Introduction
Just a few days before the Chinese Mid-Autumn Festival, on September 27th, the Indonesian Ministry of Trade issued Regulation No. 31 of 2023, which prohibited social media platforms from serving as sales platforms for goods. This sudden ban had a significant impact on Indonesia’s largest social commerce platform, TikTok Shop.
Within seven days of the regulation’s announcement, TikTok Shop Indonesia announced its closure on October 4th. This closure dealt a severe blow to TikTok’s presence in the Southeast Asian market, especially in Indonesia, where it had 125 million monthly active users. TikTok had considered Indonesia as one of its crucial markets. With the introduction of TikTok Shop in Indonesia two years ago, many Southeast Asian businesses had focused on expanding their presence in the Indonesian market, recruiting local influencers, and conducting live commerce activities.
However, with the sudden ban, TikTok Shop in Indonesia faced a significant setback. The platform’s initial investments and efforts were in vain, and over six million sellers on the platform were left in a state of uncertainty and confusion.
The Unexpected Storm
The closure of TikTok Shop caused a frenzy in the Indonesian e-commerce landscape. TikTok Shop’s live streaming rooms were filled with chaos and urgency as sellers hurriedly showcased discounted products to their screens. Many live streamers portrayed scenes of despair as they faced the imminent closure of their shops. Despite the pressure, even small live streaming rooms garnered up to 70,000-80,000 likes per session.
The sudden closure of TikTok Shop left the platform’s 6 million local sellers and approximately 7 million live commerce practitioners and short-video creators in a state of uncertainty about their future. The impact of the ban was limited to social media platforms used for live commerce, while TikTok’s short video content business and other Indonesian mainstream e-commerce platforms such as Shopee, Lazada, and Tokopedia remained unaffected.
During this period of uncertainty, Indonesian sellers on TikTok Shop had to consider their next steps and how to minimize their losses and risks. They also wondered how TikTok’s official platform would respond to the ban.
The ban also affected the logistics and shipping industry in Southeast Asia, as well as independent e-commerce platforms and other e-commerce platforms undergoing transformations. They sought to seize this opportunity to diversify their services and generate additional revenue.
The Indonesian E-commerce Landscape
The ban on social media platforms as sales platforms for goods in Indonesia is not entirely surprising, as the Indonesian government has been tightening e-commerce policies, particularly regarding import goods and cross-border e-commerce, for the past few years.
In 2019, as e-commerce started booming in Indonesia, cross-border e-commerce practitioners strategically established bonded warehouses in locations such as Batam Island. Initially, products with a value above $100 were subject to taxation, but the threshold was later reduced to $75 to restrict imports. In 2020, the Indonesian government further adjusted the import taxation policy for e-commerce, reducing the tax exemption threshold from $75 to $3 per day to protect local sellers.
In 2021, Indonesia imposed restrictions on certain categories of cross-border e-commerce, including Muslim clothing, veils, and prayer garments, as well as various textile and apparel products. In August of the same year, a new policy was announced, prohibiting the sale of imported goods valued below $100 (1.5 million Indonesian rupiahs) on online platforms. Import goods had to be first imported into the Indonesian market before being sold, and e-commerce platforms were not allowed to sell their own branded products.
The ban on TikTok Shop is an extension of these previous restrictions on cross-border e-commerce and efforts to protect the local market. Indonesian President Joko Widodo expressed concerns about TikTok Shop’s growing influence and its impact on micro, small, and medium-sized enterprises (MSMEs). He highlighted the exceptionally low prices at which imported products were being sold on social media platforms, lower than the production costs of local products, which affected local businesses.
Zulkifli Hasan, the Indonesian Minister of Trade, emphasized the need to separate e-commerce from social media platforms, stating that they should not be associated with each other.
The Nervous Southeast Asian E-commerce Market
The ban on TikTok Shop in Indonesia had a ripple effect throughout Southeast Asia, triggering a storm of reactions towards TikTok and other e-commerce platforms.
In Vietnam, the government had been conducting a comprehensive inspection of TikTok since May 22nd, focusing not only on its e-commerce operations but also on the operations and services of the TikTok app itself. The inspection revealed various violations, including providing cross-border trading services, social networking services, and cross-border advertising services to Vietnam without following regulations. TikTok was given 30 days to rectify the violations and provide written notification to the Ministry of Information and Communications in Vietnam.
While Vietnam’s inspection primarily targeted TikTok’s overall operations, Malaysia also expressed concerns and summoned TikTok for an explanation. The Malaysian Ministry of Communications and Multimedia plans to investigate the ban on TikTok Shop in Indonesia.
While TikTok faced challenges in Southeast Asia, e-commerce platforms like Shopee and Lazada, which also had Chinese e-commerce origins, saw this as an opportunity. Lazada’s CEO in Indonesia, James Chang, announced plans to attract sellers affected by the latest e-commerce regulations. Lazada waived fees for sellers who could no longer sell on content-driven e-commerce platforms. Additionally, Lazada offered incentives such as three months of zero commission, two months of free shipping, and vouchers worth 300,000 Indonesian rupiahs.
Shopee became the primary destination for former TikTok Shop sellers. Many sellers who had previously tried TikTok Shop quickly registered on Shopee and Lazada, and some even explored Tokopedia, a local Indonesian e-commerce platform, to diversify their business channels.
While TikTok faced setbacks in Southeast Asia, its interest-driven e-commerce model continued to hold appeal. The migration of sellers to various e-commerce platforms created new opportunities for value creation and growth in the region.
Conclusion
The ban on TikTok Shop in Indonesia has dramatically impacted the live e-commerce landscape in the country. TikTok’s closure left millions of local sellers and live commerce practitioners uncertain about their future. This ban is part of a broader trend in Indonesia to protect local businesses and regulate e-commerce. However, the ban has also created opportunities for other e-commerce platforms like Shopee and Lazada to attract affected sellers and expand their market share.
As the Southeast Asian e-commerce market continues to evolve, it is crucial for sellers to diversify their platforms and adapt to changing regulations. The closure of TikTok Shop serves as a reminder to businesses to stay agile and explore multiple channels to minimize risks and maximize opportunities.
While TikTok’s future in the Indonesian e-commerce market remains uncertain, its influence and interest-driven e-commerce model have left a lasting impact on the region. The e-commerce landscape in Southeast Asia will continue to evolve, presenting new challenges and opportunities for sellers, platforms, and regulators alike.
Disclaimer: This article is based on information from various sources and does not reflect the views of the platform. The opinions expressed in this article are solely those of the author.