The groundswell culminated in sweeping regulations forcing TikTok to split payments for shopping in Indonesia. The unprecedented separation could stall TikTok's e-commerce push at a time when it is gaining momentum against Sea Ltd. and GoTo Group. The company now needs to chart a new path for its TikTok Shop, its fastest-growing feature, in the country of 278 million people, which should serve as a template for global expansion from the U.S. to Europe. was. Now it had to contend with yet another powerful government much closer to home.
“We must not delay in regulating the digital economy,” Teten told a parliamentary committee on September 8. “If we regulate, small businesses will disappear, local e-commerce companies will disappear, and losses will be lost. Consumers will have to bear the burden.” said Teten, who served as chief of staff under Indonesian President Joko Widodo.
Sea has added more than $3 billion in market capitalization since regulations were first outlined this week in hopes of attracting shoppers, while GoTo has changed little. But the regulations have turned out to be much tougher than industry insiders expected, potentially chilling the entire online shopping industry and scaring off foreign companies and investors.
New rules prohibit social media companies in Indonesia from handling direct payments for online purchases. TikTok is the only social media company to do this, and making it easy to buy cosmetics, clothing, and electronics on the app has been a key factor in TikTok Shop's explosive growth since its launch two years ago. It has become.
TikTok lets you advertise to more than 100 million users in Indonesia, but you have to go to another app or site to make a purchase. Therefore, the company will have to develop a separate app, which could undermine its appeal, or risk shutting down its Indonesian operations completely.
Companies benefiting include local champion GoTo, whose main revenue source is Tokopedia's online retail arm, and Sea, which operates the Shopee app. Lazada, owned by Alibaba Group Holdings, is another candidate.
“This development will have a chilling effect on the long-term growth prospects of the e-commerce market,” warned Simon Tolling, co-founder of e-commerce research firm Cube Asia. “TikTok Shop has truly revolutionized the Indonesian e-commerce market.”
The new rules also risk alienating investors who have already criticized the country for its protectionist policies, including in the mineral industry.
The regulations turned out to be even more far-reaching than those announced a few months ago. And while the government worked with industry stakeholders in January, TikTok has been in the dark since working on the draft, people familiar with the matter said.
TikTok pushed back. They argue that separating social media and e-commerce will hinder innovation and harm millions of retailers and consumers. The company says some people rely on its platform to make a living, and all sellers are Indonesian or have local subsidiaries.
TikTok's head of local public policy and government relations, Rofi Udalujat, implored stakeholders at an industry conference on Monday to help the company contribute to local e-commerce, according to people familiar with the matter. At the same time, Widodo convened ministers to discuss curbs. Officials said TikTok officials were still trying to meet with the president on Tuesday, but they were refused.
“Please don't be fooled,” Teten wrote on her Instagram account on Wednesday. “It's not difficult. Just click the link, check out, and you're done.”
“Sales can happen anywhere the seller wants, including WhatsApp, online stores, and landing pages,” he added. “The options are increasing rapidly.”
The restrictions open a new front in TikTok's battle with regulators. It may already be the subject of intense scrutiny in the United States, Europe and India due to national security concerns.
More specifically, Indonesia's regulations highlight how challenging the pursuit of e-commerce dominance is. Navigating the dispute will be critical for TikTok as other governments assess whether it hurts or helps sellers in the country.
“Given TikTok's rapid rise in regional e-commerce, Indonesia's regulations could be emulated by other countries in the region,” said Adrian Akras, senior analyst at Bower Group Asia in Jakarta. “Indonesia will not be the only battleground.”
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Indonesia's young and mobile-savvy population has embraced TikTok's in-app shopping since its launch in 2021, making the country the largest contributor to the goal of $20 billion in gross merchandise by the end of this year. TikTok users spend more than 100 minutes on the app every day, as do users in the United States.
The conflict with the government marks an improvement from several months ago. In June, TikTok Chief Executive Officer Shou Zi Chew visited Jakarta and pledged to invest billions of dollars in Southeast Asia over the next three to five years. Wearing a traditional batik shirt, he chatted with Trade Minister Zulkifli Hasan, the architect behind the new regulations, and visited a mother-and-son store with a TikTok account.
But authorities have since taken a tougher stance as the country targets ambitious growth rates and prepares for elections. Indonesia says it wants to protect its 64.2 million small and medium-sized businesses, which account for 61% of gross domestic product and form a key group of voters in February's parliamentary and presidential elections. Allowing TikTok to flourish could also lead to an influx of cheaper Chinese products, officials say.
TikTok representatives tried to appease the minister at a meeting in July, the people said. But this month Teten criticized the country's competition watchdog for not taking a tougher stance.
Teten, who became an activist during the dictatorship of former President Suharto, is known for his fiery statements. During that time, he was arrested for trying to expose government corruption.
Over the past few years, Shopee and Lazada have gained customers from domestic companies such as GoTo's Tokopedia, PT Bukalapak.com, and PT Global Digital Niaga's Blibli. The government is concerned that local competitors will be marginalized in a market worth $1.6 trillion by 2045, according to internal forecasts.
TikTok's rivals are also lobbying for regulations to limit the growing influence of new entrants, people familiar with the matter said. The willingness to spend for growth has become a major headache for incumbents, many of whom are looking to cut costs.
The challenge for TikTok is finding a structure that allows it to grow while appeasing authorities.
“A ban on TikTok shops could be very operationally burdensome,” said Jangang Lee, founder of Singapore-based consulting firm Momentum Works. “Regardless of how the ban progresses or evolves, TikTok's vast consumer traffic will continue to be harvested for e-commerce through the TikTok Shop and other means.”
Read more: TikTok Shop turns platform into a true e-commerce threat
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