Quietly, TikTok E-commerce has grown significantly in Southeast Asia.

Recently, Momentum Works, a Singapore-based venture capital firm, released the "2024 Southeast Asia E-commerce Report." The report revealed that TikTok Shop's Gross Merchandise Volume (GMV) has nearly quadrupled from $4.4 billion in 2022 to $16.3 billion last year, making it the fastest-growing platform in the region.

According to the report, the total GMV of the top 8 e-commerce platforms in Southeast Asia rose to $114.6 billion in 2023, an increase of 15% year-on-year. Shopee maintained its leading position with a 48% market share, followed by Lazada at 16.4%, and TikTok and Tokopedia each with 14.2%.

"With Tokopedia (in which TikTok acquired a majority stake last year), TikTok's e-commerce platform has surpassed Lazada to become the second-largest player in the ASEAN region, with an estimated market share of 28.4% as of last year."

In 2015, Shopee was just starting in Southeast Asia, while Lazada was the region's leading e-commerce platform. By the first quarter of 2019, Shopee had emerged as the champion in terms of downloads, monthly active users, and user retention rates. In 2020, Shopee captured 57% of the Southeast Asian market with a GMV of $35.4 billion, leaving Lazada in second place.

Unexpectedly, TikTok Shop, which entered Southeast Asia from Indonesia in 2021, gradually caught up. After experiencing rapid growth in 2022 and navigating policy challenges in 2023, TikTok Shop has firmly established itself in Southeast Asia, gradually eroding the positions of e-commerce platforms like Lazada.

01 TikTok Shop's Billion-Dollar Plan in Southeast Asia

Li Jianggang, founder and CEO of Momentum Works, stated that TikTok has become a "very important player" in Southeast Asia and has committed to investing billions of dollars in the region. "This year, depending on their integration with Tokopedia, they are likely to become the top player in Indonesia."

TikTok Shop first launched in the UK and Indonesia in February 2021, generating approximately $1 billion in GMV that year, with Indonesia contributing 70% of sales. The success of this initial foray encouraged TikTok Shop to expand boldly in Southeast Asia.

In the first half of 2022, TikTok Shop entered Thailand, Vietnam, the Philippines, Malaysia, and Singapore, completing its presence in six Southeast Asian countries by June. Data showed that TikTok's GMV in Southeast Asia grew more than three-fold to $4.4 billion in 2022.

Similar to domestic Douyin e-commerce, TikTok Shop in Southeast Asia also follows the "interest-based e-commerce" model, primarily leveraging short videos for product promotion, with live streaming gradually gaining popularity in the second half of 2022.

According to Xinshang, a large number of cross-border e-commerce sellers from Shopee and Lazada entered TikTok Shop in 2022 to capitalize on the new platform's benefits. TikTok Shop initially did not charge merchants any commission and offered various subsidies to consumers, such as free shipping, coupons, and discounts.

Meanwhile, entrepreneurial teams from China and local small and medium-sized enterprises, targeting TikTok Shop's live streaming business, quickly established hundreds or even thousands of MCN agencies, recruiting young local men and women to train them from scratch as live streamers, hoping to replicate China's live streaming sales miracle.

In 2022, TikTok Shop had limited categories and product offerings open for recruitment in Southeast Asia. Many sellers used tactics such as store clustering and bulk product listing to grab the first wave of platform traffic. These sellers, who already operated Shopee and Lazada stores, leveraged their Southeast Asian operational experience or supply chains to list "dropshipping" products on TikTok Shop, enabling them to quickly generate sales.

A Southeast Asian cross-border seller told Xinshang that based on the Philippines and Malaysian markets, he opened hundreds of small stores on TikTok Shop, each with thousands of products. In the initial months, traffic was excellent, with each store generating hundreds of orders daily. "With local business licenses and information, you can open as many stores as you want. New platforms usually allow store clustering due to a lack of products, relying on them to populate the platform."

This chaotic phase lasted for about six months, with some sellers earning significant profits. However, sellers and MCN agencies investing in live streaming did not fare well, with most incurring losses. On the one hand, the live shopping atmosphere in Southeast Asia had not yet developed, failing to generate large audiences and GMV. On the other hand, traditional platform sellers were unfamiliar with social e-commerce strategies, relying on "luck" to create best-selling products, resulting in unstable sales and difficulty in ensuring profitability.

Despite a tumultuous 2022 and ultimately failing to achieve its $20 billion GMV target, 2023 proved to be a breakout year for TikTok Shop in Southeast Asia.

In February 2023, TikTok Shop unleashed a major move by officially launching its mall business in Southeast Asia, integrating shelf e-commerce with social e-commerce. This move, in addition to the existing "product-to-customer" model, also closed the loop of "customer-to-product," lowering the barrier of entry for more cross-border sellers.

In Vietnam, the third-largest e-commerce market in Southeast Asia, TikTok Shop jumped to second place with a share of 16.3 trillion Vietnamese dong in the first half of 2023, surpassing Lazada, which fell to third place.

This performance continued, with TikTok Shop's market share in Vietnam reaching 24% for the full year 2023, while Lazada's share fell to 14%, according to the Momentum Works report. By the first half of 2024, TikTok Shop's revenue in Vietnam increased by about 40% year-on-year to 27.7 trillion Vietnamese dong.

Last month, TikTok Shop officially announced that the number of cross-border active products in Southeast Asia increased by more than 19 times year-on-year, while the number of cross-border merchants increased by nearly five times.

While TikTok Shop made significant gains in the Southeast Asian market in 2023, it also faced policy resistance, particularly in Indonesia, the largest e-commerce market.

On September 27, 2023, Indonesia's Ministry of Trade officially announced the revised Minister of Trade Regulation No. 31 of 2023, which stipulated that social media platforms cannot serve as product sales platforms. A few days later, TikTok Shop Indonesia announced its official closure.

However, a turn of events occurred two months later. In December 2023, TikTok reached an e-commerce strategic cooperation agreement with Indonesia's GoTo Group, merging with local e-commerce platform Tokopedia to form PT Tokopedia. TikTok acquired a 75.01% stake in Tokopedia for $840 million, with the transaction completed on January 31, 2024.

During these two to three months, a batch of sellers "fled" TikTok Shop Indonesia. According to FastMoss data, Indonesia is TikTok Shop's largest market in Southeast Asia, accounting for 60% of its sales in the region.

Despite the turmoil, TikTok was able to restart its e-commerce operations in Indonesia and even gained a larger market share through financial means. According to the Momentum Works report, TikTok and Tokopedia's combined market share in Indonesia has grown to 39%, second only to Shopee's 40%.

In 2023, TikTok Shop experienced exponential growth in Southeast Asia, with a GMV of $16.3 billion, falling short of its $20 billion target but still impressive compared to $4.4 billion in 2022.

02 Why TikTok Shop Overtook Lazada?

Clearly, TikTok Shop has approached and surpassed Lazada's market share in key markets, even posing a threat to Southeast Asia's e-commerce giant, Shopee.

Unlike traditional shelf e-commerce platforms, TikTok Shop is rooted in the short video social platform TikTok, which already had a vast user base in Southeast Asia before its e-commerce business launched. TikTok has an advantage in crucial e-commerce factors such as user scale and active user numbers, i.e., it possesses traffic.

Over the past five years, Southeast Asia has been one of the fastest-growing regions globally, with a highly youthful population structure. The region has nearly 700 million people, with over 50% under 30 years old. By 2030, "Millennials" and "Generation Z" are expected to account for 75% of ASEAN consumers.

Almost all these young users are on TikTok. According to official TikTok data, as of mid-2023, TikTok had a total of 325 million monthly active users in Southeast Asia, including 15 million business users.

FastMoss' "2023 TikTok Ecosystem Development White Paper" shows that TikTok's user penetration rate in major Southeast Asian countries exceeds 50%.

Image source: FastMoss "2023 TikTok Ecosystem Development White Paper"

This vast young user base supports TikTok's e-commerce business in achieving scale growth in Southeast Asia. Especially in the past year, the social e-commerce model has demonstrated its advantages, with live e-commerce becoming a new online shopping channel for Southeast Asian consumers.

In Southeast Asia, according to a Milieu Insight research report, 82% of respondents have entered live streaming rooms, with 48% visiting at least once a week and 63% having made purchases in live streaming rooms.

Southeast Asia's live streaming ecosystem is developing rapidly. Omise data shows that the annual growth rate of live e-commerce GMV in Southeast Asia reached 306% in 2021, and the market size is expected to reach $19 billion in 2023.

TikTok Shop's combination of short videos, live streaming, showcases, and malls has been effective in Southeast Asia, completing the construction of "people, products, and places." Short videos facilitate content marketing, live streaming stimulates impulsive shopping demand, and the mall serves as a product supermarket, enabling TikTok Shop to achieve a seamless connection from "watching videos" to "planting seeds" to "placing orders."

Crucially, as an emerging platform, TikTok Shop invests significantly more in marketing than its competitors. Analysts estimate that TikTok Shop spends between $600 million and $800 million annually on incentives. These investments are not only for traditional advertising but also include subsidies for merchants and KOLs, as well as various promotional activities offering consumers large coupons, effectively stimulating platform transaction volume and user growth.

In 2024, TikTok Shop has also increased its localization efforts in Southeast Asia. For example, it has established operation centers in key markets such as Vietnam, Thailand, and Indonesia and collaborated with local renowned KOLs to launch marketing campaigns tailored to local cultures.

According to Cube Asia's survey, Indonesian, Thai, and Filipino consumers who shop on TikTok Shop are reducing their spending on Shopee (-51%), Lazada (-45%), and offline shopping (-38%).

TikTok Shop, as an up-and-coming player, has continued to reshape the e-commerce landscape in Southeast Asia over the past year.

03 Lazada Struggles Despite Efforts

Once a leading player in Southeast Asia's e-commerce market, Lazada has now been surpassed by both Shopee and TikTok Shop, facing competition from both sides.

Founded in Singapore in 2012, Lazada was acquired by Alibaba for $1 billion in 2016 and has since become one of Alibaba Group's key international digital commerce platforms.

Alibaba attaches great importance to this platform and has continued to invest in it. On May 22, according to data provided by Alternatives.pe, Alibaba injected an additional $230 million into Lazada. To date, Alibaba has invested in Lazada ten times, totaling approximately $7.7 billion.

According to the latest financial report, Alibaba Group's international digital commerce business revenue increased by 45% year-on-year in the first quarter of 2024, with overall order volume on its retail platforms growing by 20%, primarily driven by the growth of AliExpress Choice. The report also mentions Lazada, stating that "Lazada continues to improve operational efficiency, with a significant narrowing of losses per order in the first quarter of 2024 compared to the same period last year."

Despite high expectations, Lazada's development seems inadequate, and it has now lost market share to TikTok Shop.

Previously, Lazada's localization process in Southeast Asia was slow, especially since 2018, when it went through four CEOs in succession. The platform's frontend and backend systems were similar to Taobao and Tmall, making it difficult for local merchants to adapt.

Starting in January 2022, Jiang Fan took over Alibaba's international business, beginning to streamline operations in Southeast Asia, including Lazada. In June of the same year, Jiang Fan appointed Dong Zheng as the new CEO of Lazada, stabilizing the management team and advancing localization efforts.

It is reported that most of the Lazada team now comes from local markets, especially the senior management team, with business leaders in key markets all being locals. Jiang Fan stated in a financial report conference call that Alibaba's international retail business will continue to invest in both cross-border and local models.

However, despite these efforts, Lazada has been unable to recapture lost market share. According to Momentum Works' report, Lazada's average market share in six Southeast Asian countries fell from 25% in 2023 to 16%.

Last year, Lazada offered benefits such as three months of zero commission, two months of free shipping, and 300,000 Indonesian rupiah in seller solution credits to sellers displaced by TikTok Shop Indonesia's closure. However, these efforts failed to yield the desired results. According to the Momentum Works report, without including Tokopedia, TikTok Shop's market share in Indonesia was 9% in 2023, compared to Lazada's 7%.

Lazada's platform activity is far less than that of Shopee and TikTok Shop. According to data released by Similarweb, Lazada's total website visits in June 2024 were 138.1 million, an increase of 10.4% compared to May. Shopee maintained a high level of visits, with a total website visit count of 591.5 million in June 2024, although this was a decrease compared to May.

Lazada is continuously adjusting to cope with market competition. In early 2024, Lazada conducted its first round of layoffs, cutting nearly 20% of its staff across six Southeast Asian countries. Additionally, in December 2023, Lazada underwent an organizational restructuring. LatePost reported that the large-scale organizational adjustments were part of a reallocation of power between headquarters and local offices.

Currently, Lazada still faces numerous challenges. As an early entrant into the Southeast Asian e-commerce market, its brand image appears somewhat outdated among younger consumers. In contrast, TikTok Shop, with its fashionable and youthful brand tone, more easily attracts Generation Z and Millennial consumers. Lazada needs to revamp its brand image to adapt to the ever-changing consumer demands and preferences.

The competitive landscape of the Southeast Asian e-commerce market is undergoing profound changes, with TikTok Shop eroding Lazada's market share, which is an indisputable fact. Clearly, Lazada needs to make comprehensive efforts in innovation, user experience, and operational efficiency to maintain its position in this fierce competition.