Temu, Shopee, TikTok Shop: Who will win the e-commerce battle in SEA?

All signs suggested that the Chinese discount marketplace Temu would be unstoppable in Asia. With more than 167 million monthly active users in over 70 countries and regions, Temu's annual sales are enormous, projected to reach US$54 billion this year alone. 

But in October, authorities in Indonesia, the largest e-commerce market in Southeast Asia, implemented a ban on Temu to protect the country's local merchants from the influx of cheap foreign goods. Indonesian regulators asked Alphabet's Google and Apple to block Temu in its local app stores. The ban on Temu from Indonesia's app stores comes after Temu had applied several times to operate in Indonesia.

The ban in Indonesia may have had a knock-on effect. Temu's recent entry into the Vietnamese market has prompted increased scrutiny from the government there as well. Shortly after Temu debuted in October, Vietnam's Ministry of Industry and Trade warned consumers against purchasing from unregistered platforms, highlighting worries about the quality of low-cost products. 

Could this be a sign that the e-commerce bubble in the region is about to burst? Might the protectionist measures Indonesia introduced spread to other economies in the region?

"E-commerce platforms, foreign as well as local, can operate freely in Indonesia as long as they are registered and as long as they are not facilitating cross-border B2C flows," says Simon Torring, co-founder of Cube Asia, a market insights company for online retail in Southeast Asia. 

"This policy stance affects platforms like Shopee and TikTok Shop to some degree as a minor share of their sales in other markets tend to be shipped from overseas, but there is no doubt that the biggest impact is felt by those platforms that rely on cross-border B2C, namely Temu and AliExpress," adds Torring. "On a net-net basis, the policy stance likely emboldens Shopee, Lazada, TikTok Shop, and other incumbents since they are where consumers will be most likely to purchase in the absence of the overseas platforms."

So, what looks like Temu's loss could well be a boon to rival marketplaces like Shopee and TikTok Shop. Before the Temu ban, TikTok Shop was also banned in Indonesia in October 2023 for the same reason of protecting the country’s smaller merchants. However, TikTok was able to circumvent the ban by buying a majority stake in home-grown Indonesian e-commerce platform Tokopedia just two months later.

"TikTok Shop avoided the threat of being banned in late 2023 by connecting its shopping features to the local platform Tokopedia," says Shom Mabaquiao, Canvas8’s junior editor for APAC. "In Temu’s case, Indonesia sees the platform’s extremely low prices as threatening the domestic economy since Temu products might come from brand oversupply. If Temu is willing to adjust its in-app mechanisms to respect Indonesia’s cultural market, then it can also thrive locally."

Certainly, Temu will not want to miss out on the lucrative Indonesian or broader Southeast Asian e-commerce market. The rapid urbanisation and the rise of a burgeoning middle class in many Southeast Asian countries are reshaping the retail environment, creating vast opportunities for retail businesses. According to a Momentum Works report, Indonesia remains the largest e-commerce market in Southeast Asia, contributing 46.9% to the region’s gross merchandise value (GMV). Meanwhile, Vietnam and Thailand are the fastest-growing e-commerce markets, while Shopee remains the region’s top e-commerce platform, retaining its 48% market share. After taking over Tokopedia, TikTok Shop has become the second-largest e-commerce platform in Southeast Asia. 

Is the e-commerce bubble too big to burst? 

As competitor marketplaces like Shopee and TikTok Shop go from strength to strength, will Temu be able to overcome the regulatory obstacles it’s facing in markets like Indonesia?

"E-commerce platforms will surely find a way to enter and operate in markets like Indonesia—it's simply too big for them to ignore," says James Guild, assistant professor at the Indonesian International Islamic University. "And if the projections about digital economic growth in Indonesia and Southeast Asia are accurate, the market is only going to get bigger in the years to come."

Gaining market share in fast-growing regions like Southeast Asia is of utmost importance to e-commerce marketplaces, especially for Chinese retailers who are looking for other avenues to grow amid a slowdown in their domestic market. 

L-R: Therese Reyes, Simon Torring, Shom Mabaquiao, Matthew Crabbe, Mark Faithfull and James Guild

"As the market in China slows, domestic Chinese retailers are looking to sell more outside of China," says Matthew Crabbe, vice president of trends, APAC, Mintel. "Other online marketplaces are based within Southeast Asia—and the removal of Temu will likely only help to increase their market share."

The rise in Chinese tech groups with e-commerce assets like Alibaba and PDD Holdings focusing increasingly on overseas markets is partly due to the domestic Chinese e-commerce and consumption slowdown and the fact that Chinese factories and brands have surplus stock that they are seeking to sell elsewhere.

However, as trade barriers are increasingly raised against Chinese brands flooding other markets with cheap goods, it is likely that more Chinese online retailers will establish local market investments to sell more local products from Southeast Asia—so they can show that they are supporting local brands while also making a profit.

Will there be a winner?

At least for now, even amid increased government scrutiny, regulatory barriers, and protectionism, the boom of online marketplaces is poised to last in Southeast Asia. Cube Asia estimates that e-commerce in the region is growing about 18% this year and that the CAGR towards 2027 will be around 15%—much faster than offline retail is growing in these markets. 

"Inside this growing e-commerce market, we are seeing a continuous 'formalisation' in two ways," says Torring. "Firstly, we are seeing that formalised channels (Shopee, Lazada, Temu, TikTok Shop) are growing faster than non-formalised channels (social commerce, etc.), and inside the formalised channels, we are seeing that formalised sellers (official brands, official retailers) are growing faster than non-formalised sellers (c2c sellers, independent traders and importers etc.).” 

Torring points out that this 'formalised' trend benefits all of these large online marketplaces in various ways, but they are not performing equally well. 

"Shopee has achieved clear market leadership after Lazada has refocused on profitability (to the detriment of top-line sales growth), with TikTok Shop remaining its main competitor," adds Torring. "TikTok Shop is, however, still largely focused on beauty and fashion, which is limiting its ability to take meaningful share from Shopee and others in GMV-heavy categories like electronics and home goods."

However, as the battle for consumers’ wallets leads to a price war in the e-commerce industry, will there be room for all of these marketplaces, or will one platform eventually dominate?

"Competition is the healthier path in this emerging market," says Canvas8's Mabaquiao. "Having one platform dominate would be unethical, as seen in the former monopoly of Grab in the Philippines’ logistics sector. The high prices coming out of this market dominance priced out those who just started exercising their purchasing power and newfound status—and people don’t like being cheated out of their hard-earned success."

Impulse buys, word-of-mouth reviews and pop culture trends are also big drivers of purchasing behaviour among Southeast Asians, who thrive in a decentralised and competitive market.

"Niche markets like K-pop fandoms, the Muslim demographic, dupe culture, and creative live selling keep disrupting the online marketplace in new ways all the time," says Mabaquiao. "This is why beauty platforms like Indonesia’s Sociolla and the Philippines’ Parlon have loyal followers—these platforms tap into cultural interests. And as long as people have interests and beliefs, I don’t think this is going to stop anytime soon. There will always be room for platforms that offer something new and personal."

An unsustainable business model?

Beyond government bans or local market protectionism, the sustainability of these platforms in the long term poses other questions. The business model of online marketplaces focuses on low costs of sales, resulting in high social and environmental costs elsewhere. In South Korea, for example, a 2022 study estimated that given the same amount of money spent, online shopping generates 4.8 times more packaging waste than offline shopping. According to GreenMatch, with over 1.6 million packages shipped daily, Temu is projected to generate 1 billion tons of packaging waste globally by 2050.

"Looking forward, one of the biggest challenges will be about sustainability and the throw-away nature of cheap products and fast fashion," says Mark Faithfull, founder of Retail Unwrapped. "But despite growing awareness, young shoppers also seem very willing to overlook this when they are online shopping, so I suspect any impact will be further down the line."

Besides environmental concerns, even the growth trajectory of e-commerce platforms is likely unsustainable. Chen Lei, co-founder of PDD Holdings, the Chinese owner of online shopping platforms Temu and Pinduoduo, told analysts during a recent post-results briefing: “Competition is here to stay and is expected to intensify in our industry. High revenue growth is not sustainable, and a downward trend in profitability is inevitable.”

In terms of who might win the ongoing e-commerce battle in the region, Therese Reyes, an analyst at Canvas8 based in Manila, says that something to watch out for is how these platforms can set themselves apart from the others as more players join in. 

"The best way to stand out is by offering truly good deals," says Reyes. "Singles Day and similar sales are still huge in the region, but people are savvier than ever and won't spend on just anything. And with more platform options at their fingertips, it's a lot easier for shoppers to canvass for the best prices. Offering truly good deals could also establish loyalty and repeat visits, benefiting both shoppers and e-commerce platforms.”

The draw of online shopping for consumers is the ability to quickly make price comparisons to get the best deal. In Indonesia, 93% of consumers say they are always looking for things that make their lives easier, according to Mintel's Crabbe, who quoted research from his company. 

"The hope is that as Southeast Asia continues to see strong economic growth, as more investment comes into the region, so average wages will rise, creating more space for more higher-level spending," says Crabbe. "This could replace discount shopping—thus raising the market for all brands and retailers."