CTemu, the Chinese online marketplace that has seen rapid international growth with its attractive and often incredibly affordable range of products, is facing increasing challenges with its price-cutting strategies.

In October, Indonesia ordered the removal of Temu from its app stores, citing the need to protect small local sellers. Recently, the Vietnamese government also threatened to ban Temu and another Chinese-owned retailer, Shein, for operating without authorization in the country.

Simon Tolling, co-founder of market insight firm Cube, explains that the influx of cheap Chinese products, often with minimal import taxes, cannot compete with the quality, speed, and pricing offered by local retailers online. This has led to disruptions for businesses and manufacturers.

“Tem has become a focal point for regulators, prompting concerns about potential changes to cross-border import regulations,” he remarked.

Poom Chotikavan, operations director at Taxa Toys in Thailand, is struggling to find local manufacturers for children’s toys as many suppliers have gone out of business. The closure of approximately 2,000 Thai factories and the loss of over 50,000 jobs last fiscal year, partly due to heightened competition and rising costs in China, have had a significant impact, according to Reuters.

“Sourcing products from China has become more challenging. Their sales have plummeted,” Chotikavan noted. “How can they survive when clients can directly contact a Chinese factory?”

Pinduoduo, the Chinese equivalent of Temu, has been in operation since 2015 and is set to launch globally in 2022. Temu is also expanding in Southeast Asia, starting in the Philippines and Malaysia in 2023 and expanding further into Thailand, Brunei, and Vietnam this year.

The growing consumerism among Southeast Asia’s middle class has made the region an attractive market, with online shopping sales projected to reach $160 billion in 2024, as per a Bain & Company analysis released in November.

Jiangang Li, CEO of venture firm Momentum Works, believes that TM’s international growth is timely as Chinese domestic customers reduce purchases from Pinduoduo due to the country’s economic slowdown.

However, Temu’s entry has provided a boost to the market, given the surplus capacity in Chinese factories resulting from the economic slowdown, forcing Temu’s main suppliers to sell larger quantities at lower costs.

“Surprisingly cheap”

Similar to Western markets, Temu combines affordably produced items with deep discounts and aggressive advertising, attracting shoppers with gamified experiences. This has appealed to hundreds of thousands of customers like Chotikavan, who purchased a MagSafe iPhone holder for $3, significantly cheaper than the market price.

While consumers benefit from access to cheaper goods, local businesses are calling for government intervention. Indonesia has implemented tax hikes and banned e-commerce on social media platforms to support struggling local sellers. Despite these measures, Temu continues to push for entry into the market.

“Their goal is to dominate the global market,” says Tolling.