Everyone is Going to Brazil!

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The Quote󠀢 💭

The Tweet 🐦

Bata Shoes have been an unmissable part of the Indian landscape. Most of us went to school wearing shoes from Bata. The brand is so ingrained in the Indian mindset that most people think of it as an Indian company. This thread details out how a small Czech shoe company discovered India and became synonymous with footwear.

The Short Read 📝

Why does AI hallucinate?- by MIT Technology Review

While Gen-AI has been all the rage over the last 24 months, it is not uncommon for us to hear instances of models/chatbots giving out incorrect information. Companies have even been sued for the incorrect information dished out by customer support chat bots on their websites. So why does this even happen? And why can’t we fix it?

The reason lies in how today’s large language models or LLMs operate. When you ask a question from a chatbot, it uses the underlying LLM to draw up responses. If you were to peel open an LLM, you’ll find billions of numbers. It uses these numbers to generate responses on the fly by predicting the next word in a sequence. As the models get trained on more data, they become better at predicting what will come next. But almost everything is technically a hallucination - we catch them when the information shared is wrong. As long as the models remain probabilistic in nature, there will be hallucinations. As they say, it is a feature, not a bug.

The Long Read 📜

No Quick Fixes: China’s Long Term Consumption Growth - by Rhodium Group

With investment led growth peaking and real-estate going through a painful period, credit expansion can no longer continue to fund China’s growth. As this source of growth dries up, household consumption growth will be the single biggest determinant of China’s long term economic trajectory and growth rate.

This detailed report looks at the factors holding back growth in household consumption. It also takes a critical look at the prevailing policy narrative on how to catalyse growth in consumption. Without significant fiscal reforms, consumption growth is unlikely to accelerate beyond 3-4%, limiting the overall GDP growth rate to 3%. While household savings have gone up, consumer confidence in China has collapsed leading to a slowdown in consumption. High levels income inequality and low household income are further impeding growth in consumption. This is a very detailed commentary on the current situation in China.

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Publisher’s Parmesan 🧀

Everyone is Going to Brazil!

Last month, Temu joined its competitors - Shopee, Aliexpress, and SHEIN - in Brazil, extending its presence to 70 countries. This expansion occurs despite recent legislation imposing a 20% additional tax on cross-border e-commerce parcels below $50 in value, adding to the existing 17% ICMS charge.

What makes Brazil such a hot market for cross-border e-commerce companies? And what unique challenges do they face operating in Brazil? In this article, we delve into Temu's recent entry into Brazil, exploring the factors driving this market's appeal and the hurdles companies encounter. We also examine potential future ventures for Temu as it continues its global expansion.

On June 5th, Temu, the rising e-commerce giant, made a significant move by entering the Brazilian market. This launch marks Temu's presence in its 70th country, a testament to its rapid global expansion. The road to Brazil, however, has been fraught with challenges, and this milestone didn't come easily. Preparations for this launch have been underway for quite some time, with numerous sellers and service providers collaborating to navigate the complex regulatory and logistical landscape of Brazil.

Navigating the Brazilian Market: A Daunting Task

Brazil is known for its intricate regulations and tax issues, making it a challenging market for new entrants. Initially, there were widespread expectations of delays in Temu's launch due to these hurdles. By mid-May, rumors started circulating that Temu would officially launch on May 31st, but even then, minor delays were anticipated. Despite these obstacles, Temu finally managed to commence operations in early June.

Brazil's allure as a burgeoning e-commerce market is undeniable. Shopee, for instance, entered Brazil in 2020 and has since focused on developing its infrastructure and logistics. According to Shopee's latest earnings call, Shopee Express now delivers about 70% of its orders in Brazil, handling over a million parcels daily.

All the cross-border sellers and logistics providers in China are seeing Brazil as the next big thing. As per them,

This sentiment is reflected in the growing interest among e-commerce platforms in the Brazilian market. Here is why the market makes so much sense:

• With a population of 216 million (80% of Indonesia's), Brazil's economy is 50% larger.

• Despite its strong consumption power, Brazil lacks large online marketplaces, unlike MercadoLivre and Amazon which are digital shopping malls.

• Among SHEIN, AliExpress, TikTok Shop, Shopee, and Temu, four are already in Brazil.

Shein and AliExpress: Strong Competitors

Shein, another major player, entered Brazil in 2022. Interestingly, Shein has not only established an online presence but also opened a physical store, further cementing its commitment to the Brazilian market. In a strategic move, Shein appointed Marcelo Claure, a former SoftBank executive, as its president for Latin America. Claure, known for his turnaround efforts at WeWork, is now tasked with building Shein's supply chain in Latin America, a challenging yet crucial endeavor given the region's reliance on Asian fashion retailers.

AliExpress, one of the earliest entrants, has been in Brazil since 2013. Despite initial logistical challenges, AliExpress has managed to carve out a significant market share.

J&T and Messi's Influence

J&T Express, another major logistics player, entered Brazil in 2022. The rapid deployment of their services underscores the strategic importance of Brazil in their expansion plans. Interestingly, Lionel Messi, the global football icon, serves as an ambassador for various brands, including e-commerce platforms, highlighting the intersection of sports and commerce in market penetration strategies.

Despite the influx of international platforms, TikTok Shop has notably stayed out of Brazil. Their primary focus remains on the US market, although there have been multiple attempts to launch in Brazil, only to be redirected to prioritize the US. This reflects a strategic focus on solidifying their presence in the US before expanding further.

Brazil's Unique Market Dynamics

Brazil, the largest market in Latin America, shares many similarities with Southeast Asia, another popular region for e-commerce. Both regions have substantial populations and are influenced by powerful northern neighbors—the US for Latin America and China for Southeast Asia. However, Brazil's unique economic and political landscape presents distinct challenges. The country's recent history of fluctuating economic policies and political instability has impacted investor confidence and economic growth.

A new legislation imposing a 20% additional tax on cross-border e-commerce parcels valued below $50, combined with an existing 17% ICMS tax, underscores the regulatory challenges e-commerce companies face in Brazil. This effectively raises the tax burden to over 40%, yet Temu has calculated that the market potential justifies these costs. Historical data shows that local marketplaces like MercadoLivre charged sellers a 16% commission, indicating a profitable market for efficient players despite political and regulatory hurdles.

Temu's Strategic Shift and Future Plans

In the US, Temu recently faced challenges with customs clearance, highlighting the risks of cross-border operations. In response, Temu has shifted towards a half-consignment model, encouraging sellers to maintain inventory within the US. This strategic pivot aims to mitigate risks and ensure smoother operations.

Rumors also suggest Temu's potential entry into Indonesia in 2024. Discussions with service providers in Indonesia indicate preparations are underway, though the anti-cross-border political climate poses significant challenges. Temu's ability to adapt to local conditions and regulatory landscapes will be crucial for its success in new markets.

The Road Ahead

Temu's journey in Brazil is just beginning, and the path forward will be shaped by its ability to navigate the complex regulatory environment and leverage local partnerships. As Temu continues to expand globally, its dynamic, data-driven approach will be key to overcoming challenges and capitalizing on opportunities. The Brazilian market, with its vibrant culture and significant economic potential, offers a promising yet challenging frontier for Temu and other e-commerce giants.

As the landscape of global e-commerce evolves, the strategies and decisions made by companies like Temu will play a pivotal role in shaping the future of cross-border commerce. For now, all eyes are on Brazil, as this market becomes a critical battleground for e-commerce dominance.