Southeast Asian e-commerce is in a slump, and TikTok sellers are running with it

Southeast Asia's e-commerce market will become TikTokShop's largest market outside the United States, but for current individual TikTok sellers and MCN agencies, the ability to bring goods through live streaming in the Southeast Asian market still needs to be explored. This article describes the relevant content and hopes it will be helpful to you.

Southeast Asia has been gaining popularity this year. According to Baidu Index, the Southeast Asia Information Index reached 8,371,516 on August 23, the highest peak in nearly a year.

Image source: Baidu Index

In the field of cross-border e-commerce, relevant institutions predict that the scale of Southeast Asia's e-commerce market may reach US$234 billion in 2025. A report by Bloomberg in June this year pointed out that TikTok plans to achieve a global e-commerce GMV of US$20 billion this year. Southeast Asia will become the largest market for TikTokShop outside the United States.

Image source: Orient Securities

The close geographical location and similar cultural environment to China, as well as the replicability of the domestic short video and live streaming sales models, have also led many MCN agencies and individual sellers to choose TikTok Southeast Asia’s cross-border e-commerce as their first stop for going overseas.

However, after in-depth exchanges with some MCN agencies and TikTok individual sellers, DoNews found that the seemingly booming Southeast Asian e-commerce is actually a "false fire", and many TikTok sellers are still in the running-up stage.

1. There is a serious shortage of talents in minority languages ​​in China, and localized operations abroad are difficult

"It is very difficult to recruit talents speaking Southeast Asian languages ​​when operating TikTok in the domestic market. Even if we offer a monthly salary of more than 25,000 yuan, we still cannot recruit suitable anchors to sell products." Li Lu, head of a domestic MCN agency, told DoNews.

As Li Lu said, the "One Belt, One Road" Big Data Report (2017) pointed out that English is still the only language in my country's foreign language education. Through a survey of 423 language service agencies across the country, it was found that companies that provide Chinese-English translation services and English-Chinese translation services accounted for the highest proportion, at 96.93% and 94.80% respectively. Japanese and French followed. Only 2.60% of companies provide "Chinese-foreign translation" and "foreign-foreign translation" services, which accounted for a small proportion, and the service capacity of small languages ​​was seriously lacking.

More importantly, unlike China, where Mandarin is the official language, Southeast Asia is actually an extremely fragmented market. Currently, there are at least 13 official languages ​​in the six Southeast Asian countries, not including dialects and minority regional languages. This leads to the contradiction that even if some practitioners want to learn these minority languages, they don’t know where to start.

In the context of the shortage of talents in minority languages, the complex talents required to operate TikTok make the situation even worse. Live streaming requires practitioners to have strong oral skills in minority languages ​​and the ability to interact in the live streaming room.

Language barriers force sellers operating TikTok in the domestic market to passively adjust their operating strategies.

TikTok seller Zhang Qi said that during the TikTok live broadcast in Southeast Asia, the company had hired talents who spoke minority languages ​​to record the content of the live broadcast room in advance. However, after being warned by the official, the weight of the entire store was directly restricted, and the number of viewers and conversion rate plummeted.

The same situation also occurs in video creation. Re-creation of short videos that have exploded on domestic short video platforms is a video strategy currently adopted by many TikTok sellers. In addition to being easily restricted by the official flow, such videos also have a high risk of being blocked.

Moreover, in the Southeast Asian market, the real contradiction between the number of fans and the sales ability of the anchors is disproportionate, which means that even if TikTok players can increase the number of fans of a single account, it is still unknown how much sales revenue they can bring.

Taking the Indonesian market as an example, although the Indonesian internet celebrity @louissescarlettFamily has more than 6 million fans, according to industry insiders, her ceiling is her monthly commission of around US$200,000.

Data.ai data also shows that during the Indonesian "Eid al-Fitr" promotion, TikTok not only saw a 493% increase in orders, but also a 92% increase in GMV. In 2022, TikTok's average monthly GMV in Indonesia reached US$200 million, but this figure is still lower than the single-game sales data of top anchors in China, represented by Li Jiaqi and Xiao Yangge.

Image source: Data.ai

The reason for this is that Southeast Asia currently lacks the soil for the development of e-commerce with influencers and seeding. The reason why the penetration rate of live e-commerce in my country has developed rapidly in recent years is that before the outbreak of live e-commerce, various e-commerce models such as traditional shelf e-commerce, 020, and community group buying e-commerce have completed the education of consumers. Live e-commerce is essentially just an innovation in the gameplay of traditional shelf e-commerce, but it has not changed much in the supply chain, transaction, and after-sales links of the entire e-commerce.

Image source: Netease

Based on this, the top anchors either use price advantages or video content advantages to gather a large number of fans while constantly building fans' trust in them, which ultimately feeds back to the live streaming sales data. However, Southeast Asian e-commerce really started only after 2020. With a low e-commerce penetration rate, the public naturally cannot accept various emerging e-commerce models.

Image source: CMB International

In order to cope with the shortage of talents in minority languages ​​in China, many TikTok sellers have chosen to localize their operations in Southeast Asia. But even so, these sellers still have many problems to solve.

First, the continuous adjustment of policies by the authorities of Southeast Asian countries. Taking the Indonesian market as an example, on July 28 this year, Indonesian Trade Minister Zulkifli Hassan said that Indonesia will restrict the online sales of imported goods with a price below $100, and imported goods will also need to obtain a supplementary license, namely the Indonesian National Standard (SNI). This means that it has become impossible for sellers to rely on China's supply chain and production capacity to produce low-priced goods for sale on Indonesian e-commerce platforms.

Second, during the project launch phase, entrepreneurs must have a sufficiently clear insight into the market conditions, talent system, laws and regulations, and business environment of the country in which they operate.

As domestic live streaming e-commerce has developed to this day, "rolls" have become the norm for the entire industry. On the Douyin platform, live streaming rooms can be viewed almost anytime, 24/7.

In the past few years, many top anchors, including Li Ziqi and Langweixian, have had constant conflicts with the MCN agencies behind them. In order to avoid this situation from happening again, many domestic MCN agencies have imposed constraints on anchors through sky-high compensation. However, because live streaming in Southeast Asia is still in its infancy, there are also many challenges in the management of influencers. The binding force of the contract is not high for local influencers: it is extremely common in the Southeast Asian live streaming circle to not be able to find people after receiving orders, cheating on samples, and delivery time of up to 2 months.

Looking deeper, except for companies such as SHEIN and Jitu, whose founders are Chinese entrepreneurs, it is almost impossible to see domestic entrepreneurs in Southeast Asia's unicorn companies. This also indirectly shows that it is not easy for domestic entrepreneurs to truly carry out localized operations in Southeast Asia.

2. TikTok live e-commerce has low customer unit price, low conversion rate and low profit

The average order value that Southeast Asian e-commerce users can accept is very low, and the average order value of RMB 25 is almost the ceiling that local e-commerce users can accept. TikTok seller Li Wei told us helplessly.

As Li Wei said, CITIC Securities data shows that the average customer price of TikTok in Indonesia, Malaysia, Thailand, and Vietnam is 2-5 US dollars, 4-7 US dollars, 2-3 US dollars, and 2-4 US dollars respectively. TiChoo data shows that the average customer price of TikTok in Indonesia is 2-4 US dollars, the average customer price of small stores in Thailand, Malaysia, and Vietnam is 4-6 US dollars, and the average customer price of small stores in the Philippines is only 1-2 US dollars.

Image source: CITIC Securities

Although a lower average order value can help increase e-commerce penetration, Pinduoduo in China is also using low average order values ​​to drive the increase in e-commerce penetration among users in lower-tier markets.

But in essence, the reason why Pinduoduo sellers can accept the platform's low-price gameplay is that they are attracted by Pinduoduo's large user base and the potential for explosive sales. However, Pinduoduo's gameplay cannot be directly reused on TikTok.

According to the "2022 TikTok Ecosystem Development White Paper", in the TOP20 live broadcasts in Southeast Asia in 2022, 85% of the main categories promoted were beauty and personal care products, while shoes and boots, mobile phones & digital products, and household daily necessities each accounted for 5%.

However, based on a customer unit price of $3 (about RMB 21), if TikTok sellers choose to ship from China, after deducting the current international postal package price of about RMB 10, and the commission rate of overseas anchors for live streaming, which must not be less than 15%, the related raw material costs, after-sales costs, anchor costs, investment costs, etc., even Yiwu merchants who already have supply chain advantages in the household daily necessities category will only make very little profit. If a price war is launched by peers in a certain category, the possibility of negative net profit cannot be ruled out.

More importantly, on the one hand, TikTok and Douyin currently use ByteDance's algorithm mechanism, and whether sellers can use short videos and live broadcasts to boost sales is highly random, and this randomness cannot cover up the actual costs of daily TikTok operations. On the other hand, Li Wei found in many live broadcasts that although the click-through rate of live broadcast products can sometimes reach more than 50%, the final paid order is less than 2%.

The reason for the above situation, in addition to the fact that consumers in Southeast Asia are not interested in the live streaming sales model as mentioned above, is also related to the consumer habits in Southeast Asia and TikTok's traffic mechanism.

First of all, online payment is the foundation of e-commerce development. However, most consumers in Southeast Asia lack trust in online payment, which leads them to prefer cash payment. Bain Consulting data shows that nearly 60% of consumers in Southeast Asia still prefer cash payment in 2021.

Image source: Bain Consulting

Secondly, among the six Southeast Asian countries, except for Singapore, which has a relatively high level of economic development, the per capita disposable income of the other five countries is limited. In 2020, the per capita disposable income of urban residents in Vietnam was US$487 (about RMB 3,556). The relatively low income has also led to Southeast Asian consumers being keen on comparing prices on different e-commerce platforms when shopping.

However, Shopee, a local e-commerce platform in Southeast Asia, and Lazada, which is invested by Alibaba, account for almost 75% of the entire Southeast Asian e-commerce market share. Moreover, the cost of operating traditional shelf e-commerce in Southeast Asia for domestic cross-border e-commerce sellers is lower than that of operating TikTok, which makes the prices of goods on these two platforms more competitive than TikTok.

Image source: Guangyuan Capital

Finally, because TikTok is a global app, due to the need for scientific Internet access, the problem of IP instability often occurs. In the live broadcast room, the target country may be Vietnam, but the end user may come from Indonesia. When the language cannot be communicated smoothly, the problem of traffic without conversion naturally occurs.

3. Why is e-commerce in Southeast Asia so popular?

In fact, the various problems exposed by TikTok at this stage are actually a direct manifestation of the false boom in Southeast Asian e-commerce.

Compared with domestic e-commerce, the foundation for the establishment of any e-commerce model, such as traditional shelf e-commerce, live broadcast e-commerce, and local life e-commerce, must be based on the previous e-commerce model, which has sustainable growth. Enterprises in related tracks can achieve profitability with the help of economies of scale and are willing to make continuous investments, so that this e-commerce model can be stabilized in the end.

A typical example is that since 2012, various vertical e-commerce platforms in China, represented by Vipshop, Mogujie, and Jumei, have become popular. However, because vertical e-commerce platforms are limited in the number of people they serve, they cannot maximize the traffic and user value of their sites through cross-selling like large-scale comprehensive e-commerce platforms. This determines that the overall market size of vertical e-commerce is too small. Companies on the track are unable to make profits through economies of scale and eventually fail.

The same situation also occurs in the Southeast Asian market. Take Indonesia as an example. Although the total population of Indonesia is 270 million, the core users of e-commerce are only tens of millions between the ages of 20 and 40. If we also consider the differences in individual consumption habits of local young people, the population that the entire e-commerce can truly reach is limited, which also determines that the growth ceiling of the local e-commerce market will arrive ahead of time.

Image source: HTI

Moreover, Indonesia is actually a country consisting of 17,000 islands. This geographical situation not only makes the infrastructure such as transportation and logistics naturally fragmented, but also increases the order fulfillment cost of the entire e-commerce.

At the same time, the rapid development of domestic e-commerce in the past few years is based on competition among peers in key core areas of e-commerce such as e-commerce platform gameplay, payment, logistics, etc.

The payment war between WeChat and Alipay promoted the rapid penetration of domestic electronic payment. Behind Douyin's strong competition with Meituan in the local life field, local life has gradually penetrated into the real estate, second-hand cars, confinement centers, elderly care services, housekeeping and other fields in the county.

However, in the current Southeast Asian market, in addition to the e-commerce platform Shopee mentioned above, in the field of logistics, according to the prospectus previously released by Jitu, Jitu's market share in Southeast Asia is about 22.5%, ranking first in the industry, and it has a large gap with other companies. In other words, the logistics field in Southeast Asia also presents a pattern of one company dominating.

Under this pattern, in addition to the fact that existing companies have a weak motivation to accelerate their business due to vested interests, it also means that latecomers have too few opportunities, which will lead to a continuous slowdown in the subsequent growth rate of the entire Southeast Asian e-commerce market.

In fact, the high growth of Southeast Asian e-commerce seen by the current market is just a superficial phenomenon. The high growth achieved by TikTok is actually achieved by subsidizing shipping costs and subsidizing prices. However, this kind of subsidy can easily fall into a vicious cycle where the more consumers buy, the faster the data grows, and the more money needs to be invested; but once the subsidy stops, those users with limited consumption capacity will leave.

In May this year, before Simba went to Thailand to sell goods, his team mentioned "live broadcast of the industrial chain traceability". In other words, Simba's team actually wanted to contact more overseas supply chains and bring the advantages of this supply chain to domestic consumers, rather than targeting the entire Thai market.

It is reported that Simba sold more than 1.5 million durians during his live broadcast in Thailand, with cumulative sales exceeding 300 million yuan, and more than 80% of Thailand's durians are actually sold to my country. In short, Simba's live broadcast in Thailand is actually an import cross-border e-commerce business.

It is undeniable that Southeast Asian e-commerce still has certain potential in the future. In July this year, Lazada received another investment of US$845 million (about RMB 6.1 billion) from Alibaba. If Alibaba’s previous investment is added, Lazada has received 7 investments from Alibaba, totaling about US$5.8 billion.

But for current individual TikTok sellers and MCN agencies, how to replicate the domestic live streaming sales capabilities in the Southeast Asian market still requires continuous exploration.

Author: Cao Shuangtao; Editor: Yang Bocheng

WeChat official account: DoNews (id: ilovedonews) is not limited to tracking and exploring the Internet industry, but also moves towards the future and the unknown.