It has now been a few weeks since TikTok Shop stopped operating in Indonesia. As the immediate dust raised by the action has settled, all the key stakeholders – sellers, brands, investors, enablers, influencers, and of course the teams at TikTok – are back at their drawing boards planning their next moves in Indonesia.

Outside of Indonesia meanwhile, many have asked the question – will other countries follow suit? In this report, we look at the ongoing discussions within government and policy circles in TikTok Shop’s other markets and present our assessment of the risk landscape.

Context: With great power comes great risk

In Q2 of 2023, Indonesia accounted for nearly 40% of TikTok Shop’s Gross Merchandise Value (GMV) in Southeast Asia. The app had established itself as a significant driver of the country’s e-commerce ecosystem. Given its size, the government expressed concerns about its impact on local offline channels and players. TikTok was unable to allay these concerns, and regulations followed that limited the integration of social media and e-commerce, dealing an immediate blow to the company’s e-commerce business in the country. As for what is next in Indonesia, we have previously explored the different potential scenarios in our earlier report. 

Indonesia’s situation serves as a harbinger of TikTok’s broader e-commerce risk exposure in various countries, leaving many stakeholders to cautiously observe the regulatory landscape for clues about what might happen to TikTok and TikTok Shop in the rest of the region. We have taken a close look at this topic and split TikTok Shop’s markets into three categories based on the current risk picture: 

Red Alert – Countries with restrictions or partial bans on TikTok or TikTok Shop 

Yellow Alert – Countries with public statements expressing consideration or intent to restrict or ban TikTok or TikTok Shop 

Green Alert – Countries with no documented evidence of public disclosure of restrictions or bans on TikTok or TikTok Shop

Red Alert: TikTok’s growth in the USA and the UK is tempered by security concerns, which could limit how big it can get in e-commerce

In the USA and UK, TikTok’s number of social users is rapidly increasing, particularly among Gen Z and Alpha generations. Nevertheless, seen as a part of the Chinese online giant ByteDance, the platform has faced allegations related to content and privacy risks, including issues such as confidential data breaches, misinformation, and political propaganda.

In response, the USA has enacted the “No TikTok on Government Device Act,” resulting in TikTok’s prohibition on government-issued devices in multiple states. Moreover, the state of Montana, has become the first state in the USA to officially ban TikTok State-wide, taking effect in January 2024. Many educational institutions in the USA have also restricted TikTok usage on campuses. Consequently, the UK has also banned TikTok on government devices within all departments after a security review earlier this year due to concerns about the security of sensitive information.

Although the current impact on TikTok Shop is limited due to its smaller footprint in the US and UK, these early regulatory interventions suggest there could be significant hurdles down the road if TikTok Shop gets to a meaningful size in these markets.

Yellow Alert: TikTok grapples with potential government bans and censorship driven by privacy concerns in Vietnam, Philippines, and Malaysia

Vietnam, Philippines, and Malaysia represent approximately 20%, 10%, and 8% respectively of TikTok Shop’s GMV in Southeast Asia. According to our estimates, TikTok Shop in Vietnam has even surpassed Lazada to become the second-largest e-commerce platform this year.

There are however concerns regarding the app’s content in Vietnam. The government is pressuring TikTok to monitor “toxic” content, with TikTok having been asked to remove up to 5 million videos created by Vietnamese content creators in just the first half of 2023. This has made Vietnam the second highest country for content removal in Southeast Asia after Indonesia. This situation may hinder content creation amidst heightened government scrutiny, indirectly impacting TikTok’s e-commerce business in the country.

Meanwhile, the governments of the Philippines and Malaysia are also exploring selectively banning TikTok for government officials, in response to privacy concerns. The government of Philippines has set up task force to study a possible ban on government security employee using TikTok due to threat of data collection and the possible use of TikTok as a social influence tool. In Malaysia, public officials have highlighted dissatisfaction with TikTok’s compliance, calling out its lack of proactivity in controlling the spread of fake news and slanderous materials.

The stakes were raised further following the Indonesia TikTok Shop ban, with the Malaysian government declaring that it is also scrutinizing commerce risks and urging TikTok to clarify the claim of “predatory pricing” in Indonesia. In the Philippines, growing skirmishes with China in the South China Sea increase the risk of action against soft targets seen as being aligned with China.

Unlike Indonesia, these countries do not currently have regulatory restrictions on the integration of social media and e-commerce, but even separate concerns about the content and commerce sides of the platform put a cloud over TikTok Shop’s ambitions in the future.

Green Alert: TikTok Shop operates with minimal government interference in thriving markets like Thailand and Singapore

Thailand, TikTok Shop’s second-largest market in Southeast Asia with nearly 25% regional GMV contribution, remains on a green alert. The platform continues to challenge e-commerce giants Shopee and Lazada, offering opportunities for local sellers and SMEs to compete with brands through its live-streaming mechanics, enabling differentiated selling approaches. And it is doing so while working proactively with the government.

Earlier this year, TikTok collaborated with the Election Commission of Thailand to establish an information center and combat misinformation during the 2023 general election. Furthermore, Thai government branches, including the Bangkok Metropolitan Administration and the Ministry of Digital Economy and Society, have recently partnered with TikTok Thailand to utilize the platform as a gateway tool to stimulate the Thai economy and enhance Bangkok’s transformation into a smart city. It is unlikely that the government will intervene with anything like the Indonesian ban since social experiences like social platform commerce and conversational commerce have been established in the country for many years.

Singapore represents the smallest market for TikTok Shop in Southeast Asia, contributing less than  5% of regional GMV. However, it boasts the highest Average Order Value (AOV) according to our estimates. While existing policies regulate application usage on government-issued devices, these policies also apply to other social platforms such as Facebook and Instagram. Beside, the Singapore government has not expressed any significant concerns about TikTok’s content yet. The platform has even partnered with government organizations such as Ministry of Home Affairs (MHA), the National Crime Prevention Council (NCPC), and the Singapore Police Force (SPF), in an initiative to counter rising scams through entertainment. Consequently, the likelihood of further restrictions on both the content and commerce aspects of the platform in the country of its global headquarters and CEO remains low.

Taking a step back: A broader assessment of the risks associated with TikTok and TikTok Shop

As seen in many of the examples above, ongoing discussions on banning TikTok Shop did not come out of nowhere. There is something about the speed of TikTok’s global expansion that has heightened these risks. Originally conceived as a video-based social media platform, TikTok later ventured into e-commerce through TikTok Shop, achieving full integration as a social commerce platform. This unique integration presents advantages, including seamless user experiences and heightened engagement. However, it also exposes TikTok to diverse risk factors.

To understand if TikTok will be able to successfully scale up as an integrated content and commerce platform, we must observe, compare, and add up the various types of risks. These types of risks, when combined, can directly impact TikTok’s ability to operate across Southeast Asia and other global markets. Here are the key risk vectors we have observed:

Content Risk – Since its conceivement as an open platform for content creators, TikTok has faced numerous allegations regarding the appropriateness of content, misinformation, and political propaganda. According to TikTok’s transparency reports, it has already removed nearly 200 million video contents globally in the first half of 2023. Some governments seek to codify content controls for TikTok in regulation or law.

Privacy Risk – Owned by the Chinese-based ByteDance, data security and leakage are significant concerns for some national governments. Despite distributing its data centers outside of China, from the USA to Singapore, many governments have sought to restrict Chinese access to personal data. This has resulted in usage restrictions in some regions, such as Europe and the USA, or in the case of India a complete ban.

Commerce Risk – With its extended ecosystem to TikTok Shop in various countries, particularly in Southeast Asia, the rapidly growing commerce aspects of TikTok have raised concerns in the existing retail market. Based on our research, nearly 50% of the platform sales in Southeast Asia have come at the expense of offline channels. As evidenced by Indonesia‘s recent regulation, governments often aim to protect incumbent offline merchants, local marketplaces, and small enterprises, while at the same time remaining suspicious of channels that could potentially be used by sellers to avoid taxation.

Entity Risk – Commerce risk focuses on TikTok’s impact on local markets, but risks are also associated with the entity itself, its business setup, and regulatory compliance. For instance, in Indonesia, the company lacks the necessary licenses to conduct electronic system trading or payment transactions. In the long run, TikTok must be unambiguously compliant with local laws and regulations related to business incorporation, registration, taxation, and licensing in order to operate seamlessly. 

Implication for brands in Southeast Asia

In order to mitigate the exposure to TikTok’s current risks, we recommend that brands carefully assess the alert level in each region and tailor their strategies based on the following implications:

1. Market Expansion – Brands should seize the opportunity and capitalize on the rapid growth of TikTok in regions with a “Green Alert,” where government intervention risks are lower, enabling undisrupted long-term expansion.

2. Diversification – Brands in “Red” and “Yellow Alert” regions should diversify their social commerce initiatives such as live-shopping and affiliate engagement across multiple platforms, such as Lazada, Shopee and local platforms such as Tokopedia in Indonesia, to build a more resilient market strategy and reduce dependence on TikTok Shop.

3. Security and Compliance – Ensuring content aligns with local security and compliance regulations is crucial in regions with “Red” and “Yellow Alerts” to prevent content removal or censorship. This is true for TikTok Shop given the importance of content to drive sales, but also applies more broadly as evidenced by Lazada’s reprimanding in Thailand last year.