In the previous article in this series on cross-border e-commerce from China we saw how Bytedance launched various e-commerce initiatives in markets outside China. Especially interesting were the projects in Indonesia and the UK, where it tried to replicate the success of live commerce in China to other markets. In this article we will continue our journey by looking at the lack of success that TikTok’s live commerce initiative in the UK has shown so far.
In February 2022 it was reported that TikTok had reached RMB 6 billion in GMV (€880 million) in its global e-commerce business (excluding China) in 2021. More than 70% of these sales originated in Indonesia, the rest in the UK. TikTok was aiming to double this GMV in 2022. By comparison, the e-commerce GMV on Douyin, the Chinese version of TikTok, in 2021 is estimated to have been RMB 800 billion. The daily GMV of TikTok for the whole of the UK was about the volume of one medium-sized live commerce shop in China.
According to LatePost (link in Chinese) average daily sales of TikTok UK in June 2022 were only around $300.000. LatePost claimed that TikTok has set itself a goal for e-commerce sales of RMB 3 trillion (€440 billion) in GMV within five years. That seems unrealistically ambitious: it is roughly three quarters of the global GMV of Amazon, an almost three-decade old company.
Struggling live commerce
On July 5th 2022 the Financial Times dropped a bomb with an article claiming ‘TikTok abandons ecommerce expansion in Europe and US‘. The article more specifically mentioned live commerce as the initiative that had failed to gain traction in the western test market of the UK. At home Douyin had tripled live commerce sales year on year. According to sources of the Financial Times, TikTok’s plans to expand to Germany, France, Italy, and Spain in the first half of 2022 and the US later in the year were shelved. TikTok denied the news, stating that it had no plans for a roll-out of e-commerce to other regions in Europe and that it was still focussing on making it a success in the UK.
Reactions among China tech watchers were sceptical, claiming the article was ‘inaccurate’ and ‘misinformed’ and that it was unlikely TikTok would fully abandon live commerce but would probably prioritize investing in other initiatives. Cailian Press (link in Chinese) claimed that sources at Bytedance said TikTok would focus on its development in India, Malaysia, Thailand, Japan, South Korea, and the Middle East while shrinking its business in other regions.
Despites incentives to live-streamers and brands (see the previous article for details), sales have indeed been disappointing. In the Financial Times an anonymous TikTok employee was quoted saying: “The model doesn’t work because it is a different market and ecosystem in the UK but management doesn’t listen and refuses to make changes. (..) It will only work if the company is willing to listen about how to do it in a culturally acceptable way that works for British brands and consumers.” According to an anonymous TikTok employee the market was not ready for live commerce yet.
Long delivery times and lousy service
Pingwest reported that the main problems of TikTok Shop were the faltering logistics and customer service of cross-border sales from China. It quoted a TikTok employee as saying: “Good customer service, after-sales support, and reliable logistics can help platforms create a good shopping experience, build a solid reputation, and boost sales. Cross-border logistics are now too time-consuming, and supporting services are not ideal—all of these contribute to a bad experience for customers.” One of the problems customers have faced is that Chinese merchants refuse returns and refunds. The reason for this is the low margins on products sold and the high logistical costs to ship goods back to China. Instead, merchants tend to negotiate a discount.
Business Insider identified another possible reason for the difficulties live commerce is having on TikTok. The app is largely algorithm driven; TikTok chooses the content for the users, and it is hard for an influencer to build strong relationships on TikTok. On top of this, in the short, thirty second videos that make up most of TikTok’s ‘For You’ selection it is hard for influencers to convince users to actively follow them and watch their longer live streams. Influencers are saying it is easier to build up loyal followers on platforms like YouTube and some have started moving to other streaming services.
This reminds me of what I have seen happening in China. Live commerce hosts on Taobao and short-video app Kuaishou tend to have much higher GMVs than those on Douyin, simply because Kuaishou is much more built around relationships between hosts and their followers and less by algorithmic recommendation engines.
On top of the lack of traction of live commerce, TikTok is facing many other challenges in its e-commerce division in the UK. In June 2022, the Financial Times reported that the Chinese working culture at TikTok’s e-commerce division had caused a staff exodus. Sources mentioned a Chinese-style ‘996’ working culture (long days of 12 hours, six days a week), ‘relationships built on fear’ and unrealistic targets of up to £400.000 per livestream (most ‘successful’ streams only generated £5.000).
LatePost (link in Chinese) published more details on the struggles of TikTok’s e-commerce business in the UK. Frictions exist on both sides: employees in China are dissatisfied with being paid less for the same work while workers on both sides disliked having to work unconventional hours to accommodate each other’s working schedule. English staff complained about their Chinese managers’ poor language skills, authoritative management styles with little participation in the decision making (‘we decide, you implement’) and confusion caused by frequent changes in organisational structure and work objectives.
Most first and second level managers in the TikTok UK e-commerce business unit are Chinese and recently more Chinese staff has been added, changing the Chinese-to-English ratio of the division from 1:9 (comparable to TikTok UK’s full staff) to 5:5. A staff member told LatePost: “Chinese leaders who have never been to the UK and who can’t speak English well are managing a group of project managers with 5-7 years of experience who do not understand Chinese, have never been to China, and have always grown up in the UK environment.”
The first wave of resignations at TikTok’s UK e-commerce division took place between November 2021 and the start of 2022. A second wave followed in May 2022, after staff had received their year-end bonuses. Despite many people leaving, the team still counts about 300 employees and seems to still be recruiting. At the time of publication of this article, LinkedIn showed many e-commerce related job openings at TikTok’s London office.
Time is scarce for TikTok, it’s facing continuous geopolitical pressure, especially in the US where politicians continue to call for a ban of TikTok. Also, TikTok’s user growth has started to slow down in many markets. In the meantime, competition from other Chinese cross-border platforms is increasing (as we have seen in previous articles in this series). In November 2021 Kuaishou, the biggest competitor of Douyin in China, announced that it was “testing the waters with trial runs in live streaming virtual gifting and advertising in overseas markets”. Being the most valuable unicorn, Bytedance is doubtlessly also contemplating an IPO and needs to make its international performance look good. Bytedance has seen its valuation drop by 25% in recent private investments and reports on job cuts at TikTok in the US, UK and EU remain, even though layoffs of an estimated 100 people companywide only represents 1% of its workforce.
Whatever happens to TikTok’s e-commerce initiatives, I think the case of Bytedance’s rapid global expansion will be a highly interesting one to watch. Twenty years ago, companies like eBay tried to win the Chinese market, only to be beaten by Alibaba’s homegrown Taobao. The case has been extensively analysed in Duncan Clark’s The House That jack Ma Built (link in Dutch). Many other western companies have also failed to get traction in the Chinese markets. Reasons are diverse but lack of cultural adaptation and localisation often seem to play a significant role. As one of the biggest Chinese internet companies to make the move in the opposite direction, TikTok’s e-commerce projects and handling of western staff could go down in history as another case of failed international expansion … or Bytedance will eventually show us how it is done the right way.
In the next and last article in this series on cross-border e-commerce from China, we will look reasons live commerce might be struggling and other challenges the Chinese platforms and merchants are still facing.