In the shifting sands of e-commerce, what forces will mold the future?

Cross-border e-commerce livestreaming hosts at the Silk Road E-Commerce Pavilion during the Second Global Digital Trade Expo, held in Hangzhou, Zhejiang Province, on November 23 (XINHUA)

On November 28, Nasdaq-listed PDD, the parent company of China’s budget shopping app Pinduoduo and its international version Temu, released its third-quarter report for this year, revealing a year-on-year earnings growth of 93.9 percent, far exceeding that of trailblazing market leader Alibaba at 4 percent. A post made by an Alibaba staff member in response to the report inspired widespread discussion online and, sensing an impending challenge to the company’s long-held dominance in e-commerce, founder Jack Ma broke his customary silence after his retirement from Alibaba with a rare internal message on November 28.

The staff member’s post read: “At this moment, sleep eludes me… that once inconspicuous upstart is swiftly becoming the frontrunner. Though reluctant to share this downbeat post, my musings compelled me to leave it as a memo—both a reminder and a self-motivation. Here’s to the hope of striving alongside our team members, making incremental contributions, and ultimately surpassing the challenges that lie ahead.”

In Ma’s reply, he said: “I believe that everyone at Alibaba today is watching and listening. I am even more confident that Alibaba will change and improve. All great companies are born in winter. The era of artificial intelligence (AI) e-commerce is on its way, offering both opportunities and challenges for everyone. Congratulations to Pinduoduo for its decisions, execution and efforts over the past few years. Everyone has had their moments of brilliance, but it is those who reform for a brighter future, willing to pay any cost and make sacrifices, that deserve respect.”

The watershed moment came soon after. After the U.S. stock market closed on November 30, December 1 Beijing time, PDD’s market value ($195.89 billion) surpassed Alibaba’s ($190.65 billion) for the first time in its eight-year history.

Shop like a billionaire

“In certain respects, PDD’s overtaking of Alibaba as China’s top e-commerce firm serves as a milestone in the shift of the balance of power in the sector,” Cui Lili, Director of the Institute of E-Commerce at Shanghai University of Finance and Economics, told Beijing Review.

Social commerce, characterized by the integration of social media platforms with e-commerce functionalities, enables users to discover, share and purchase products seamlessly.

Founded in 2015, Shanghai-headquartered PDD has revolutionized the social commerce landscape with its unique group-buying model. By encouraging users to form groups and make collective purchases to unlock discounts, the platform has swiftly grown its user base. Leveraging its ability to provide a diverse range of exceptionally affordable products, its Pinduoduo platform has gained traction with price-sensitive consumers in China.

In the meantime, Cui emphasized that the significant progress made by PDD in the realm of cross-border e-commerce is another critical factor contributing to the astounding surge in its market capitalization.

Since its launch in the United States in September 2022, Temu has been rapidly expanding its market footprint. Up to now, Temu has entered more than 40 countries and regions, including the U.S., Brazil, the United Kingdom, Japan, Australia, South Africa and Saudi Arabia.

The business model that proved successful in China has been successfully replicated overseas, unleashing a global e-commerce storm known for its emphasis on affordability. The name Temu, derived from the concept of “team up, price down,” encapsulates the essence of the model. And in its business slogan—”shop like a billionaire,” lies the secret of its success in winning over consumers. After all, who doesn’t love a good discount?

Global market analysis institution Euromonitor’s data reveals that in 2022, China’s e-commerce penetration rate reached 27.21 percent, outpacing the global average of 20.4 percent. The well-established e-commerce market in the United States saw a penetration rate of 26.26 percent in the same year. In contrast, emerging markets in Southeast Asia, Latin America and the Caribbean, Africa, and the Middle East have lower penetration rates, remaining below 10 percent in 2022. Increased e-commerce penetration in these markets will bring unprecedented opportunities for cross-border e-commerce.

“In recent years, cross-border e-commerce has emerged as a new foreign trade growth driver,” Cui said. “Looking forward, digital trade facilitated by cross-border e-commerce platforms is poised to become a crucial component of international trade.”

“The significance of PDD surpassing Alibaba in market value extends beyond a mere shift in market dynamics—it symbolizes the emergence of new trends and opportunities within the Chinese e-commerce landscape,” Guo Tao, an angel investor and senior AI expert, told Beijing Review.

PDD’s triumph serves as a compelling testament to the viability and untapped potential of social commerce, signaling positive developments for the entire e-commerce industry, Guo said.

Furthermore, its trajectory has opened up novel prospects for China’s manufacturing sector, he continued. With the customer-to-manufacturer model, PDD empowers manufacturers to directly engage with consumers, elevating supply chain efficiency and transparency, and catalyzing the advancement and transformation of the manufacturing industry.

Many China-based sellers said on Pinduoduo (and Temu), they only need to accept orders and then ship their products to domestic warehouses designated by the company. The subsequent processes, including sales, delivery and after-sales service, are all handled by the platform.

The model allows manufacturers to focus on product research and design, lowering the threshold of entering the cross-border e-commerce market for small and medium-sized sellers.

Given its status as one of the world’s foremost manufacturing powerhouses, China boasts a large volume and wide variety of products and a distinct edge in the supply chain. This positions the country to wield an even more substantial influence in the realm of cross-border e-commerce, Guo said.

 

An employee of a cross-border e-commerce company prepares to ship goods in a comprehensive bonded zone in Chongqing Municipality on December 4 (XINHUA)

Who holds sway?

In the ever-evolving realm of e-commerce, PDD’s success is merely the starting spin of the roulette wheel. On the global stage of intense competition, who will unveil the next breakthrough remains unknown. Nevertheless, innovation is undeniably the game-changer.

What PDD has achieved heralds a future where involvement in this sector extends beyond e-commerce businesses to include a more prominent role for the manufacturing industry, Cui said.

Chinese manufacturing can offer globally competitive products that are both affordable and of high quality. While PDD continues to bring a wider variety of products and greater possibilities to the world, it also needs to consider how to brand these products. This strategic move will further enhance the premium value of Chinese manufactured products, fostering a positive reputation and brand recognition, she said.

In the future, the global e-commerce arena will be far more extensive than these players alone. In its bid to remain at the front of the pack, Alibaba is choosing to lay emphasis on AI-powered live commerce that combines the power of live streaming with the convenience of online shopping to create a more dynamic customer buying experience.

“The application of AI has the potential to revolutionize the e-commerce sector,” Guo said.

Through AI, more precise user profiling and personalized recommendations can be achieved, greatly enhancing user experience and purchase conversion rates. Additionally, related technologies can be applied to provide more intelligent and efficient livestreaming services, thereby increasing user engagement and purchasing intent. But AI-powered live commerce also faces challenges such as data privacy and security issues, technological costs, and requirements for skilled professionals, he said.

As Jack Ma has said in his post, the AI-driven e-commerce era is just commencing, offering both opportunities and challenges for everyone in the industry.  –The Daily Mail-Beijing Review news exchange item