FASH455 Video Discussion: How Temu Makes Money From $4 Jackets and $10 Smartwatches?

10 thoughts on “FASH455 Video Discussion: How Temu Makes Money From $4 Jackets and $10 Smartwatches?”

1. 1. In the above two videos about Temu, there were several examples of globalization. Yan Pu, a Chinese small business owner is a prime example of someone using globalization to his advantage. His faux leather jackets can be produced for $4 in China and later sold to consumers in the US for $29, a whopping 86% markup. He claims that, due to the slowing Chinese economy, it is critical that he get involved in selling overseas. He knows that he can create products for a very low price and that Americans will continue to purchase them. Another example of globalization is the $10 smartwatch that can move from China, where it was produced, to the consumer in New Jersey within a week. It emulates an expensive Apple Watch, but can be produced and sold at a much cheaper price with the help of Chinese manufacturers. Temu itself also represents globalization quite well due to the fact that, although headquartered in Boston, it’s actually owned by Pinduoduo, a major retailer headquartered in Shanghai, China. Temu was the company’s first major push into the overseas market.
   2. Based on the videos, the winners of globalization are the consumers receiving products for extremely low prices and the large corporations like Temu and Shein producing these products for the lowest possible cost. These two companies in specific are benefitting more than other retailers like H&M and Gap due to the “de minimis rule.” They ship goods under $800 internationally to American homes which allows them to avoid tariffs and duties at US customs. As a result, they fly under the radar and save hundreds of millions of dollars each year. The losers of globalization, on the other hand, are the workers producing all these garments for unethically low wages in terrible conditions. In Xinjiang province, for example, the cultural identities of Uyghur people are being erased, over 2 million are in concentration camps, and hundreds of thousands are forcibly packed into factories to work long hours and produce goods. Despite a Uyghur forced labor prevention act passed in an attempt to protect the people of Xinjiang province, Temu still has items on their website that come from this region. Once again, Temu comes out with the advantage due to this unethical and illegal behavior while other American companies and the Uyghur workers are affected negatively.

   1. Great thoughts and comments. Two quick follow-up questions: 1) Should other fashion brands and retailers like Zara and H&M support the removal of the de minimis rule? 2) What can we do about Shein and Temu?

2. 1. Temu is thriving off of globalization, and thriving illegally. Yan Pu, has created extremely cheap product offering to the United States, even cheaper than the prices in China, where the products are being shipped from. It is the bargain pricing that keeps Americans shopping. The way Temu communicates to Americans is also important. Temu had not one, but two super bowl ads that increased sales in the U.S. by 30%. While this was an expensive risk, it proved to be worth it. This is a clear example on the importance of strong communication when globalizing a business. In addition, the products from Temu are made in China and shipped to the United States. The resources used to make the products are from Xinjiang, which goes against the U.S. import laws. Through the low prices mentioned earlier, Temu can get through De Minimis shipping without inspection that would prove where the products were sourced.
   4/5. It is interesting and angering to me that companies like Temu and SheIn are as successful as they are through breaking the law. With De Minimis, they keep their products cheap so their duties aren’t increased, allowing cheaper sales to the consumer. This means products can be sourced to Xinjiang without the U.S. catching it. The products being purchased are being made through forced labor with poor conditions, and Temu executives are making money off of this, but denying their own responsibility. Other companies who are following the law are going to have a hard time competing with brands like Temu, because their prices will reflect duties and tariffs. De Minimis needs to be dropped so brands are forced to put their products to the test and keep their sourcing away from Xinjiang. This will create a fair playing field for companies who are following the law, while hopefully aiding in the fight against forced labor.

   1. Very interesting and thoughtful comment! So the problem is whether the de minimis rule needs to be reformed or it is simply be abused? And how to improve the situation?

3. posted on behalf of Emilie

   #2 Based on the videos, who are the winners and losers of globalization and why?

   Based on the following videos, there are both winners and losers of globalization. The winners of globalization include everyone from the sellers listed on Temu’s app, to the fast-fashion companies themselves (Temu, Shein, etc.), to the multinational commerce groups holding these companies in their portfolios (PDD Holdings & Alibaba Group), to not surprisingly, the consumers. With globalization, business models and supply chains such as Temu’s were not only made possible, but were able to flourish. Temu is largely reliant on the logistics system of its parent company, PDD. Globalization has allowed for a holding company, such as PDD, to capture somewhere over 11 million suppliers globally (Walter, 2022). This highly extensive, international network has been an advantage to the company, Temu, as they are able to capitalize on many suppliers that provide products produced at unbelievably low prices. Ultimately, some of the largest winners in this situation are the American consumers that are able to purchase the products they want at prices that satisfy even the most economically conscious consumers. If there are so many winners, then globalization is incredible, right? Well, not necessarily.

   There are many losers in this situation as well. Some losers of globalization in this example include the American brands and companies, as well as other international brands, that are following the rules put in place by the Uyghur Force Labor Prevention Act, as well as paying the set duties and tariffs imposed by the US Government. Temu and Shein are serial abusers of the provision De Minimis, which states that imports $800 and less are duty and tax free. Not only are these companies paying hundreds of millions of dollars on adjusting their suppliers and paying the proper duties and taxes, but this price is essentially passed down to the consumer. From an external point of view, these brands’ prices are much higher than places such as Temu, leaving them at a real competitive disadvantage. Arguably the most important loser in globalization are the individuals that are being exploited to achieve the ultra low prices consumers love. For example, it is believed that the Ughur people are currently being forced into labor as well as reeducation camps. This shows the sad downsides to globalization, where minorities can be taken advantage of to suit the majorities best interests.

   https://www.imcgrupo.com/what-is-pdd-holdings-the-story-behind-temu-explained/

   #4 Some suggest ending the “de minimis rule.” Based on the videos, what is your view and recommendation for US policymakers?

   I need to do more research to give a thorough suggestion. From my initial readings, I believe that the only way to eliminate the “work arounds” of this rule that companies have taken advantage of would be to either eliminate this provision all together, or instead, require all necessary paperwork to be included, regardless of whether the imports are taxed. The implications of eliminating this rule altogether would most likely negatively impact the small businesses that rely on this rule to make profit. It would, however, be the most efficient way to prevent companies such as Temu and Shein from continuously taking advantage of the provision. But the real question is, would eliminating the De minimis rule prevent Temu or Shein from finding another loophole? Maybe, maybe not. Or, rather than focusing on the imports and duties these companies are paying, should we instead be focusing on the paperwork associated with these imports to ensure they are following the Uyghur Force Labor Prevention Act?

4. #3 What role does international trade play in Temu’s business model?

   International trade plays a very large role in Temu’s business model, and it is how the business is able to operate and be profitable. Temu is based in the United States with users from all over the world, but its products are coming directly from China. This model gives Temu a major supply chain advantage because the labor costs in China are so much lower than that of the US. They do not pay for brand names which has also aided them in the ability to keep their product prices low. Without international trade, this business model would not work.

   #4 Some suggest ending the “de minimis rule.” Based on the videos, what is your view and recommendation for US policymakers?

   Issues arise when it comes to getting the goods from China to the US. Not all Chinese manufacturers can sell goods in the US because of US import laws, but Temu has found a way around this simple saying that they do not partake in making the goods, they just sell them. With De Minimis Shipping, all goods valued under $800 shipped internationally to US homes avoid tariffs and duties at US customs. Because Temu’s products are so cheap, their packages are clearing this guideline and therefore avoiding this. If this rule were to change, it would be very disruptive to Temu where they would have to make their goods less cheap which would cause a loss of appeal to the company, or it would take a lot longer to get goods from China to the US. Personally, I would suggest eliminating the de minimis shipping rule in order to make the shipping process more fair to other businesses that are trying to do right and to hold Temu accountable.

5. I didn’t realize that Temu was individual shoppers similar to Amazon. It makes me wonder if Temu could ever compete with Amazon for market share in the US. People are more hesistant to trust Temu and there have been recent rumors about Temu stealing bank account information. I wonder if this will slow down their business or if US consumers are willing to risk it.

6. Looking at the impact of Temu in the U.S, it’s fascinating to see just how much globalization plays into the success of major fashion companies. As Temu started in China and eventually worked it’s way into becoming a top seller in the U.S, we can really see how globalization is dominating the industry. But we can also see the negative effects to this. The American consumer market loves a cheap deal, and Temu has found the most unethical and illegal ways to benefit from this. It makes the companies untrustworthy and has a serious negative impact on labor wages and the unethical supply chain.

7. #1 Based on the videos, I learned a lot about the new online marketplace, Temu. I knew it was a site similar to Shein where you can get products in any category for very cheap. However, I had no idea what went into the production process. International trade is a very significant factor of Temu’s business structure. Temu has many global manufacturing partners which ensures each product can be at the lowest possible price. The brand is able to create profit by being able to source from China which is known for their low prices.

   #4 I believe that the “de minimis rule” should be removed because it makes situations like this seem unfair because only some people are held accountable for violations. Although I appreciate these low prices, the quality of these products do not compare to more expensive brands, meaning these products don’t last as long and inevitably they just lead to more overconsumption. Based on the videos, I believe U.S policymakers should eliminate this rule overall. Even though it would harm brands like Temu and Shein, I believe that these types of fast fashion brands are harmful to the environment and need to be reduced.

   1. #3 not #1!!!!

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