ones, they go with the cheaper ones.
In terms of supplier management, DuoduoMaicai directly gives money to third-party intermediaries and lets them figure it out for themselves, so there is often a phenomenon of channel conflict (i.e. selling into other distributors’ territory). As a result, the prices of some daily necessities can go lower by 20-30%, and this huge price difference instantly opened up the markets in 4th or 5th tier cities in China for DuoduoMaicai.
In order to save on rental cost, some provincial business leaders even work directly in the warehouse (instead of an office).
The logic of saving money has been perfectly replicated on Temu and translated to its partners.
Firstly, Temu leverages on the human nature of greed.
In the early stages, Temu created an atmosphere which, as long as you join, you can become rich overnight.
For example, by repeatedly publicising a certain mom and baby product that had just gone online and had sales of nearly tens of thousands of orders per month, Temu quickly became popular within a small circle. Similar stories of getting rich abound, and some sellers who are struggling with inventories and are on the edge of being banned by Amazon (for violation of platform rules) flock to Temu.
Some sellers who have not been able to join even have self-doubt: is it because they are not well capitalised enough or if their fulfillment quality is not good enough?
Temu also has a second trick – to control costs through the system.
In early March of this year, Temu launched a special bidding system for sellers. The system implies that “only by lowering prices they can get traffic and volume. If the sales performance is bad, it’s because the price is not low enough”. This news received great attention in the industry and SHEIN even discussed with suppliers on what they can do about it.
In terms of logistics providers, Temu has a pricing system. The core principle: the price only decreases and does not increase within a month; the price reduction is retroactively applied to unpaid items.
There is a lot of room for discussion about this rule itself. It does save a lot of costs for Temu, and the logistics business is divided into off peak and peak seasons. Both parties are happy during the off peak season, but what about the peak season (where logistic prices typically rise drastically across the industry)? And the credit terms are typically as long as three months.
The partners who joined this “game” gradually discovered that Temu’s ecosystem was very much ruthless.
In order to better control the partners, Temu’s contracts had no exit mechanism. If they wanted to end the collaboration, it was difficult and even impossible to receive the final payment.
Temu’s legal team formulated many obscure clauses, with the core purpose of transferring all risks, including force majeure (unforeseeable circumstances), to the partners, with Temu itself not assuming any responsibility.
For example, the declared value that Temu gives to logistic partners is only for reference; if there is any customs inspection, involving taxation, declaration value, etc.,Temu does not assume any risk and it is the responsibility of the partners to bear it.
Industry insiders have said that this is pure manipulation / oppression.
In fact, the contractual terms that Temu offers might not be as inflexible as it seems. For example, initially Temu told logistic partners “those who put in more working capital will get higher prices” – and many logistic partners realised later that some peers were offered the same price without putting in the working capital. It was said that the former group of logistic partners were very angry.
Coupled with long payment terms and forced working hours (to be in sync with Temu’s pace), many partners complained about Temu and finally launched protests when they could not bear it anymore. After multiple rounds of communication, Temu’s attitude became much milder. For example, Temu now allows price adjustment frequency akin to industry standards, down from the initial 30 days.
Essentially, Temu is constantly testing the bottom line of its partners in a game.
Looking back at the past six months, Temu has been accurate and determined in its strategy, coupled with fast execution, and uses its classic approach of “first courtesy, then force, then courtesy” (先礼后兵再礼) towards its partners. Very classic (if not classy) indeed.
All of this is possible due to Temu’s strong organizational ability.
4. Temu is a trillion-dollar flat startup
Under Abu’s leadership, executives at Temu such as (nicknames) “Winter jujube” (冬枣) and “Grape” (葡萄) work hard every day. Unless there are exceptional circumstances, Abu appears at her desk promptly at 8 am every morning and works tirelessly until midnight.
As the team leader, Abu’s personal involvement contributes to the strong combat spirit and effectiveness of the Temu team.
It is remarkable that even though Pinduoduo has already reached a trillion-dollar scale, it still positions itself as a startup company.
The Temu team was officially established at the beginning of 2022, starting with a team of 200 people and now reaching a scale of nearly 1500 people.
The Temu team includes core members of the DuoduoMaicai team, which is known as the “God of War” in the industry, such as Abu, Grape, and “Winter jujube”.
The success of DuoduoMaicai business has brought great confidence to Pinduoduo, and its ideas and management style have been passed down to Temu.
As a startup company, the organizational structure of the Pinduoduo system is very flat.
Overall, Colin Huang, Chen Lei (陈磊), and Abu (阿布) form the company’s brain responsible for daily decision-making, while others are responsible for implementation. The advantage of this management approach is that the company’s strategic direction is highly consistent and the execution efficiency is extremely high.
It is precisely because of this that Pinduoduo succeeded in the grocery / fresh business.
DuoduoMaicai adopts a “small central and large local” (“小中央大地方”) management model, where provincial leaders have a high degree of autonomy and can flexibly mobilise resources from multiple parties. In general, the first thing supervisors do when they arrive at local sites is to choose a warehouse and then directly conduct business, while the headquarters provides authorization and assistance.
This management philosophy is very similar to the “culture of autonomy” advocated by Duan Yongping during his time at BBK（步步高）. Under the culture of autonomy, companies allow employees to take initiative and do the right things, while also tolerating their mistakes.
By allowing autonomy amongst employees and allowing them to take ownership, this culture allowed Duan Yongping to complete his handover in just fifteen minutes when he had the idea to retire.
In comparison, many of the competitors’ local managers often need to report and pass through multiple layers before making a decision, which can easily miss the best timing for execution when the instructions come down.
Continuing the flat management style of Pinduoduo, the entire team’s management is only three levels. Abu is the first level, “Winter jujube” and “Grape” are the second level, and the category managers are the third level, and everything below is the lower-level employee.
For example, “Winter jujube” has 40-50 direct subordinates, including P8 level talents from other tech giants, but they are only implementers. (a manager at the level of P8, in Alibaba’s job rank commonly referenced in China, already leads large teams in other tech companies).
The three-level management system makes internal communication costs extremely low.
In order to improve work efficiency, Temu has very few internal meetings, and even for annual reporting, no PPT is needed, it’s enough to just write a few data and paragraphs to summarise the work outcome.
Unlike traditional internet giants, Temu’s departments do not need to align information with each other. Based on this extremely flat and efficient management system, Temu has completed the development of its platform in just over half a year.
5. Endless internal competition
In order to better tap into employees’ proactiveness, Temu strictly implements a “horse racing” mechanism internally, with fierce competition.
Temu will assign the same project to different teams to execute, and judge the abilities of each team based on the final results, with losers being eliminated.
In the eyes of outsiders, “Grape” and “Winter Jujube” are Temu’s core executives and should work together, but they are actually in a competitive relationship.
According to Temu’s rules of the game, “Winter Jujube” and “Grape” will each designate the other’s primary business as their secondary business. Once the revenue from Party A’s secondary business exceeds the revenue from Party B’s primary business, the Party B’s team and business will be moved to report to Party A. In order to avoid a monopoly of power, outstanding individuals will be promoted from the team to fill vacant positions.
Demoted supervisors will be moved to be supervisors in first-level departments of other projects; if the project they are responsible for fails again, they will continue to be demoted and be responsible for secondary business, and so on. Only when the project succeeds will they have the opportunity to be promoted back to their original position.
Therefore, even high-level executives like “Grape” and “Winter Jujube” are always at risk of demotion.
Not only is personal promotion as thrilling as leveling up in a game, the competition between teams is also extremely intense.
Pinduoduo attaches great long-term importance to customer conversion. In order to avoid the problem of goods returns after aggressive marketing, the company evenly distributes new users acquired to different project teams and assesses the conversion rate on a quarterly basis.
Colin Huang and Abu regularly monitor data and conversion indicators. If the conversion data of a team is low, they will break up the team and merge it into a team with a higher conversion rate, and then establish a new team to continue the competition.
Under this strict assessment mechanism, each team will try their best, with the lowest conversion rate only 10% lower than the highest.
In addition to the endless internal competition, Temu also follows Pinduoduo’s 721 elimination system. This means that 10% of employees in each project are eliminated, and 20% of employees do not receive the full bonuses.
Within the company, there are often situations where seven or eight business departments compete for the same supplier in order to get the lowest price for a product.
This kind of corporate management may seem overly harsh to outsiders, but there are few objections within Pinduoduo. Essentially, Pinduoduo has relied on its management system to find talent who can adapt to the company culture.
6. A perpetual efficiency machine
“Are you a local? How many people are there in your family? What are your parents’ occupations? Do you have car or house loans?” These are the most common questions asked by Pinduoduo during recruitment.
Pinduoduo discovered through big data analysis that young people from poor backgrounds with strong financial needs are often more eager for success than some local residents in first-tier cities.
Pinduoduo screens out qualified candidates during recruitment and maximizes their strengths through internal competition mechanisms.
In order to fully “involute” (内卷） its employees, Pinduoduo uses the most direct method – money. Salaries are usually 2-3 times higher than the industry average, which is so high that many people are unwilling to leave.
For example, a salesperson earning 30,000 yuan a month was offered 60,000 yuan to stay when they tried to resign. This is common at Pinduoduo.
For executives, if a major project meets its performance targets, the company may even offer rewards of several million or even tens of millions of yuan in the form of stock, which is distributed over several years through management tools that delay gratification, keeping employees in a state of high motivation.
Pinduoduo also expects its employees to adhere to their duties.
What are their duties? From core executives “Grapes” and “Winter jujube”, to lower-level employees, all they need to do is execute the tasks assigned by their superiors. Self-will is not important.
For example, if a directive is issued at a company meeting, subordinates cannot refuse without a reasonable explanation.
This is related to Colin Huang’s ideology, in which only hierarchy matters, not right or wrong.
As early as Ouku’s (欧酷) era, Colin Huang had stated that there is only one leader in a team, and while subordinates can express differing opinions, they cannot challenge the views of their superiors.
If disagreements arise between peers, the best solution is to seek the judgment of a superior rather than create internal strife.
As Colin Huang’s employee of nearly 15 years, Abu has been praised for being able to follow Colin Huang’s personal will 90% of the time. She is like a replica of Colin Huang, with very similar personalities, thinking, work methods, and even speech patterns.
Some people have commented that Abu is somewhat authoritarian, and her speech carries a strong sense of oppression.
Abu’s Master thesis on recommendation system
In terms of management, Abu values results more and spends little time understanding the specific process of subordinates’ work. Tasks such as market research are also handled by the management team, and when decisions are made, each department is responsible for execution.
Pinduoduo is also very silo’ed internally, with almost complete isolation between departments.
The head of a certain recommendation project at Pinduoduo has 100 algorithm engineers under his leadership, but when someone mentions Temu, he doesn’t even know who the project manager is.
With internal competition, when a team is eliminated, the dismantled team even has to delete all their code before transferring to a new position.
Thus, the vast majority of Pinduoduo and Temu employees do not understand the work of other departments, nor do they understand the overall business and even strategy of their own department. Due to the use of nicknames for internal communication, colleagues do not know each other’s real names.
Under this mechanism, lower-level employees have become “efficiency machines”.
7. Self-help is the best help.
In addition to maximizing human potential, Temu’s timing was perfect.
Amazon’s ecommerce business is in the midst of a “mid life crisis,” struggling with weak revenue and a “lack of energy and enthusiasm”.
In order to improve performance, Amazon has used various methods such as layoffs and cutting off non-core businesses, and increasing average customer spending. Some in the industry even believe that the “new CEO is more concerned about financial results.”
Although Temu directly targeted SHEIN upon entering the market, in the past year, SHEIN has been constrained by factors such as policies, fulfillment, and logistics, and has focused on steady development rather than fighting back.
At the end of last year, there was a heated discussion within SHEIN on how to respond to Temu’s expansion. Some investors believed that SHEIN should invest $1 billion to enter the Canadian market, but Xu Yangtian insisted on focusing on localisation in Latin America (where he appointed former Softbank executive Marcelo Claure to lead). Due to different opinions among top management, SHEIN’s latest round of financing took two months to complete.
At the beginning of 2023, Temu entered Canada, and some shareholders accused Xu Yangtian of allowing Temu to grow ‘barbarously’.
In fact, Xu Yangtian takes Temu very seriously.
There are rumors that SHEIN has been in a “lonely struggle” for many years, leaving Xu Yangtian feeling lost and having a negative attitude toward work for half a year.
Temu’s emergence seemed to inject new ‘vitality and energy’ into Xu Yangtian. He has started to frequent the Shenzhen branch, which he rarely visited for many years.
When Temu entered the market, it coincided with fluctuations in exchange rates and a decline in logistics costs.
It is said that before recruiting sellers, Temu deliberately leaked to the market, “the Chinese-US exchange rate will adjust in September, and China’s exchange rate will definitely fall.” This means that during this period, as long as sellers ship goods from China to the United States to sell, they can make a profit of 5-10%. Temu successfully attracted a group of early sellers.
The decrease in cross-border logistics costs also saved Temu a lot of expenses. During the past period, air freight prices dropped from a peak of $100 to less than $20, a difference of 5-6 times.
In addition, J&T has quietly expanded overseas, entering markets such as the United States and Australia, which can provide considerable help to Temu in terms of logistics and fulfillment.
Last year, J&T quietly entered Australia, and at least three agents from (Duan Yongping’s) BBK invested their own money to get their feet into the game (for the relationship between BBK and J&T, refer to our report “Who is J&T”). It is rumored that one agent brought RMB 1B and 100 people to Australia, but due to the lack of orders, they could only survive on part-time work for a period of time.
Ultimately, Temu had everything in its favor, including timing, location, and people, and wherever it went, it caused a huge wave.
Given Temu’s current size, it seems like a pipe dream to overtake Amazon’s ecommerce business.
However, behind Temu is not only Pinduoduo with $20 billion in its bank account, but also China’s powerful supply chain. It is not short of cash flow or suppliers.
Many insiders believe that, disregarding external factors such as policy, Temu will reach a GMV scale of tens of billions of dollars within two years.
In China, Pinduoduo relied on internal competition to gradually eat away the market share of Taobao and JD.com. Now, history is repeating itself in the overseas market, with Amazon as the new opponent.
When it comes to Temu’s ambition, the “Abu-s” are moving aggressively with their management mechanism, intending to go abroad alongside China’s vast industrial capabilities.