TikTok is going to fight a tough battle.

Title: TikTok Shop's Closure in Southeast Asia: Impact on Small Businesses and Content Creators

Subtitle: TikTok's Continued Efforts in Southeast Asia Despite Challenges

13 days ago, the closure of TikTok Shop's operations in Indonesia disrupted TikTok's growth plans and added to the profit concerns the company was already facing.

However, TikTok did not give up. Instead, it sent a clear message by continuing to focus on the Southeast Asian market.

On October 17th, the TikTok Shop Southeast Asia Cross-border Merchants Conference was held as scheduled. Adam, the head of TikTok Shop's Southeast Asia cross-border business, urged merchants to join the cross-border business in Southeast Asia, emphasizing that now is the best time to do so.

It is understood that the purpose of this conference was to attract merchants for the year-end promotion and introduce corresponding support policies and subsidies.

As the first stop in TikTok's globalization strategy, Indonesia contributed half of the market share of TikTok Shop's Southeast Asian e-commerce market and rose to fifth place within two years. The sudden closure of TikTok Shop had a significant impact on local businesses, influencers, and service agencies.

Small and medium-sized businesses were hit the hardest. While larger businesses or brands have a multi-channel layout, the closure of a single channel has a relatively controllable impact. However, small and medium-sized businesses, with weaker SKU and supply chains, are more reliant on the TikTok platform, making them more severely affected.

According to data from the FastData Research Institute, in the first half of 2023, Indonesia had the highest number of TikTok Shop users and the highest number of products globally, maintaining rapid growth. Indonesia also had the highest number of stores with sales exceeding 10,000.

"From hundreds or thousands of orders per day to just a few or even zero. The loss caused by the closure of TikTok Shop is obvious," Wang Lei said, looking at the data on the backend. He is a Chinese businessman in Indonesia, mainly selling shoes, and TikTok is his main platform.

In his opinion, TikTok Shop is very friendly to small and medium-sized businesses, and it is easy to generate sales through live streaming. Six months ago, he had just established a live streaming strategy for selling shoes and recruited seven anchors locally. He also prepared 30,000 pairs of shoes. Now, all of these have become heavy costs and burdens.

In the first two or three days after the closure, Wang Lei still had a glimmer of hope, thinking that such a large platform wouldn't just shut down. But after a few days, he had to let go of most of the anchors and start thinking of new solutions. He tried adding external links to his TikTok live streams, but the conversion rate was very low.

To survive, he planned two alternatives for himself. One is to accelerate the opening of offline stores, which, although costly, is more secure compared to the risks of online operations. The other is to switch to other e-commerce platforms, but he worries that it will take time to build up sales volume and the efficiency may be lower.

There are many people like him. According to official TikTok data, the closure of TikTok Shop will affect the daily livelihoods of over 6 million sellers and around 7 million live streamers and video creators on the platform.

In the past two years, many domestic MCN agencies have followed TikTok's lead in expanding into Southeast Asia. For example, "Make Friends" chose Indonesia as its first overseas location. Now, with the closure of TikTok Shop and the separation of transaction functions from social platforms, many influencers are struggling to survive, and even many agencies are making significant layoffs. An industry insider told Wall Street News that local influencers in Indonesia have been greatly affected. This situation can be compared to domestic TikTok influencers. If they were to open stores on Tmall or JD.com, it would be a completely different story. Influencers primarily focus on creating content and sell products in their live streams as a side business. This is different from the traditional e-commerce model, so they are more heavily impacted.

Wang Lei also mentioned that influencers and livestreamers are usually locals. The rapid growth of TikTok Shop has provided many job opportunities for young people in the local area, and the income of influencers is much higher compared to other sources.

Currently, the impact of the closure of TikTok Shop is still ongoing. Although many small and medium-sized businesses in the area have expressed confusion and disappointment about the closure, there is still no sign of TikTok Shop resuming operations.

Recently, Kang Zeyu, the head of TikTok's e-commerce division, stated in an internal memo that Indonesia has recently introduced a new e-commerce law that imposes a series of restrictions on social media platforms engaging in e-commerce. The company needs to make compliance adjustments to its products and operations to meet regulatory requirements, which is why it has temporarily suspended operations.

He also mentioned that they will actively communicate with the local government and relevant parties to complete the necessary adjustments to their products and operations as soon as possible and resume operations.

This crisis in Indonesia comes at a time when TikTok Shop is expanding globally. On September 12th, TikTok Shop was launched in the United States, transitioning from a semi-closed loop to a fully closed loop. FastData Research Institute believes that by 2023, TikTok's global GMV in e-commerce is expected to exceed $23 billion.

In the first half of 2023, Indonesia's e-commerce GMV had already reached nearly $4 billion. With the sudden halt of e-commerce operations in Indonesia, it will undoubtedly have a huge impact on TikTok's global goals.

Currently, expanding into Southeast Asian markets outside of Indonesia and the US is seen as an important path for growth.

As of last year, the total population of the six Southeast Asian countries (Vietnam, Thailand, the Philippines, Malaysia, Singapore, and Indonesia) reached 589 million. In the past five years, e-commerce in Southeast Asia has been thriving, with a compound annual growth rate of 64% in GMV.

Southeast Asia has become a battleground, and after TikTok Shop's expansion into Indonesia in 2021, it entered Malaysia, Thailand, Vietnam, the Philippines, and Singapore the following year. According to Caixin data, as of the end of last year, TikTok Shop had a market share of 5% in Indonesia, with other cities ranging from 1% to 4%.

With the upcoming major promotion, TikTok will certainly not miss this opportunity. At the TikTok Shop Southeast Asia Cross-border Merchants Conference, Guixin Shuo, the head of cross-border marketing for Southeast Asia, stated that Singles' Day and Double 12 are among the most important promotions of the year, with many upgrades compared to previous promotions.

According to her, the company provides support strategies to create a festive atmosphere for Singles' Day, including platform subsidies for different categories of products based on their popularity and potential, as well as various promotion coupons. She also revealed that this year's promotion subsidies on marketing tools will be much higher than in previous years. However, TikTok faces strong competitors such as e-commerce platforms Shopee, Lazada, and TEMU, which just entered the Philippines last month. These platforms are backed by Chinese internet companies, including Tencent, Alibaba, and Pinduoduo.

There are also concerns regarding policies. Apart from the Indonesian e-commerce law, Malaysia and Vietnam are also examining the policy risks of TikTok.

The investigation in Vietnam, which lasted for nearly five months, revealed that TikTok violated multiple regulations related to e-commerce. It is required to make necessary changes within 30 days.

According to Zhang Zhouping, Director of the B2B and Cross-border E-commerce Department at the E-commerce Research Center of Net Economy Society, TikTok has a natural advantage in terms of traffic as a social media platform for e-commerce. The risk lies in the fact that once the e-commerce scale grows, various types of data will accumulate on the platform, which may raise concerns from local governments.

The closure of TikTok Shop in Indonesia indicates that the popular Douyin e-commerce model in China is facing obstacles overseas. Clearly, this may just be the beginning.

As the world's third-largest global traffic pool with over one billion users, TikTok faces numerous obstacles in terms of data security and commercialization. To replicate the success of Douyin's e-commerce, TikTok needs to overcome many challenges, which is also a necessary test for its growth as a global next-generation technology giant.