TikTok Undergoes Business Adjustments, Ramping up E-commerce Efforts

TikTok’s e-commerce business has undergone business adjustments in the past few months. Notably, the platform has introduced a new model for its e-commerce project codenamed Project S. In simple terms, Project S operates with a full custody model. Under the model, merchants are only responsible for supplying goods, while the platform covers operations and fulfillment.

This is also another attempt by TikTok to solve the problem of inventory. Since TikTok e-commerce launched in the UK and started its business, it has been plagued by inventory issues for a long time.

TikTok has taken different measures to address this issue, in addition to creating a curated product alliance similar to what is done domestically. In 2022, they also launched a warehousing program called ‘AquaMan’ in the United States and the United Kingdom. This program emulates Amazon’s FBA warehousing model by storing certain stable-selling products in local warehouses of each country to shorten cross-border logistics time. However, pre-stocking inventory while simultaneously investing in logistics and warehousing costs brings both uncertainty for merchants and increased expenses.

In the UK market, where TikTok entered early, it has encountered challenges in both the local-to-local and cross-border models. In the US, only the local-to-local model is available for now. Some grassroots businesses and organizations that saw opportunities entered, resulting in a flood of novel and low-priced goods, which instead caused a reputation crisis for TikTok.

E-commerce live streaming and short video sales have swept through the Chinese market due to several core reasons: China is a unified large market with a common language and culture, and its e-commerce-related logistics infrastructure is highly developed. However, in new markets that TikTok’s e-commerce ventures into, conditions are vastly different from those domestically.

When TikTok started to focus its efforts on the S project, a potential risk also emerged. Recently, Shein and Temu were accused in a report by the U.S. House of Representatives of using small packages to evade customs duties. For TikTok, which is already facing geopolitical crises, this will also pose challenges to its e-commerce business development.

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A report released by a special committee in the United States House of Representatives on China-US economic competition pointed out that last year, about 210 million packages from Temu and SHEIN were exempted from import tariffs due to their value not reaching the $800 threshold. It is expected that more packages will be exempted this year. The related investigation is still ongoing, but lawmakers have indicated that there are already investigations showing that Congress should review import loopholes. In mid-June, US lawmakers proposed a bill to terminate tariff preferences for goods from China and Russia.

TikTok values the American market and has always been cautious due to potential risks. In the early stages, TikTok developed its e-commerce business in the US market using a semi-closed loop approach, which directed users to third-party platforms for transactions. TikTok repeatedly postponed the full integration launch until November 2022 when it finally entered the invitation-only phase.

Many Chinese e-commerce practitioners and internet entrepreneurs see the potential commercial value that TikTok could bring, especially considering how Douyin (the Chinese version of TikTok) has created numerous “rags-to-riches” stories in China’s market. However, entrepreneurs relying on doing business through TikTok are also experiencing uncertain fates as they navigate through frequent adjustments in their operations.