TikTok takes on Shopee, Tokopedia in ASEAN e-commerce race

The rapid rise of the world's most popular short video platform, owned by Chinese tech giant ByteDance, could shake up the online shopping landscape in the world's fastest-growing region with a population of 670 million, currently dominated by Singapore's Shopee, Alibaba-backed Lazada and Indonesia's Tokopedia.

But TikTok, which already takes the regulatory pushback in the U.S., is facing more scrutiny from authorities over fears of disruption to local businesses and harmful content. There are also concerns over how long TikTok's generous incentives will keep driving popularity.

For Regi Oktaviana, a 29-year-old business owner in Mojokerto, a city in Indonesia's East Java province, TikTok Shop -- the platform's integrated shopping feature -- is the crucial linchpin. To take orders for her company's bags, each carefully handcrafted over 10 days, Oktaviana starts every morning in her TikTok account.

Together with around 65 mostly female staff, she publishes daily through the platform for almost 18 hours straight, with employees working three-hour shifts online to introduce the company's affordable bags. Viewers ask questions and make purchases in real time via TikTok Shop.

The company's 300 bags and purses, mostly priced between 30,000 to 60,000 rupiah ($2 to $4) have become a hit with Oktaviana's young followers, who now total 3.7 million. In just over a year, monthly sales grew four times with orders sometimes hitting 5,000 a day, Oktaviana said. TikTok Shop accounts for 90% of total revenue.

"It's become indispensable for us," she told Nikkei Asia.

Since its launch in 2021, TikTok has also stormed other Southeast Asian markets like Malaysia, Vietnam, Singapore and the Philippines.

Oktaviana said TikTok Shop takes an 8.3% commission from each order, higher than some other marketplaces. But she said the commission is worth it, as TikTok offers regular workshops and support from account managers, who offer advice on content and promotions.

TikTok Shop's rapid rise highlights a generation shift in the fastest-growing e-commerce market dominated by young buyers, who seek a personal, genuine connection with sellers.

Many Southeast Asian users told Nikkei Asia they feel obsessed with the app, as it lets them easily scroll through lists of videos showcasing different products to help with purchasing decisions without having to think much. These users spend an average of about three hours a day on social media, more than the two hours racked up by their American and Chinese counterparts, according to U.K. research company We Are Social.

Diyana Mukhadi, 36, an insurance agent in Kuala Lumpur, said she spends hours daily on TikTok and up to 300 ringgit ($66) monthly on home products, cosmetics and skin care products purchased through the shop. "You don't have to think much and you chance upon products you'd like," she said.

TikTok Shop has aggressively gained traction in Southeast Asia, growing its estimated gross merchandise value (GMV) -- the total worth goods sold through its platform -- sevenfold from $600 million in 2021 to $4.4 billion last year, according to Singapore-based consultancy Momentum Works.

In July, TikTok boasted that of the 325 million monthly users in the region, one in four have bought items through TikTok Shop. "We truly converge content and commerce like no other platforms," said Shant Oknayan, TikTok's Asia Pacific and Middle East business head, at an event in Jakarta.

Globally, TikTok reportedly aims to more than quadruple its e-commerce business to $20 billion in merchandise sales this year.

While TikTok is still dwarfed by incumbents like Singapore's Shopee, which took close to half of the region's GMV last year, TikTok could pose a threat to rivals, as it is one of the fastest-growing platforms.

Ranjan Sharma, JPMorgan's head of equity research for Southeast Asia's technology, media and telecommunications sectors, said regional e-commerce players are going through "a year of adjustment." Traditional players have been forced to cut incentives to consumers and merchants, resulting in withdrawals from their platforms.

Shopee and Tokopedia, the e-commerce arm of GoTo, are facing slower growth following a series of layoffs and cost-cutting measures in an effort to become profitable. Due in part to increasing competition in the market, Alibaba last month invested $845 million in its Singaporean e-commerce arm Lazada.

In Indonesia, Rose All Day Cosmetics, a Halal-certified local beauty brand, saw sales through TikTok Shop grow to become "on par" with Shopee, which has been its biggest online channel. "We get a higher return on investments [on TikTok]," co-founder Tiffany Danielle told Nikkei Asia.

In Vietnam, TikTok Shop surpassed Lazada and took over the second spot in the e-commerce market for the first time with a 20% share in the April-June quarter. TikTok's revenue was estimated at 16.3 trillion dong ($689.4 million) for the first half of 2023, according to local e-commerce analytics Metric. The short video platform has also surpassed local players like Tiki and Sendo.

"The question is what will happen to some of the smaller online platforms, especially those who do not have access to funds," said Sharma of JPMorgan. "The overall industry might consolidate."

Founded in 2012, TikTok's parent ByteDance has turned into one of the most profitable and valuable startups in China, with ad sales surpassing that of Alibaba. But slowing user growth at home is spurring Chinese online retailers, including ByteDance, to accelerate overseas expansion.

"As far as overseas markets are concerned, Southeast Asia is more receptive to e-commerce than other markets, so this market is performing relatively well at the moment," a ByteDance executive told Nikkei Asia.

In June, TikTok CEO Shou Zi Chew vowed during a summit in Jakarta to "invest billions" in Southeast Asia, its first and largest e-commerce market. In a bid to gain support from local authorities, he said Indonesia and other regional countries would see over $12 million in investment over the next three years, supporting young entrepreneurs and small businesses.

Still, analysts note that TikTok's transactions are skewed toward small orders from young users. Roshan Raj, partner at consultancy Redseer, noted that TikTok is doing well in fashion, beauty and personal care categories, but "needs to diversify to other categories like electronics." Unlike other marketplaces, which allow users to search for products, TikTok relies on impulse buying through various small vendors, making product discovery harder.

But TikTok's emphasis on empowering local merchants exposes its weakness. Just a month after TikTok's pledge, Indonesian authorities said the country plans to restrict sales of foreign goods on digital marketplaces.

Under the planned rules, Indonesia will limit sales of imported goods by foreign merchants worth under $100 on traditional e-commerce sites and social media platforms, Trade Minister Zulkifli Hasan told reporters in Jakarta last Friday, to "protect" local businesses.

TikTok said it had no plans to roll out a cross-border business in Indonesia after officials and industry players expressed concerns that the platform's e-commerce push could flood the country with Chinese products.

In May, Vietnamese authorities launched a probe over TikTok following reports of a rise in harmful content and concern over its compliance with e-commerce regulations and tax obligations. The result of the inspection, originally scheduled in July, has not been published.

There are also concerns about whether TikTok Shop can sustain its generous incentives and subsidies. Over the past few months, merchants and users said they have started to see fewer promotions on TikTok Shop.

"At the end of the day, it's not the only platform we use," a Singapore-based apparel seller told Nikkei Asia. The business owner joined the platform last year when TikTok launched in the city-state with zero commissions for merchants.

"I will keep trying out the best [marketplaces]. There's always an alternative," he said.

Source: Nikkei Asia