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TikTok’s e-commerce ambitions dealt blow as Indonesia adds curbs

Bloomberg • 3 min read
TikTok’s e-commerce ambitions dealt blow as Indonesia adds curbs
The rule is part of newly tightened trade regulations that will kick in immediately. Photo: Bloomberg
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TikTok suffered a major setback to its online shopping ambitions after Indonesia introduced regulations that will curb its operations in its biggest e-commerce market.

Indonesia is prohibiting social commerce companies from facilitating direct e-commerce payments on their platforms, Ministry of Trade officials said on Wednesday. That means ByteDance Ltd.’s TikTok, the only social media company that sells goods directly on its app, will need to separate the shopping feature from its popular video-scrolling service.

The rule is part of newly tightened trade regulations that will kick in immediately. Indonesia is the first and largest market for TikTok Shop, and online shopping has become the app’s fastest-growing feature with a burgeoning fan base in the country. TikTok started the shopping feature in Indonesia in 2021 and its instant success has encouraged it to expand into online retailing in other markets, including the US.

Indonesia’s new policy is aimed at ensuring local e-commerce services, such as GoTo Group’s Tokopedia, won’t be squeezed out. The country also seeks to keep its 64.2 million micro, small and medium enterprises that contribute 61% of its gross domestic product from getting hurt by social commerce companies.

With the new rule, Indonesia will be the first among countries in Southeast Asia to push back against TikTok. Navigating this conflict with Indonesia will be pivotal for the company as governments across the world assess how Southeast Asia’s largest nation moves to curb the social media giant’s burgeoning e-commerce presence, just months after the firm said it will invest billions of dollars into the region. TikTok is already facing possible bans and scrutiny in the likes of the US, Europe and India on national security concerns.

TikTok has pushed back against the proposed policy. It argues that separating social media and e-commerce into different platforms not only hampers innovation but also disadvantages millions of its Indonesian merchants and consumers. The company says some of them rely on its platform to make a living.

See also: Southeast Asia will see 100% expansion in e-commerce market driven by digital payments, 2C2P commissioned report finds

“Social commerce was born to solve a real world problem for local traditional small sellers, by matching them with local creators who can help drive traffic to their online shops,” a TikTok Indonesia spokesperson said in a statement this week. “While we respect local laws and regulations, we hope that the regulations take into account its impact on the livelihoods of more than 6 million sellers and close to 7 million affiliate creators who use TikTok Shop.”

Traditional online retailers, meanwhile, are set to benefit from restrictions that could make TikTok Shop less attractive. The country’s online-shopping market leaders are Singapore’s Sea Ltd., which runs the Shopee app, and Jakarta-based GoTo’s Tokopedia.

What Bloomberg Intelligence Says

TikTok’s possible split of ecommerce and social media operations in Indonesia could impede further conversion of its 125 million local monthly active users (MAU) into shoppers, benefiting Sea’s Shopee, which, like TikTok Shop, relies on beauty and personal care for most of its domestic sales. GoTo’s Tokopedia, which had 34 million MAU in August vs. Shopee’s 138 million and Alibaba-owned Lazada’s 37 million, should be better able to defend its GMV share in Indonesia, which drove 90% of the group’s 2022 sales.

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