In the dynamic world of e-commerce, particularly with the burgeoning interest in South American markets, Temu has emerged as a significant player, especially following its launch in Brazil in June 2023. This entry didn’t go unnoticed; Temu quickly ascended to the top of the application download charts, maintaining its position for five consecutive monthsFor many sellers eyeing Brazil, a goldmine yet notoriously difficult to penetrate, Temu represents a beacon of opportunity.

Brazil boasts favorable conditions for cross-border e-commerce, with a population of over 216 million, substantial urbanization rates at 87.5%, and a high internet penetration rate of 90%. The country is not only the largest economy in Latin America but also offers a vibrant marketplace for global sellersHowever, beneath its potential lies a landscape riddled with obstaclesAs a seller named A-Cheng pointed out, Brazil’s moniker as the “country of a thousand taxes” is well-deserved; high taxes, intricate regulations, and convoluted customs processes present formidable challenges

He warns potential entrants: “Without solid strength, sellers should steer clear of Brazil.”

Prior to Temu's arrival, established platforms like Amazon, Shopee, and Shein had laid the groundwork in Brazil, yet the influx of cross-border sellers remained sparseTemu’s late but rapid expansion raises a pertinent question—will it serve as the catalyst for cross-border sellers venturing into Brazil?

Temu’s strategy hinges on a fully-managed model tailored specifically to navigate Brazil's unique challengesDespite initially laying the groundwork for a semi-managed approach (common in more established markets like North America and Europe), Brazil’s circumstances necessitated a pivot back to a fully-managed model.

A major hurdle is logistics, as shipping goods from China to Brazil involves an arduous journey of approximately 16,632 kilometers

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Air freight may take a minimum of 34 hours with multiple layovers, while sea freight can extend delivery times between 15 and 40 days, often leading to prohibitively high costsHowever, unlike previous platforms that struggled to effectively tackle these transit expenses, Temu offers a compelling solution: it provides free standard shipping for all orders, absolving Brazilian buyers from additional freight charges.

This innovative shipping framework relies heavily on a partnership with Jitu Express, Temu’s logistics allyJitu has been entrenched in the Latin American market since its inception in Mexico in 2022, establishing a robust logistics network that now serves 26 states and one federal district in BrazilAs Leo, a founding team member of Jitu Brazil, highlighted, this extensive logistics infrastructure mitigates delivery costs while ensuring speed and efficiency.

In addition to logistics, navigating Brazil’s complex customs landscape compels Temu to operate solely in this fully-managed capacity

Just as Temu was solidifying its entry, Brazilian President signed a decree imposing a 20% import tax on cross-border packages valued under $50, effective August 1. Additionally, all low-value goods must incur a 17% standard turnover tax (ICMS), alongside the established 60% rate for goods exceeding $50. These measures have escalated the effective tax rates to upwards of 95% for previously duty-free goods.

Temu addresses these changes through meticulous supply chain managementAn official spokesperson stated, “The new tax rates do not significantly affect TemuOur main advantage lies in sourcing goods directly from factories, leveraging exclusive suppliers, thereby bypassing inefficiencies endemic to traditional supply chains.”

The vetting process for products listed on Temu’s Brazilian platform involves a thorough examination to ensure compliance with customs regulations

After domestic suppliers upload their product information, Temu's buying team conducts an initial review according to Brazilian trade lawsOnly approved products proceed to designated warehouses in China for further quality assessmentsUpon passing these checks, products are appropriately priced, translated into Portuguese, and then launched on the Brazilian storefront.

However, the stringent customs protocols mean that only sellers with robust supply chains and direct factory partnerships thrive on the platformSmaller, individual sellers often find survival difficult under these conditions.

The intrinsic complexities of the Brazilian market elevate the demands placed on cross-border e-commerceAs logistics expert Mike remarked, “Temu is better suited for larger sellers with established supply chain capabilities; smaller businesses should adopt a wait-and-see approach.” Data from Goldman Sachs revealed that Temu’s delivery times in Brazil range between 15 and 40 days, with a minimum order price set at 65 reais (approximately $13). In case of delivery delays, consumers may receive a compensation of 10 reais.

Temu’s product range is diversified, boasting 30 primary categories and over 250 subcategories, with offerings ranging from socks at 5 reais ($1) to computer monitors at 900 reais ($180). However, the nuances of entering the Brazilian market necessitate substantial capital and stock readiness, quite different from engagements in Europe or Southeast Asia

For instance, customs clearance in Brazil is notoriously laborious, with one seller labeling it as one of the toughest customs systems globally.

Brazil operates under a federal system similar to the U.SEach region’s customs authority may undertake scrutiny; thus, if there are issues with the goods in one area, customs agents from another will step in to investigateThis creates a tightly regulated environment where compliance becomes criticalSellers must ensure that recipients in Brazil are registered with local customs and may need to engage a customs agent, adding layers of complexity to the processMissteps can lead to considerable delays, with goods being held for weeks on end.

Liberal regulations paired with a convoluted certification system exacerbate these challengesFor instance, electrical goods require Inmetro certification, while products aimed at infants must obtain Anvisa certification

Moreover, the lack of uniform enforcement means additional hurdles for sellers attempting to enter the Brazilian market.

Moreover, a seller recounted that certain Chinese companies hoping to fulfill orders from trade shows in Brazil were dismounted by the harsh realities of compliance, facing delays of six months to a year due to certificationThe reality is, even though Temu markets its fully-managed approach, the inherent risks and intricacies of Brazil’s supply chain cycle can disadvantage less-prepared sellers, driving away individual participants and favoring those able to offer significant quantities while adapting swiftly to market shifts.

The future of cross-border trade in Brazil hinges on localizationAfter Temu topped the download charts in Brazil, Bruno, CEO of the largest e-commerce education institution in Latin America, underscored that the nation’s market will favor those who can effectively localize their operations

He remarked, “Temu should immerse itself in Brazil.” The marketplace demands adaptability, as it thrives on a combination of stringent norms and existing gray areas where foreign players must integrate into local practices.

According to Bruno, e-commerce platforms like Temu should build relationships with local suppliers to enhance cost-efficiency and expedite delivery timelines, therefore improving customer experienceHis studies indicate that many Brazilian suppliers are eager to collaborate with Chinese platforms, especially if these platforms demonstrate strong sales performance and share profits.

Indeed, the last few years have seen major e-commerce players recalibrating their operations to resonate with Brazilian marketsFor example, in June 2023, AliExpress collaborated with Brazilian retail giant Magalu to merge sales channels and product offerings, leading to an 11.9% surge in site visits in June, positioning AliExpress as Brazil’s leading cross-border e-tailer.

Likewise, Shein announced a $150 million investment in April 2023 aimed at uplifting local manufacturers into its on-demand production model while planning to onboard 2,000 Brazilian manufacturers over the next three years

Shein anticipates that by the end of 2026, around 85% of its Brazilian revenue will come from local suppliers.

In essence, the previous queries regarding Temu’s robust entry into Brazil circle back to one core theme—localization will determine long-term viabilityAs emphasized in a report by the Payment and Commercial Market Intelligence (PCMI), aspects like convenience, affordability, and speed are pivotal for Latin American consumersNotably, 70% prioritize product accuracy alongside pricing when shopping online, while 60% are driven by discounts.

Providing a cross-border managed service line can fall short of addressing the trifecta of convenience, affordability, and speedBruno wrapped up, acknowledging that while download numbers are impressive, they merely signal the start of Temu’s journey into Brazil, where localized domestic products could pose a significant challenge to cross-border contenders