Will Temu Conquer the World 600 Years After Timur?

The world is currently abuzz with the excitement of Temu. If you have yet to hear, Temu is an e-commerce platform that brings products directly from factories in China to your doorstep. If you have a factory in China that exports, you pay $1,000 to register with Temu. You then join the ranks of a million suppliers on the platform, allowing you to start receiving orders from anywhere in the world. Temu delivers your order to the buyer’s address at “factory sale prices” within 12 days. You can buy a wide range of products from Temu, such as handheld fans, underwear, or phone holders.

Previously, to buy Chinese-made products that are now easily accessible through Temu, you had to contact the local distributor. These distributors sold their products through e-commerce platforms. Now with Temu\ the distributors are out of the picture, so the prices drop. If you’re wondering who you would contact if there’s a problem with your purchase, Temu accepts returns within three months. They often tell you to keep the product and still refund your money. Up to this point, everyone is happy. Commerce is becoming democratized, and everyone can access cheap Chinese products.

Temu was established just two years ago and has already reached a transaction volume of $350 billion. Orders can be placed from over 60 countries. When Temu entered the European Union and U.S. markets last year, there was an uproar. The most disturbed parties were local e-commerce players and distributors of Chinese products in these countries. They claim Temu spends $20 billion annually on logistics, likely covering all shipping costs. Distributors argue that they promote these products locally. However, when customers come to their stores, try the products, and order from Temu with free shipping, it becomes nearly impossible to compete.

As a result, the European Union declared Temu a “huge online platform” under its Digital Services Act at the end of May. Today, Temu was supposed to inform Brussels on how it would comply with the obligations arising from the law. We’ll see what comes out of this notification. In Indonesia, the Ministry of Trade, which previously banned TikTok Shop, announced a similar initiative regarding Temu. The ministry says that if Temu grows, local businesses won’t be able to compete.

In Turkey, citizens’ use of credit cards abroad increased by 115% in the first five months of 2024. Some of these people are tourists drawn to Greece by enticing social media posts. Others are shopping through e-commerce platforms like Temu. This trend is likely similar worldwide, as global air cargo volume increased by 12% during the same period (total trade volume increased by 2.6%). Another factor fueling this trend in Turkey is the rapid appreciation of the Turkish Lira. When buying the same product in Turkey, costs rise due to services like store/warehouse rent and employee wages, reflected in the prices. With Temu, these costs are absent, and Temu covers the shipping costs.

Platforms like Temu exploit a loophole in e-commerce regulations: if you order less than five items weighing less than 30 kg in total and valued under €150, your e-commerce order is not subject to customs. You only pay a specific tax added to the price. This exception was intended to order products that are not available in your country. However, when shipping is free, this exception becomes the norm. Typically, you’d expect that bringing a single product from China would be more expensive than getting a product shipped in bulk.

We need to foresee the market’s condition if exceptions become the norm. For this reason, the European Union now plans to lower the customs exemption thresholds in e-commerce. Why is this threshold €150 and not €25? What will happen if stores selling imported goods in shopping malls close due to e-commerce? We must consider the masses who only have the mall for entertainment and, more importantly, those who work in these stores. When Amazon first appeared, this issue wasn’t considered for bookstores. As everyone started ordering books cheaper from Amazon after browsing bookstores, it’s almost impossible to find a decent bookstore, even in the most cultured countries.

Laws struggle to keep pace with technological innovation. We enacted our e-commerce law in 2022 to prevent monopolization. Temu was also founded in 2022. As we were implementing the law, the competition rules in e-commerce had already changed! Lastly, technological innovation may only sometimes benefit humanity. Do we need so many products to be traded worldwide? We can’t protect the environment by making unnecessary purchases. A system where shipping costs, which do not reflect carbon emission costs, are subsidized directly harms the environment.

This article is a translated version of “Timur’dan 600 yıl sonra Temu dünyayı ele geçirir mi?” which was initially published in Economic Daily (Nasıl Bir Ekonomi Gazetesi) on July 12, 2024.