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Southeast Asian e-commerce: TikTok disrupts the market, Shopee and Lazada navigate defensive dilemmas

Written by KrASIA Connection Published on   7 mins read

Several contenders exist, but the verdict on the future leader of Southeast Asia’s e-commerce market remains pending.

The size of the population determines the market ceiling—this has been the captivating code of China’s economic story for the past thirty years and a crucial factor driving Chinese companies to “strike gold” in Southeast Asia.

In the last five years, Southeast Asia has been one of the fastest-growing regions in the global economy, with a highly youthful population. Data from the World Economic Forum shows that Southeast Asia has a population of nearly 700 million, with over 50% below the age of 30.

The growth of the Southeast Asian e-commerce market has also been tremendous. According to the “2022 Southeast Asia Digital Economy Report” jointly released by Google, Temasek, and Bain, from 2017 to 2022, the GMV of Southeast Asian e-commerce skyrocketed from USD 10.9 billion to USD 131 billion, with a compound annual growth rate (CAGR) of 64%.

Alibaba Group’s Lazada, Tencent-backed Shopee, and newcomer TikTok have all created notable growth stories in the Southeast Asian market but have also faced challenges in the past couple of years.

At the start of this year, Lazada laid off a significant number of its staff, marking the first time it has retrenched employees since its acquisition by Alibaba in 2016. Last October, TikTok, which was making strides in the Indonesian e-commerce market, was forced to shut down its e-commerce business due to policy issues. It later resumed e-commerce operations in a convoluted partnership with Tokopedia, the e-commerce platform of Indonesia’s GoTo Group. Shopee, on the other hand, experienced a rollercoaster ride between massive expansion and contraction, with its market value plummeting by USD 10 billion at one point, still in the process of recovery.

The challenges faced by e-commerce platforms are diverse, but it cannot be ignored that, influenced by the global economic downturn, severe inflation in Southeast Asian countries has led to a reduction in consumer spending for millions. This has intensified the competition among e-commerce platforms, leading to aggressive branding, pricing strategies, and subsidies, involving the intricacies of the Chinese supply chain.

While Southeast Asia indeed presents a sizable market, it may not necessarily be able to recreate the “high-growth” myth.

Layoff difficulties and the challenge of “positioning”

Compared to Shopee’s previous global expansion and hurried exit, the reasons for Lazada’s recent layoffs remain unclear.

After all, Alibaba has always had a clear strategic purpose in betting on the Southeast Asian market through Lazada, providing significant support at the investment level. Since Alibaba’s acquisition in 2016, Lazada has received funding from Alibaba multiple times, totaling approximately USD 7.47 billion.

Despite having abundant funds, Lazada, due to frequent changes in its management team, allowed the later player Shopee to catch up. Starting in 2018, Lazada changed its CEO four times, leading to internal chaos. It wasn’t until January 2022, when Jiang Fan, the former president of Taobao Tmall Commerce Group, took charge of Alibaba’s international business, that Lazada was reorganized, connecting it with Alibaba’s international business supply chain. In June the same year, Jiang appointed James Dong (also known as Dong Zheng) as the new Lazada CEO, stabilizing the company’s management team.

However, lost market share may be irretrievable, and Lazada now faces an even more chaotic market.

According to data released by Singaporean research firm Momentum Works in June 2023, the overall gross merchandise value (GMV) of the Southeast Asian e-commerce market was USD 99.5 billion in 2022. Shopee ranked first with a GMV of USD 47.9 billion, holding a market share close to 50%, while Lazada, which ranked second, had less than half of Shopee’s GMV.

Although a newcomer, TikTok Shop exhibited particularly strong momentum. According to Caixin, in the first half of 2023, TikTok Shop achieved a GMV of nearly USD 9 billion in Southeast Asia, close to half of Lazada’s GMV.

Lazada’s positioning in Southeast Asia is similar to that of JD.com and Tmall, emphasizing brand development. As early as 2018, Lazada launched LazMall, positioning itself as the largest online brand mall in the Southeast Asian market. According to the official website, over 80% of major international brands (according to Forbes) are present in LazMall.

Similar to Tmall, LazMall’s brand merchants receive support from Lazada’s traffic. According to the company’s official website, brand merchants enjoy higher exposure and search rankings on the main page, LazMall-exclusive identification for shops and products, and exclusive benefits for Lazada promotions and LazMall events. As of July 2023, LazMall has over 13 million members.

Li Wei, a Malaysian e-commerce practitioner, told 36Kr that “sales of brand merchants on Lazada are relatively good. Big brands like Estee Lauder are exclusive to Lazada.”

“However, many brand owners will also join Shopee because it offers a lot of subsidies. From what I know, more brand owners who have joined Lazada will also join Shopee this year, which will definitely impact Lazada’s market share,” Li said.

For brand merchants, joining an e-commerce platform is just a matter of using different channels. Both JD.com and Taobao cannot be exclusive, let alone Lazada and Shopee. Moreover, Shopee has firmly held the position of the leading e-commerce platform in Southeast Asia in recent years, making it quite attractive to brand merchants.

Perhaps realizing this hidden concern, Lazada has become the first e-commerce platform in Southeast Asia to introduce a fully managed model, primarily targeting products with the best cost-performance. Unlike platforms like TikTok and Temu, Lazada’s fully managed model includes both cross-border and local sellers who can choose between self-operation and full management for products with cost-effective and scalable advantages.

“Among Southeast Asian e-commerce platforms, fast-moving consumer goods have the largest volume, and the beauty category is growing very fast. Domestic brands like Timage and Judydoll have recently entered the Malaysian market, and low-priced beauty products are very popular,” Li said.

Notably, TikTok Shop’s advantageous categories are beauty and lifestyle, overlapping with Lazada’s strengths.

“Many brands are now doing live broadcasts on TikTok, and sales are rising very quickly. Moreover, TikTok’s commission is very low, constantly subsidizing merchants. But Lazada and Shopee currently do not overly subsidize merchants,” Li told 36Kr.

To boost revenue, TikTok, led by its current CEO Shou Zi Chew, has been intensifying its focus on social commerce. In the latter half of 2021, TikTok introduced in-app shopping features, including shoppable links and livestream shopping, as part of this initiative, along with other strategies. Southeast Asia stands out as one of TikTok’s primary target markets for social commerce. Image by KrASIA.

The meteoric rise of social commerce

Undoubtedly, in the current Southeast Asian e-commerce market, no one fears TikTok. Yet, even if it faces numerous obstacles, TikTok always finds unexpected ways to bounce back.

Last year, after TikTok’s e-commerce business in Indonesia was suspended for two months, it ultimately chose to invest in local companies to address compliance issues. On December 11, TikTok announced the merger of its Indonesian e-commerce business with GoTo Group’s Tokopedia, in which TikTok now holds a 75.01% stake. TikTok pledged to invest USD 1.5 billion in the next few years to support the future development of the business.

To some extent, the challenges TikTok faced in the US market and the incessant conflicts with the American government indirectly enhanced TikTok’s ability to handle complex matters during its global expansion. The rapid collaboration with Tokopedia also indirectly indicates TikTok’s high regard for the Southeast Asian market.

Southeast Asia is the most mature and significant market for TikTok’s e-commerce business, with Indonesia being of utmost importance.

According to data from TiChoo, over 91% of TikTok Shop’s GMV in the first half of 2022 came from Indonesia. In contrast, e-commerce business in other Southeast Asian countries only began to open gradually in 2022, with the GMV of each country constituting less than 1% of TikTok’s overall total.

The Southeast Asian e-commerce market has not yet entered the mature stage of competition. According to a Google report, the current retail e-commerce penetration rate in Southeast Asia (excluding Singapore) is below 5%, with Indonesia having a relatively high penetration rate of 4.26%. In contrast, mature e-commerce markets like China and the UK have penetration rates of 24.9% and 19.3%, respectively.

With a highly youthful population, Southeast Asia’s young consumers will be the main driving force in the next decade. The higher propensity to accept new trends of young consumers is also a crucial factor in the success of TikTok’s social commerce model in Southeast Asia.

However, whether it is Lazada, Shopee, or TikTok, they all face infrastructure challenges.

The logistics issues in Southeast Asia still need improvement. Indonesia, with its 17,508 islands, faces challenges in island-to-island shipping. The Philippines has similar issues with inter-island shipping. Vietnam and Thailand also suffer from severe urban road congestion. Moreover, hard infrastructure like roads and railways remain inadequate, and the last-mile delivery efficiency is low, posing logistical challenges.

“Online shopping is somewhat tasteless, with similar prices both online and offline. The product selection is quite ordinary, and it feels like the same batch of Chinese sellers is on different platforms. After placing an order, you have to wait one or two weeks for logistics,” Wang Ying, who has lived in Singapore for many years, told 36Kr.

Wang added that many of her Singaporean friends of Chinese descent would order from Taobao in China and have the products shipped to Singapore via a forwarding service. “Local logistics are not very efficient. It takes three days to deliver to a small place. It’s better to buy a bunch of things on Taobao, and forwarding is not difficult, with more choices and cheaper prices.”

In addition to these challenges, even if e-commerce platforms have high expectations for the Southeast Asian market, they cannot resist the impact of high inflation resulting from the global economic downturn. A report on the development of the internet economy in Southeast Asia in 2023 shows that 670 million consumers in the region are striving to control living costs and reduce shopping expenses in response to economic pressure. The overall development of the Southeast Asian e-commerce market is not optimistic, with the GMV expected to be USD 139 billion in 2023, and by 2025, this figure is projected to grow to USD 186 billion, significantly lower than the previous estimate of USD 211 billion.

Despite Southeast Asia having yet to enter a high-growth phase, its market has already entered an ​​early phase of diminishing returns.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Leslie Zhang for 36Kr.


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