So the Super Bowl was this past weekend and it broke many records (in addition to my bank account). The game averaged 123.4 million viewers, the most-watched telecast for a single network. Apparently, it’s the 2nd most-watched telecast in US history behind the Apollo moon landing. That’s a lot of eyes on the game, Usher, Movie announcements, that insane Dunkin’ ad, and of course, Temu.
Shop like a Billionaire
One thing I definitely noticed (unlike the new OT rules) was not 1, not 2, but 3 Temu ads. By the time I heard that little shop like a billionaire jingle for the third time I knew something was up. Quick maths, each 30-sec ad costs about $7M which places their ad spend to $21M and that’s just for air time. According to CNN, the online discount marketplace also offered $15M in giveaways, coupons, and other promotions. And that’s only a fraction of their total marketing spend which is estimated to be upwards of $3B. So what exactly is going on here?
Temu is a Chinese-owned online marketplace that sells discounted products and freebies. Their products are mostly shipped from China and are known for being low-cost. Behind Temu is PDD, a Chinese holding company that also owns Pinduoduo, another e-commerce company that’s famous in China. Their pay-to-play strategy is nothing new, but it only works if you never run out of money and when you’re backed by the Chinese government, well it’s kinda limitless. They’re also the latest Chinese company making the rounds in the U.S., following the growth of TikTok (along with TikTok shop) and Shein.
From WSJ Tech News Breifing:
When Temu first first arrived in the US, people thought Shein, which is a fashion giant, was Temu's main competitor. But as Temu has evolved in the US, people realize that Temu is a full category marketplace, and Shein is very concentrated on fashion, especially women's fashion. And Temu sells a wider category of products than Shein. So we can now say that because of its rock bottom-priced products that Shein sells, its competitors are the dollar stores like The Dollar Tree, Dollar General. It's also competing against stalwarts like Amazon and Walmart, although its offerings are not as wide as Amazon.
Our favorite advertising companies, Meta and Google, are the biggest beneficiaries of all this marketing money flying around with 76% of Temu’s ad spend going to social media. They spent more on Facebook than any other advertiser, except Amazon, and their ad spending on Facebook increased 318% in Q4 2023, with its spending on Instagram increasing 101%.
With the Chinese government having oversight over every major Chinese company, the question becomes why are they pushing so hard directly to the consumer?
Welcome to the Neighborhood
This week, it was reported that Mexico had surpassed China as the leading source of goods imported by the U.S. Figures released Wednesday by the U.S. Commerce Department show that the value of goods imported by the United States from Mexico rose nearly 5% from 2022 to 2023, to more than $475 billion. At the same time, the value of Chinese imports tumbled 20% to $427 billion.
On the surface, it makes sense as the Biden administration has urged companies to seek suppliers closer to home. This was already the trend given the supply-chain disruptions during the pandemic, making “near-shoring” a safer strategy. But if you look deeper, you find that the increase in production in Mexico is actually a long play from our waning friend.
The Trump administration began imposing tariffs on Chinese imports in 2018, arguing that Beijing’s trade practices violated global trade rules. President Joe Biden retained those tariffs after taking office in 2021, making clear that antagonism toward China would be a rare area of common ground for Democrats and Republicans… Mexico has been among the beneficiaries of the growing shift away from reliance on Chinese factories. But the picture is more complicated than it might seem. Some Chinese manufacturers have established factories in Mexico to exploit the benefits of the 3-year-old U.S.-Mexico-Canada Trade Agreement, which allows for duty-free trade in North America for many products. - Mexico overtakes China as the leading source of goods imported by US, AP
It seems the strategy for China is to develop production in nearby countries, taking advantage of fair trade agreements over direct business with the U.S. It’s not just Mexico either, they also have a presence all across Central America.
Another related story is Sam Altman’s vision to reshape the chips business as he seeks up to $7T in capital. The future of AI requires lots and lots of chips. While Nvidia has enjoyed cornering the market, the broader tech ecosystem already knows that they cannot rely on one company to feed them all in their AI endeavors. But how does this relate to China? Well, we know chip manufacturing is mostly done in Taiwan, a subject I’ve covered before. Altman’s vision is to build the chip business right here in the U.S. The international risks that come with the tension between China and Taiwan, along with limited supply, create the perfect market opportunity to build out the chip business right at home.
So as American production continues its breakup with China, the Chinese have decided to go direct-to-consumer.
Thank you
Since it’s the day after Valentine’s Day, then we can imagine China like an ex that just won’t go away. We can’t live with them but we can’t live without them. While the U.S. is working very hard to post their best photos showcasing how much better off they’re doing with their old fling, they’re still flirting with them offline, across the border. I saw it firsthand during my travels to Nicaragua this past December. It’s interesting to see how the Chinese develop relationships with Mexico and Central America, maybe it’s a net positive that spreads the wealth across the Americas. As always, if you have any questions, want more explanations, or strongly disagree, comment below, follow me on Twitter (X), follow me on Threads, follow me on TikTok, or shoot me an email.
Disclaimer: These views are my own, and do not necessarily reflect the views of any organization with which I am affiliated with.