Temu's Phase 3: ‘Building a new Pinduoduo’
What does this actually mean?
The free article below is partially based on translations from Huxia and Zouma Finance. At the end of the article you can find a 5-minute summary video.
At Pinduoduo’s shareholders’ meeting in December 2025, Co-Chairman Zhao Jiazhen announced that in the next three years, they will ‘recreate a Pinduoduo’ by ‘heavily investing in China’s supply chain’.
This claim was ambiguous, but it actually tells us a lot about where Temu will go next.
Three phases of Temu
Having studied Temu since the launch in September 2022, I see three clear phases ij Temu’s development:
Phase 1: C2M + Fully Managed Model
Temu combined C2M (see below) with ‘fully managed services’; manufacturers only had to ship to Temu warehouses in Guangdong province, and Temu would take care of pricing, marketing and logistics, which was very attractive for factories that did not have the required skills and knowledge for cross-border commerce. Factories are relieved of the heavy burden of overseas operations, logistics, and after-sales service, allowing them to focus on their core competency: production. This fundamentally simplified the cross-border supply chain and significantly improved efficiency. Meanwhile, low prices and high discounts enabled Temu to ‘buy’ market share.
I reported on this phase in various Tech Buzz China reports between September 2022 and May 2024. I also explained this phase in a keynote at the K5 Future Retail conference in June 2024 (click to watch).
Phase 2: Local warehouses
Next, Temu shifted to local warehouses under the semi-managed model, forward warehouses under the fully managed model, and local-to-local business. This would reduce logistical costs for Temu and avoid high import tariffs, as several countries abolish import tax exemptions for direct-to-consumer packages. It also enabled Temu to deliver more quickly and to add more bulky items to its assortment.
I have reported on this phase for Tech Buzz China from May 2024 to the present. I also described the development in the first section of a keynote at the K5 Future Retail conference in June 2025 (click to watch).
In these first two phases, Temu achieved globally in three years what Pinduoduo took a decade to accomplish domestically.
As Temu becomes profitable in 2026 following the first two phases (see Temu Watch #11), it will move into …
Phase 3: ‘Creating a new Pinduoduo’
In December, parent company PDD Holdings said that with Temu, it wanted to ‘recreate another Pinduoduo’ (PDD) over the next three years. For those who know little about PDD, that might not ring a bell.
But this is what it means.
PDD was built around the C2M (consumer-to-manufacturer) model, which aggregates demand and enables manufacturers to produce what consumer trends indicate consumers want. It changed ‘selling what you manufacture’ into ‘manufacturing what will sell’.
The traditional supply-and-demand chain is: market demand to brand, brand to factory, factory to distributor/wholesaler, distributor/wholesaler to retailer, retailer to consumer. Pinduoduo’s path is: market demand to platform algorithm, algorithm directly drives factory production scheduling, and factories directly reach consumers. Through its algorithmic advantages, Pinduoduo can quickly capture large demand and inform factories which styles, sizes, colours, and prices sell the fastest.
By aggregating large volumes and removing intermediaries, this Direct-to-Consumer delivery model could reduce prices by linking consumers directly to manufacturers. Most of the products were white-label, so there were no major brands taking a cut.
PDD even made it feasible to send certain agricultural products directly to consumers. I wrote C2M about this 5 years ago (link in Dutch), and Rui also did a podcast on the topic around the same time.
Explaining the C2M model at the Score conference in Zürich, May 2024.
So, what happens next?
Historically, China’s industrial clusters primarily engaged in OEM production for domestic and foreign brands. With the rise of Temu, these factories can now directly reach global consumers through the platform.
Temu will support industrial clusters with hundreds of billions of yuan, covering core production areas of manufacturing and agriculture; promoting factories to shift from passive OEM production for third parties (‘I produce when others place orders’) to proactive creation (‘I make what global users want’); and building a closed-loop system of global demand feedback → domestic industrial upgrading → global market output.
Temu will not further diversify into new business units, but prioritise supply chain efficiency and branding, with the goal of creating a more sustainable, high-quality platform. This is a strategic shift that began in mid-2024, and we reported on it at Tech Buzz China in November 2024.
Strengths of China’s Manufacturing Industry
After more than 40 years of accumulation, China’s manufacturing industry has developed substantial advantages in scale and quality. Temu builds on three characteristics of China’s supply chain:
Comprehensiveness: China is the only country that possesses all of the United Nations’ industrial categories. This means that the entire process, from raw materials to finished products, from design to delivery, can be completed within China. This comprehensiveness gives the platform and factories the confidence to coordinate and schedule tasks with ease.
Speed: the responsiveness that has been dramatically amplified in the digital age. When Temu detects a growing interest in a product in a market, this trend can be relayed to the industrial cluster within 48 hours. Factories quickly adjust their production lines, and new products can be sampled and launched within 7 days.
Resilience: The same supply chain system can efficiently and economically handle millions of high-volume orders while also meeting the needs of niche and personalised orders for countless items (small batches, multiple SKUs, and frequent model changes). This ability to serve both large and small markets and to remain flexible and adaptable not only gives China’s supply chain a scale advantage but also enables it to respond effectively to demand, thereby fostering innovation and personalised responses.
Three pillars for Temu’s Phase 3
Temu will achieve phase 3 with three pillars:
Compliance: Temu’s strategy has shifted from rapid adaptation in its early stages to proactive, systematic compliance building. Temu admits that its governance and talent development have not kept up with the rapid expansion of its business. It aims to improve its regulatory compliance. This includes measures such as establishing local legal entities in key markets to assume legal responsibility and developing an intellectual property protection mechanism that conforms to international standards to mitigate the risk of infringement.
After riding the bus for free, Temu will finally buy a ticket…
RetailTrends What’s Next in Retail conference, November 2024.
Cultural integration: operations must be deeply localised: in terms of product selection, the European and American markets emphasise design, intelligence and environmental protection, while Southeast Asia focuses on practical products with high cost performance; in terms of marketing, it is necessary to cooperate with local influencers, brands and even designers to enrich the brand narrative and enhance the brand image.
Technology: Temu’s algorithmic recommendation system is highly effective at matching supply and demand. Temu uses big data analytics to predict demand trends and provide R&D suggestions; it uses AI algorithms to optimise delivery routes and reduce logistics costs; and it uses the Internet of Things to monitor inventory across the entire supply chain. This transforms the previously opaque supply chain into a fully visible and optimizable one.
By leveraging a global market demand pool covering more than 90 countries, massive amounts of consumer data are fed back to domestic industrial clusters in real time. This leverages the logic of demand guiding supply, driving the transformation of the manufacturing industry from large-scale production to precise innovation. Thus, global demand drives domestic industrial upgrading, and the upgraded domestic production capacity feeds back into the global market.
Better products lead to greater market success; greater success, in turn, supports a better supply chain; and a better supply chain, in turn, supports the export of more competitive products.
Pinduoduo and Temu help industrial clusters select products using data, price them using algorithms, organise production based on orders, operate with extremely low inventory levels, and build brands with a high quality-to-price ratio. This is a comprehensive reshaping of China’s industrial supply chain.
Meanwhile, algorithms optimise inventory and logistics routes in real time, replacing experience-based guesswork with data-driven decision-making, and consolidating scattered orders into an efficient cross-border logistics network.
Pinduoduo has made remarkable contributions to the transformation of China’s manufacturing and distribution processes over the past decade. This is one of the core reasons why its ecosystem has stood out in the highly competitive domestic e-commerce environment. This ecosystem now enables Temu to transcend the traditional, unregulated growth model of cross-border e-commerce, moving beyond the role of a single company and empowering the entire national industrial system to expand globally.
Why Temu will be hard to copy or beat
Temu will be difficult to copy or beat, but not for the reason you might be thinking of. Some of its current strengths are not determining variables in its business model:
Traffic can be replicated, allowing users to switch freely between different platforms at no cost.
Technology is not exclusive; algorithmic recommendation is not a proprietary technology. As time progresses, this technology will become increasingly widespread.
Logistics can be outsourced, and Pinduoduo will not provide the purely self-operated warehousing and distribution integrated logistics that JD.com does.
Brands naturally operate on multiple platforms. Pinduoduo’s supply chain branding refers to the incubation of products from industrial clusters into brands.
The supply chain is the only real determining variable in the business model of Temu and PDD.
By investing heavily in China’s supply chain, Pinduoduo will establish a strong relationship with the country’s industrial clusters. Only in this way can it provide a single supply chain service to the global market while simultaneously satisfying the following requirements: unlimited SKU expansion, extremely rapid switching of best-selling products, almost zero cost of small-batch trial-and-error, and efficient factory adaptation to price changes.
Therefore, investing heavily in China’s supply chain and enabling merchants in industrial clusters to leap from scale to quality and brand is a strategic focus and an inevitable path for PDD.
Western wholesalers, retailers and brands that were not expecting Temu’s surprise attack on their markets continue to lament Temu’s use of import tax exemptions and assumed labour conditions in its supply chain, hoping new regulations will be the end of Temu. Instead, they should look at what’s coming next.
Once bitten, twice shy?
I would like to close with a slide I normally show at the end of my keynotes…
RetailTrends What’s Next in Retail conference, November 2024.
Sources: Huxiu, Zouma Finance, Tech Buzz China, ChinaTalk.nl.