TikTok takes on Shopee and Tokopedia in Asean ecommerce race

TikTok is emerging as one of south-east Asia’s most prominent ecommerce platforms, with sales growing sevenfold in one year as it attracts a wave of young, tech-savvy users with shopping and entertainment features.

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 670mn, currently dominated by Singapore’s Shopee, Alibaba-backed Lazada and Indonesia’s Tokopedia.

But TikTok, which already faces regulatory pushback in the US, is coming under 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 and 60,000 rupiah ($2 to $4) have become a hit with Oktaviana’s young followers, who now total 3.7mn. 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 per cent of total revenue.

“It’s become indispensable for us,” she told Nikkei Asia.

Since its launch in 2021, TikTok has also stormed other south-east Asian markets such as Malaysia, Vietnam, Singapore and the Philippines.

Oktaviana said TikTok Shop takes an 8.3 per cent commission from each order, higher than some other marketplaces. But she said the commission was 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 ecommerce market dominated by young buyers, who seek a personal, genuine connection with sellers.

Many south-east Asian users told Nikkei Asia they felt obsessed with the app, as it lets them easily scroll through lists of videos showcasing different products to help with purchasing decisions. These users spend an average of about three hours a day on social media, more than the two hours racked up by their US and Chinese counterparts, according to UK research company We Are Social.

Diyana Mukhadi, 36, an insurance agent in Kuala Lumpur, said she spends hours every day 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 south-east Asia, increasing its estimated gross merchandise value (GMV) — the total value of goods sold through its platform — sevenfold from $600mn in 2021 to $4.4bn last year, according to Singapore-based consultancy Momentum Works.

In July, TikTok boasted that of the 325mn 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 ecommerce business to $20bn in merchandise sales this year.

While TikTok is still dwarfed by incumbents such as Singapore’s Shopee, which took close to half of the region’s GMV last year, TikTok poses a threat to its rivals because it is one of the fastest-growing platforms.

Ranjan Sharma, JPMorgan’s head of equity research for south-east Asia’s technology, media and telecommunications sectors, said regional ecommerce players were 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 ecommerce arm of GoTo, are facing slower growth following a series of lay-offs and cost-cutting measures in an effort to become profitable. Due in part to increasing competition in the market, Alibaba last month invested $845mn in its Singaporean ecommerce arm Lazada.

In Indonesia, Rose All Day Cosmetics, a Halal-certified local beauty brand, said sales through TikTok Shop have grown 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 ecommerce market for the first time with a 20 per cent share in the April-June quarter. TikTok’s revenue was estimated at 16.3tn dong ($689.4mn) for the first half of 2023, according to local ecommerce 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 start-ups in China, with ad sales surpassing those 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, south-east Asia is more receptive to ecommerce than other markets, so this market is performing relatively well at the moment,” a ByteDance executive told Nikkei Asia.

In June, TikTok chief executive Shou Zi Chew vowed during a summit in Jakarta to “invest billions” in south-east Asia, its first and largest ecommerce market. In a bid to gain support from local authorities, he said Indonesia and other regional countries would see more than $12mn in investment over the next three years, supporting young entrepreneurs and small businesses.

Still, analysts note that TikTok’s transactions are skewed towards small orders from young users. Roshan Raj, partner at consultancy Redseer, noted that TikTok was 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 planned 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 ecommerce sites and social media platforms, trade minister Zulkifli Hasan told reporters in Jakarta, 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 ecommerce 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 ecommerce 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 had 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.

Additional reporting by Bobby Nugroho in Jakarta, Kim Dung Tong in Ho Chi Minh City and Cissy Zhou in Hong Kong.

A version of this article was first published by Nikkei Asia on August 4. ©2023 Nikkei Inc. All rights reserved.

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