Temu has launched in Brazil, despite all the challenges

Last Wednesday (5 June 2024), Temu went live in Brazil, bringing the total number of countries Temu is available in to 70. 

Some thoughts (and facts): 

1. When we visited a few key cross border logistics players in China at the end of last year, everyone was telling us that Brazil would be the big focus of cross border platforms and sellers from China in 2024;
   
   
2. With a population (216 million) 80% of that of Indonesia, Brazil’s economy is 50% larger. With such consumption power, Brazil developed digital shopping malls (MercadoLivre & Amazon) but not large online marketplaces. You can read more about the comparison of digital opportunities of Southeast Asia and Latin America in our joint report with Cento Ventures on the subject;
   
   
3. Amongst the five major platforms (SHEIN, AliExpress, TikTok Shop, Shopee and Temu) that the Chinese cross border community often refers to, four are already present in Brazil. Everyone is guessing when TikTok Shop will launch in the country. This is a matter of resource allocation – TikTok Shop’s focus is still unequivocally the US market;
   
   
4. Temu’s launch happened shortly after the Senate of Brazil passed a new legislation imposing 20% additional tax on cross border ecommerce parcels below $50 in value, on top of the 17% ICMS already charged. It seems that Temu is not deterred by the new effective tax rate of more than 40%; 
   
   
5. We know that Temu initially planned for the launch on 31st of May – but we are not sure whether the slight delay was caused by the preparations or waiting for the certainty of the tax regime.  We think it is more likely the former but it probably does not matter;
   
   
6. Temu is using full consignment (or “full management”) to ship parcels cross-border from China to Brazil. This will allow them to sell items at a very attractive price to Brazil’s consumers to gain initial traction. However, we think eventually they will move to the semi-consignment (or “half management”) model, encouraging sellers to dispatch goods from warehouses already in the country;
   
   
7. They are already doing that in the US market, with digital marketing spend on full consignment almost halting since last week; 
   
   
8. One reason for this shift is to test whether consumers in the US would trade a slight increase in price with much faster delivery (since goods are already in the country). A bigger consideration is that moving massive consumer goods directly cross border to consumers will open up to a lot of political pressure; 
   
   
9. Case in point: towards the end of May, plane loads of Temu parcels were stuck at US customs for a while when a few customs clearance agents were suspended by US Customs and Border Protection for potential violations of voluntary filing rules. Although the move was not targeting Temu, Temu deliveries were delayed as it was the biggest customer of a few of these agents;
   
   
10. If semi-consignment becomes the focus, as seems likely, expect air cargo volume and prices to drop;
    
    
11. To speed up supplier/seller related processes and communications, Temu sends “thousands of” business developers out. “One of them just sits in my office and refuses to leave,” says one major cross border seller in Guangdong, China.

Again, what Temu is undertaking is risky and with a lot of challenges. However, the company (which draws more than half of Pinduoduo’s core management) is execution-focused and will probably resolve many of the challenges that competitors find daunting.

Would be interesting to watch how far they would grow, and whether they would eventually pose a serious threat to Meli and Amazon alike.