TikTok turns to south-east Asia to drive new growth

Far away from the tough scrutiny he faced in Washington DC, TikTok chief executive Shou Zi Chew was milking the crowd as he was feted at an event in Indonesia this month.

Dressed in a traditional batik shirt, the Singaporean embraced an enthusiastic audience in the capital Jakarta. Amid flashing disco lights and upbeat music, he declared to applause from government officials and fans that TikTok would “invest billions” in south-east Asia. Indonesia specifically would receive $10bn in investment from TikTok over the next five years, he said.

The celebratory occasion was in stark contrast to the regulatory one he faced last March in the US. Shou — this time in a suit — endured a five-hour grilling in a bipartisan pummelling from a congressional committee on Capitol Hill. His wildly popular short-form video app, owned by China’s ByteDance, was described variously as a “cancer” and a surveillance tool.

The political pushback and attempts to ban TikTok in the US partly explain the charm offensive now under way in south-east Asia, where a nearly 700m-strong population has become critical to its future success.

Tiktok’s parent ByteDance is seeking to justify its $300bn valuation, which makes it the world’s most highly valued private start-up, ahead of an expected initial public offering in the next two years.

This makes the hunt for revenues in south-east Asia critical to its future. The app only launched in the region in 2021, but TikTok Shop, its in-house marketplace, is set to more than double last year’s $2.5bn in ecommerce sales in Indonesia this year, according to two people familiar with the company’s sales.

The numbers are even higher for the region as a whole. The app is projected to hit $15bn in gross merchandise sales (GMV) in south-east Asia this year, a figure that would represent the bulk of its sales globally and one that is far higher than the $4.4bn recorded last year, according to industry estimates.

TikTok’s ecommerce service allows brands and influencers to link products to buy in videos or broadcast live to sell products that are available to purchase within the app. While lossmaking, it is subsidised by its parent, which raked in a record underlying profit last year of $25bn.

But even in Asia, ByteDance is facing sharpening scrutiny. South-east Asian authorities have criticised content on its platform this year, with Vietnam announcing a review of the app. The company has already been banned in India, another huge market.

The threat of regulation, coupled with increasing competition from rivals, means TikTok for the first time looks vulnerable, say experts.

“I would say that TikTok’s growth has skipped a beat for the first time in south-east Asia. Up until now, it has been roses as the app came in as a disruptive element and grew very fast,” said Simon Torring, co-founder of Cube Asia, an ecommerce research platform focused on the region. “To get to $15bn this year you have to assume absolutely nothing will go wrong.” Cube Asia expects the full-year figure to be lower at $12bn to $13bn.

Vietnam’s information ministry said in April it would investigate TikTok’s platform in the country as its “toxic” content on the short-video platform “poses a threat to the country’s youth, culture and tradition”. Vietnam has previously forced other tech giants such as Google and Facebook to make concessions. That month, TikTok’s sales were much softer, according to Cube Asia data.

In Indonesia, the proliferation of “online begging” on TikTok prompted a strong rebuke from Jakarta in January. The rapid spread of the trend — showing elderly women pouring dirty river water on themselves while sobbing, in exchange for gifts from viewers that could be converted to cash — unnerved the government.

“Regulatory risk is not confined to the US or Europe,” said Jianggan Li, chief executive of research firm Momentum Works. “That is why the more TikTok can continue to emphasise they are good for local and small businesses, the better off they will probably be.”

TikTok wanted to “inspire creativity and bring joy”, said Shou in Jakarta, giving examples of how influencers across the region had grown their businesses and income. He cited an Indonesian fashion entrepreneur going by @Octaviana_tas_grosir who had used her 3mn followers on TikTok to attract new customers “to open three new warehouses and create dozens of jobs in her community”.

TikTok, which is known for its ambitious targets, is still predicting huge growth in Asia. A TikTok executive based in the region said $15bn could be “too conservative” with the strength in sales over the year to date. The first wave of growth seen over the past 12 months in Indonesia was now occurring in Thailand, Vietnam and the Philippines which “could surprise to the upside”, the person said, asking to remain anonymous.

However, TikTok faces the challenge in Asia of moving beyond items with low average order values in fashion and beauty, responsible for much of its growth, to goods with bigger tickets. “They are good at cosmetics and skincare, but when it comes to electronics or household goods and other higher margin items, they have struggled despite strong efforts,” said an executive at one competing ecommerce platform in the country with an electronics emphasis.

A heavy reliance on third parties for deliveries is also seen as a weakness. Indonesia is made up of thousands of islands and has many remote villages.

“There has been some pushback from customers outside of the main population areas of Java. Incumbents have strong in-house logistics capability, so from a delivery experience point of view, TikTok has rated lower,” said Roshan Raj, head of consultancy Redseer.

Customer dissatisfaction could prove a handicap as the incumbents gear up to defend their position against TikTok. Shopee, owned by Tencent-backed Sea and Alibaba-owned Lazada, two regional ecommerce platforms, remain the dominant forces in south-east Asia. Both companies’ sales growth has slowed over the past 18 months as they focused on cutting costs and becoming profitable. They are now poised to become more aggressive and focus on GMV.

Lazada has had a cash injection from Alibaba this year and its strategy is set for a revamp under the new leadership of Jiang Fan, who helped grow the Chinese group’s Taobao and Tmall businesses. Sea-owned Shopee is expected to start growing again after delivering two quarters of profits to shareholders.

New entrants have also sensed the opportunity in south-east Asia’s large population. Temu, the sister app of Chinese ecommerce group Pinduoduo, which hawks Chinese goods, is looking at entering the market after success in the US and launches in Europe.

“It’s like in 2017 in China when everyone thought Alibaba had won ecommerce. They were wrong. The same dynamics are at play now in south-east Asia and ByteDance knows that,” Li said.