Temu, Shein and the 'Zero-Sum Game' of Cross-Border E-commerce
Temu and Shein's getting unwanted attention. Their snafus and the Shedding PR strategy analyzed.
Public announcement: Starting in September, I will take on selective consulting and advisory projects again. If you plan to build or revamp your corporate narrative strategy, let’s chat. https://waveletnyc.com
Last October, I started writing about Temu, a subsidiary of Pinduoduo (PDD), just a month after its US launch. Despite a low-key start, the app swiftly climbed to the top of the Android download charts within two weeks of launch.
Temu then embarked on an aggressive social media and advertising campaign. I wrote about its kitschy Super Bowl debut and why it was an ill-advised marketing strategy at the time. I mean, why splurge tens of millions of dollars just to win the second-to-worst Super Bowl ad of the year?
Read the full piece inPekingnologybelow:
Since then, Temu has barely stayed out of the spotlight and dragged its archenemy Shein into it, too (not that it really needed the help).
Untangling the Shein and Temu Background Story
The U.S.-China Economic and Security Review Commission penned a report titled "Shein, Temu, and Chinese e-commerce: data risks, sourcing violations, and trade loopholes." A coalition is trying to ban Shein completely in th US.
There’s infighting, too: Shein and Temu are suing each other and airing their dirty laundry in a full-on legal showdown. Shein sued Temu over IP infringement; Temu is returning the favor and accusing Shein of violating US antitrust law.
Shein has more to lose in this battle. Temu’s parent company, PDD 0.00%↑, is already a U.S.-listed company and valued at more than 100 billion USD. PDD has the deep pockets to take some risks: it has a robust free cash flow and has been steadily taking market share from BABA 0.00%↑. PDD dutifully subsidizes the prodigal son’s overseas adventures, even as Temu burns close to $1 billion dollars a year.
On the other hand, Shein is still private and has been talking about going public for some time. Its Chinese founder, Yangtian Xu (许仰天), even secured permanent residency status in Singapore, likely to smooth the path to a potential listing. Yet, even with efforts to mitigate looming "China risks,” investor sentiment remains cautious.
Shein’s current valuation of $66 billion is down from a peak of $100 billion last year. The media's unyielding scrutiny could further tarnish Shein's image among potential backers.
The competition with Temu is adding to its woes. Temu’s legal complaint against Shein reads like an expose of Shein’s business practices and is giving the public an insider look into how cutthroat the e-commerce zero-sum game really is :
Specifically, Shein has implemented at least four strategies geared toward stifling competition from Temu (collectively, the “Scheme”):
(a) Shein forces manufacturers to enter into adhesion agreements that effectively create exclusive supplier relationships with Shein and threatens manufacturers with onerous fines and penalties if they supply product to Temu;
(b) Shein forces manufacturers to sign loyalty oaths certifying that they will not do business with Temu, but which are silent as to any other competitor or potential competitor;
(c) Shein issues public penalty notices and imposes extrajudicial fines on disobedient manufacturers for supplying product to Temu, practices that simultaneously punish manufacturers that dare to do business with Shein’s closest competitor and warns other manufacturers that Shein will not tolerate any manufacturer’s doing business with Temu; and
(d) Shein sends numerous false notices of copyright infringement to Temu in order to disrupt sales of products that are offered for sale on Temu. These notices are almost always aimed at products that Temu sells at lower prices than Shein charges for identical or similar products.
The Reputation Risk
The tangible consequence of these allegations is a reputational hit for Shein, Temu, and, by association, PDD. While the complaint above highlights tried-and-true e-commerce tactics in China — for example, Alibaba's BABA 0.00%↑ forced brands to sign exclusivity agreements — elevating the dispute to the US courts signifies an escalation to an all-out confrontation.
Both Temu and Shein are transitioning from a defensive communications approach to a more proactive one. Since the spring of this year, when WSJ and The Guardian interviewed me about the allure of Chinese apps, Temu and Shein have ramped up their external communication offensive.
Here is a brief analysis of one of Temu and Shein’s corporate branding and PR strategies:
“The Shedding Strategy“
Temu began emphasizing its Boston-based, non-Chinese identity in its public and investor communications, distancing itself from PDD. The Washington Post wrote about it (and I’m grateful that it attributed to my thread that prompted the closer look).
Notably, even in its recent legal complaint against Shein, there's no reference to PDD, just a hint at it to highlight Temu’s distinctive competitive advantages.
“Though new to the U.S., Temu’s affiliated companies are some of the most successful online retailers. Shein is well aware that Temu has the experience and ability to identify and source from the most efficient apparel manufacturers and build an agile business model that offers an ever-evolving product line to lure customers to its platform.”
Shein is doing the same. In its fact sheet, China is mentioned just once (“Our suppliers are based in regions including Brazil, Southern China and Turkey”), and its headquarter is in Singapore.
But…
…everyone already knows Shein and Temu’s Chinese connection. Both have gotten so much press in the past couple of month, and the campaign to shut down Shein is predicated on its China affiliations. The intense scrutiny makes denial seem pointless, and rejecting its Chineseness could create issues with the Chinese government down the road.
The PR Remedy
In corporate reputation, as it is in sports, one chooses to either play offense or defense. The best way to defend oneself in the world of ideas is to shape those ideas.
Having said this, the strategy is not to assume one or three positive stories will change the game in the short run. Re-educating stakeholders and creating a foundation for understanding will take time and patience.
Shein learned this the hard way when it received backlash from sending influencers on Shein factory tours in China. The initial plan was to put out positive content for the Shein 101 initiative, an Instagram series to change the perception of the company.
Shein’s PR offensive, using influencers to rebut allegations of forced labor and poor working conditions, ended as an even bigger story of outcry against the “staged” nature of the trip.
In a statement, Shein said the trip “reflects one way in which we are listening to feedback.”
“Their social media videos and commentary are authentic, and we respect and stand by each influencer’s perspective and voice on their experience,” the company added.
The backlash was so severe that Shein had to roll out an executive for damage control, which included a likely embargoed, yet still critical, interview with the Times. The "We are not perfect, but doing our best" approach might not satisfy everyone, notably the influencers who faced cyberbullying. However, it's preferable to remaining silent.
For enduring success, Shein, Temu, and indeed all Chinese companies going global must directly address doubts, own up to the facts, put in place real IP protection program (no amount of PR can replace this), and integrate into local cultures and business norms.
And that’s all there is to it.
If you liked this post, please subscribe and send Calling the Shots 话语权时代 to two friends in the circle of trust. I’d be forever grateful <3
Thank you for reading Calling the Shots 话语权时代
Your work is rather good. This is also a topic of great interest to me.
Is sales and marketing in the US ramping?