TikTok’s troubles in South-east Asia a test for its e-commerce future
Its blend of e-commerce and social media has signs of promise but Indonesia has banned e-commerce over social media platforms
Benjamin Cher
TIKTOK’S e-commerce dreams in South-east Asia have been jolted as governments find fault with the social media platform, with potential implications for the region’s e-commerce hopefuls.
Malaysia has complained about defamatory and misleading content on TikTok, Indonesia about its impact on small businesses, and Vietnam about “toxic” content.
Of these grouses, the most troublesome is likely to be Indonesia’s. The country recently decided to ban e-commerce over social media platforms.
TikTok’s clever blend of e-commerce and social media has serious signs of promise. Users watch entertaining videos and shop as they go, in a modern-day version of the Home Shopping Network.
Li Jianggan, founder and chief executive of consultancy Momentum Works, said the model posed serious competition to pure-play retailers such as Shopee (owned by New York-listed Sea) and Lazada.
“People don’t come to Shopee for entertainment. People come to Shopee to buy things, so the traffic and amount of time people spend on Shopee is very different from TikTok,” he said.
Great news for TikTok, not so great news for Sea.
Florian Hoppe, Asia-Pacific lead at Bain’s digital-focused consulting arm Vector, said the rise of TikTok Shop threatens to upset the balance that the likes of Lazada and Shopee are trying to achieve between margin and market share.
“Lazada and Shopee were all trying to get to healthier competitive models and find a somewhat profitable way to serve the e-commerce market,” he said.
TikTok Shop has since shut its digital doors in Indonesia. Yet, it isn’t clear that its e-commerce competitors will be able to fill the void created.
Li of Momentum Works said some Indonesian merchants who used to sell on TikTok are turning to traditional order-taking methods such as WhatsApp, rather than using rival TikTok equivalents such as Shopee Live.
If the region’s e-commerce industry is unable to produce a viable rival to TikTok, there could be a negative impact on investor confidence.
Roshan Raj Behera, partner at consultancy Redseer Strategy Consultants, said private investments could be “adversely impacted”.
TikTok has not said it is giving up.
The company is reportedly planning to launch a TikTok Shop app that is separate from its social media app – and in time for the 11.11 shopping day to boot.
In its favour, the company has experience in China – a more mature e-commerce market – and a developed ecosystem of logistics, payments and related e-commerce services.
There is also plenty of room for companies to grow in South-east Asia’s still-nascent e-commerce industry, said Bain’s Hoppe. “I would expect it to continue to be a fairly vibrant landscape.”
TikTok must now decide whether the political dynamics of South-east Asia’s diverse markets are worth its commitment.
An upcoming election in Indonesia may factor into that decision, as TikTok can only really begin working on building political goodwill after the victor is pronounced.
“If TikTok Shop loses Indonesia, they still have other markets they can tackle,” said Momentum Works’ Li.
Malaysia, Singapore, Philippines or Vietnam are possibilities. The company could also renew its focus in North America. Still, Indonesia makes up slightly over a third of TikTok’s e-commerce volume in South-east Asia. An exit decision will not be an easy one.
As TikTok ponders its Indonesia and wider South-east Asia strategy, rivals may have to shore up their resources in preparation for a longer e-commerce war.
