In January, the e-commerce marketplace Temu launched in South Africa, as the Chinese giant PDD Holdings begins its expansion into Africa.
PDD Holdings was founded in Shanghai in 2015, with the Pinduoduo platform launching in the same year. Pinduoduo is a third-party marketplace that connects buyers with sellers and has become known for offering heavily discounted consumer goods. The company makes its profits by taking a percentage of each transaction and charging merchants for advertisements.
Pinduoduo, which generated 130 billion yuan ($18bn) in revenue in 2022, has become particularly profitable because of its extremely lean business model. For one, the company has a much smaller workforce than similar firms. PDD had fewer than 13,000 employees at the start of 2023 compared to Amazons 1.5 million head count, helping the company keep costs down.
Part of the reason for this small workforce is that, unlike its competitors, PDD also outsources its fulfilment and distribution functions to third parties. Although this is unusual for a company of PDDs size, the model has allowed PDD to achieve the highest profits margins of any Chinese e-commerce platform.
While the company has faced some criticism in China over the years with some alleging that PDD has sold low-quality or even counterfeit goods this has done little to stem its rapid growth. In the first quarter of 2023, Pinduoduo had 623 million monthly active users in China alone.
PDD initially ran at a loss but, in the third quarter of 2020, started posting profits. These profits have grown steeply since then, with PDD posting a net profit of $8.455bn for 2023, a number which was up almost 85% compared to the year before. PDD, which was listed on the Nasdaq in 2018, has now reached a stock market capitalisation surpassing $150bn.
With the Chinese company now highly profitable, PDD is attempting to take the Pinduoduo model global with its Temu marketplace, through which consumers around the world can access consumer products manufactured and shipped from China. Temu is now active in over 50 countries and, with its recent launch in South Africa, has entered the African market for the first time.
Mkhuzo Mwachande, an investment banker in Cape Town, tells African Business that PDDs expansion into Africa is driven by a desire to open up access to fast-growing markets.
The Chinese market, where PDD primarily operates, is becoming increasingly competitive and saturated, he says. With concerns about Chinas aging population and declining workforce, PDD may be looking to diversify its revenue streams and tap into new markets with potential for growth. Africa, with its large and youthful population, presents an attractive opportunity for PDD to expand its userbase and increase sales.
Christian-Geraud Neema Byamungu, a China-Africa analyst based in Port Louis, adds that other big Chinese companies, such as Alibaba and AliExpress, have been in the African market for quite some time already. They all realise that Africa is becoming a large market with lots of consumers wanting to take advantage of what Chinese e-commerce companies are putting on the table.
The attraction of cheap goodsByamungu also notes that Chinese platforms are at an advantage in Africa compared to European or American rivals because they are able to provide lower-cost products.
Africa is a market of huge opportunity; we have a huge number of people eager to buy from Chinese platforms, he tells African Business. Because of their purchasing power, most African consumers cannot buy clothes or other products from Europe because the costs are much higher.
Buying from China is cheaper, and Africans recognise that the goods coming are of much better quality than used to be the case. For all these reasons, Africa is a burgeoning market where any Chinese e-commerce venture wants to be.
While Temus launch in South Africa appears to be going smoothly with the logistics in place to deliver orders within ten days Byamungu says that the company will face significant challenges should it wish to expand into other parts of the continent.
The biggest problem they will face is entering markets where there are no strong logistic companies able to cover the business-to-consumer element the last mile of delivery direct to consumers, he explains. These logistics-related problems would cause big difficulties in terms of implementing their business model.
The Democratic Republic of the Congo, for instance, is a huge market. There are plenty of consumers and businesses wanting to buy from Chinese stores. But since the DRC has a very poor logistics system, it can take products three or four months to arrive, Byamungu says.
The B2C, last mile delivery services are the key to the success of their business model in Africa. The absence of this could be a hindering factor the ex
