The entry of Temu -- China's e-commerce behemoth -- into the Thai market last month is expected to intensify cross-border competition that will affect both online and offline businesses in Thailand, according to e-commerce pioneers.
The country's e-marketplace landscape has been dominated by foreign operators, including Lazada of China's Alibaba, Shopee of Singapore's SEA and China's TikTok Shop. Many local sellers have relied on these platforms to sell their products and face additional service fee increases.
The value of Thailand's e-commerce market is expected to reach nearly 700 billion baht in 2024, up from a projected 634 billion in 2023.
Over the past five years, representatives of Thailand's e-commerce industry have urged the government to take action against ultra-cheap imported products to create fair competition for local manufacturers.
Temu, which is owned by PDD Holdings, sells a variety of products, many of which are manufactured at low cost in China. Temu's popularity has grown since its launch in September 2022, as has the competition with incumbent e-commerce platforms in the United States and other countries.
Temu describes itself as a marketplace that connects consumers directly with third-party manufacturers, which reduces intermediaries and associated costs.
EMERGING THREAT
Simon Torring, co-founder of Cube Asia, a company providing market insights on e-commerce in Southeast Asia, said Temu's entry into Thailand initially presents a limited challenge to the existing e-commerce platforms but it could become a more serious threat to them in the future.
He added that Temu has expanded into new markets at a rapid pace over the past 12 months. Following its launch in Thailand, the platform is now available in more than 70 markets worldwide. The platform has become a major player in many of these markets, due to its aggressive branding, heavy investments in digital marketing, and its amazing deals -- mainly on unbranded Chinese-made goods.
Its playbook, which has worked particularly well in developed markets such as the US and Western Europe, will likely also be deployed in Thailand, Mr Torring said.
Thailand is the third market Temu has entered into in Southeast Asia, having established a presence in the Philippines and Malaysia almost a year ago. Temu enjoys high-user awareness and high application download rates in those two markets. However, so far it has only gained a limited market share in those countries from the more established players such as Shopee, Lazada and TikTok Shop.
"A big reason for this limited success is that Southeast Asia's e-commerce platforms already provide a wide range of cheap Chinese goods, for example through Shopee's and Lazada's cross-border offerings. In this sense, while Temu has some novelty power, its value proposition is less of a game-changer in Southeast Asia than it is elsewhere," said Mr Torring.
Temu is expected to broaden its offering by including goods from well-known brands to further expand its market share in the region, he added.
IMPACTING EVERY MARKET
Paul Srivorakul, group chief executive of aCommerce, an e-commerce enabler, said Temu's entry into the Thai market will fuel fiercer competition among online retailers. The other platforms will have to develop offerings and strategies to compete with Temu's group buying and marketplace models.
Group buying refers to a model that allows a number of consumers to purchase goods and services in bulk at reduced prices, so that both the consumer and vendor can benefit from these transactions.
"This situation is already happening in the US and impacting players such as Amazon as well as offline retailers like dollar stores. The cross-border and import tariffs will have some impact on Temu, but it will be willing to subsidise prices even further to win the market," said Mr Paul.
Thailand recently slapped a 7% value-added tax (VAT) on imported goods worth one baht or more. Previously goods sold for less than 1,500 baht per packet and imported into Thailand were exempted from VAT.
Mr Paul said brands would need to adjust their e-commerce strategies as the market will be flooded with new products across new channels that will take a share from existing retail and distribution models.
Mr Paul cited a US research study that suggests the presence of Temu impacts local offline retailers, particularly when it comes to low-cost items sold by local small and medium-sized enterprises (SMEs), chain stores, and street stalls.
The presence of Shopee and Tiktok Shop has already significantly impacted Lazada and local retailers. Temu's entrance will be like adding fuel to the fire, Mr Paul noted.
He said Temu leverages artificial intelligence (AI) and gamification to develop addictive retailing and merchandising strategies. The pricing strategy and product promotions are designed to trigger specific psychological responses among consumers to encourage them to continuously shop using game-like elements to enhance the shopping experience, he added.
The logo of Temu can be seen on the screen of a mobile phone in an illustration displayed on the company's website. REUTERS
Mr Paul said Temu's global annual advertising budget of US$3 billion has set a high benchmark for digital marketing efforts. Its aggressive ad spend may make other marketplaces become more competitive, driving up online marketing costs for everyone and drowning out local online retailers who are already struggling to remain top-of-mind with consumers.
Local players will need to evaluate their marketing strategies and budgets to compete with such substantial marketing investments. Google, Facebook and Line will benefit from Temu's ad spend at the global and regional levels.
RULES ARE RULES
Visanu Vongsinsirikul, secretary-general of the Trade Competition Commission (TCCT), said the commission would consider whether Temu's practice of offering cheap products should be subject to the country's anti-dumping rules.
Thailand's Trade Competition Act covers products sold at less than cost in an effort to eliminate competitors or create price pressure, forcing partners or suppliers to lower their costs.
"If any sellers show signs of such behaviour, we can enforce our law. In cases where these sellers lack a local presence, Section 58 of the law stipulates that if foreign operators collaborate with local business partners and harm the local economy, it may constitute a violation of the law," Mr Visanu said.
Mr Visanu also noted that private operators need to submit details of the cost structure for anti-dumping investigations.
"We require clear and specific information to conduct further investigations," he added.
Chaichana Mitrpant, executive director of the Electronic Transactions Development Agency (ETDA), said the ETDA had developed a "recommendation standard" for digital platforms across various industries, covering over 100 items.
The recommendation comes under the Commerce Ministry and is aimed at defining standards and sharing data of products that have certified standards. The recommendation standard is awaiting approval before being put before a public hearing.
He said that to govern digital platforms, collaboration is required among many state agencies. For example, the TCCT on matters pertaining to laws concerning competition, the Revenue Department when it comes to corporate tax and VAT, and the Customs Department for customs-related tax matters.
Mr Apichit said the Federation of Thai Industries has asked the relevant authorities to implement additional new measures to cope with the importation of a large quantity of ultra-cheap products from China.
ADDITIONAL STEPS REQUIRED
Apichit Prasoprat, vice-chairman of the Federation of Thai Industries (FTI), said the federation has asked the relevant authorities to implement additional new measures to cope with the large number of imported products from China.
More factories may shutter if the government fails to deal with the influx of cheap products from China, which is thought to be on the rise following the entry of Chinese online retailers into the Thai market, he added.
The high level of competition as the result of the importation of low-cost Chinese products is expected to intensify, causing local manufacturers, particularly small and medium-sized enterprises (SMEs), to consider exiting the market, as Temu has vowed to provide discounts of up to 90% on products sold on its platform, said Mr Apichit.
The federation is conducting a survey to see how many SMEs will be affected and what kinds of business they are carrying out. An initial survey found around half of 46 industries under the FTI are struggling to deal with the flood of cheap products from China.
"Some entrepreneurs decided to adjust their businesses by shifting from being manufacturers to being importers of products, mainly from China," said Mr Apichit.
The Commerce Ministry noted that if Thai manufacturers are hurt by the influx of cheap Chinese goods, the government has anti-dumping measures and regulations in place to review the import tax rates on the types of goods that are now affecting Thai SMEs.
Vuttikrai Leewiraphan, commerce permanent secretary, said the emergence of the Temu platform would allow people to have direct access to cheap products made in Chinese factories. This would pose a detrimental impact to those SMEs acting as middlemen that import products from China.
Furthermore, original equipment manufacturers (OEMs) would also be affected as consumers would opt for Chinese products which are much cheaper, forcing SMEs to lower the price of their products, resulting in a reduction in their profits.
Mr Vuttikrai said the government should implement measures to protect local businesses from the influx of cheap Chinese goods, especially via e-commerce platforms. This could be achieved by enforcing anti-dumping and anti-circumvention measures, imposing tariffs on Chinese imports and beefing up customs inspections of imported goods.
Moreover, the quality of imported products is crucial as many products purchased online lack adherence to standards and are often packaged, making it difficult for consumers to inspect them.
Measures are required to certify the standard of such products, Mr Vuttikrai said.
The Revenue Department stipulates that e-commerce platforms need to set up "electronic special accounts" that report the revenue and business information of their online merchants, effective as of Jan 1 this year.
"Consumer protection laws must be improved to cover e-commerce and penalties increased for violations of consumer rights or the sale of substandard products. These measures would help create a fair environment for competition, protect local producers, and improve consumer trust and confidence," Mr Vuttikrai said.
TIE-UP ON THE HORIZON
Thailand Post president Dhanant Subhadrabandhu said the entry of Temu into the Thai market could impact all related parties, but especially online and offline retailers due to the Chinese company's competitive pricing strategy and unique business offerings.
Mr Dhanant said Thailand Post is monitoring Temu's actions. The state-run logistics provider is eager to seek a way to connect with Temu via a logistics partnership model, as it had already done with several other e-commerce and social platforms.
Mr Dhanant said Thailand Post has to collaborate with all platforms to ensure its substantial revenue stream.
Thailand Post recently disclosed that it is ready to establish a joint venture with a huge Chinese logistics company early next year to boost the volume of its logistics transactions between China and the domestic market as well as from the domestic market to China.