“TikTok Shop’s predatory pricing kills small business with low volume sales”

Letter to editor

I refer to the proposal by Segamat MP R. Yuneswaran who recently intended to submit a motion calling on the government to ban social media platform TikTok in the country.

While many may oppose this ban at first instance, this move can actually eliminate an existing unfairness among businesses and traders with regard to the existing gap in the e-commerce ecosystem.

As an e-commerce business operator, I would like to emphasise the following points which I believe are crucial to shed light on the potential contributions of such a decision, especially in the context of Malaysia’s burgeoning digital economy.

The COVID-19 pandemic brought unprecedented challenges to our nation with micro, small, and medium-sized enterprises (MSMEs) among the hardest-hit. MSMEs which are are often regarded as the backbone of a country’s economy, had to adapt swiftly by embracing digitalisation to ensure our survival and future prosperity.

Malaysia’s journey towards becoming a digital economy powerhouse has been remarkable, largely due to the efforts of organisations like the Malaysia Digital Economy Corporation (MDEC).

These initiatives have laid the foundation for an ecosystem where businesses and consumers have access to high-speed internet and digital services essential for their growth and convenience.

The e-commerce sector, in particular, has witnessed explosive growth in recent years, offering a lifeline to MSMEs seeking to expand their reach. This digital marketplace has provided a level playing field, allowing sellers from diverse backgrounds and ethnicities to compete on an equal footing.

One significant player in this digital commerce landscape is TikTok Shop Malaysia. Between January and June 2023, it recorded a substantial 78% increase in SME sellers on-boarded.

Predatory pricing

On the surface, this seems like a positive development for MSMEs as it presents a unique social commerce platform where sellers can leverage short videos to showcase and sell their products to a vast audience.

However, the reality is not as rosy as it may seem. If we study the mechanisms used by TikTok Shop, it appears to be prioritising a select group of sellers, primarily those capable of generating high sales volumes.

These sellers employ predatory pricing strategies, taking advantage of TikTok’s algorithm that prioritises high-volume sellers. This practice makes it exceptionally challenging for those with limited capital and inventory to gain visibility and compete on a level playing field.

In essence, this creates an uneven battleground for sellers. Consider a scenario where a local farmer is selling his produce on TikTok Shop competing against a corporate entity with significantly greater resources.

Indonesia banned TokTok Shop with effect from Oct 4 this year

The corporate competitor can easily flood the market with their products, offering unbeatable prices and a wider range while the local farmer struggles to compete with these aggressively low prices and is eventually forced to exit the market.

Even more concerning is the presence of high-volume sellers who import low-priced products from China and saturate the market.

Unlevel playing field

The combination of predatory pricing and the influx of Chinese products has raised concerns akin to dumping practices, exerting immense pressure on MSMEs. Consequently, this limits the ability of local MSMEs to reach potential customers, establish a customer base and succeed in the digital economy.

It is essential for the government to acknowledge that predatory pricing practices can harm the livelihoods of MSMEs. Additionally, the separation of social media and e-commerce is imperative to ensure that algorithms are not controlled in a way that unfairly favours certain sellers.

This situation significantly hampers the potential for MSMEs with locally sourced products to thrive, actively engage with the digital economy and overcome the challenges they face in sustaining their businesses and livelihoods.

In conclusion, every entrepreneur deserves a fair chance at success and the right to conduct business in an equitable environment. I implore the government to consider the potential of a complete ban on this platform.

It is my hope that we can find a balanced solution that safeguards our digital ecosystem and the livelihoods of our MSMEs. – Oct 21, 2023

Vincent Lam
Kuala Lumpur

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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