Hunted in Indonesia, Pressured by Multiple Countries

A ban imposed by Indonesia not only disrupted TikTok's rapid strides but also stirred up waves in the Southeast Asian e-commerce market.

On September 27, the Indonesian Ministry of Trade officially announced Regulation No. 31 of 2023, which prohibits social platforms like TikTok from conducting transactions as commodity sales platforms, citing a threat to the interests of local small and medium-sized enterprises (SMEs).

On October 4, under official government pressure, TikTok was forced to shut down its TikTok Shop feature in Indonesia. Faced with the ban, the six million sellers live-streaming on TikTok Shop had to cease product promotions and turn to other platforms.

The announcement of this ban caught TikTok off guard, with its e-commerce chief, Kang Zeyu, stating in internal communications, "This incident happened rather suddenly, and the reasons behind it are quite complex."

In reality, the existence of TikTok Shop did not harm the interests of small businesses. Firstly, since its launch in Indonesia, TikTok Shop has only allowed local sellers to join and does not engage in cross-border e-commerce. Secondly, its live-streaming sales model reduces customer acquisition costs for small and medium-sized merchants, benefiting local micro-enterprises in customer acquisition and exposure.

Some physical retailers in Indonesia expressed joy and support for this ban, while most small businesses gained more customers and sales through TikTok's live-selling platform. The closure of the platform's e-commerce function signals the end of their good days, so they all voiced opposition.

Responding to the grievances and concerns of sellers, Indonesian Minister of Trade Zulkifli Hasan stated that the media ecosystem must be regulated. Indonesia does not ban the use of TikTok but rather intends to regulate it. If selling goods on social platforms, businesses must have e-commerce-related licenses.

This means that if TikTok wants to continue operating its e-commerce business in Indonesia, it must obtain an e-commerce license. In its statement on October 4, TikTok stated that it will continue to closely cooperate with relevant authorities to seek constructive approaches.

However, TikTok not only has to address compliance issues in the Indonesian e-commerce market but also faces the risk of other Southeast Asian countries following Indonesia's lead.

After Indonesia issued this ban, Malaysian Minister of Communications and Multimedia Fahmi Fadzil stated that they would explore the basis for Indonesia's prohibition of TikTok Shop. One of the reasons TikTok's e-commerce activities are restricted in Indonesia is pricing competition, which threatens local businesses' interests and requires an explanation from TikTok. Some media outlets reported that the Malaysian government is considering a policy similar to Indonesia's, considering banning the platform's e-commerce transaction function. Fortunately, Fahmi Fadzil later stated that the national circumstances are different, and there will be no ban at this stage.

Hunted Down in Indonesia, Pressured from Multiple Countries

A recent ban imposed by Indonesia has not only disrupted TikTok's rapid expansion but has also sparked widespread concern across the Southeast Asian e-commerce market.

On September 27, the Indonesian Ministry of Trade announced Regulation No. 31 of 2023, which prohibits social platforms like TikTok from conducting transactions as commodity sales platforms. The reason cited was that platforms like TikTok Shop were perceived to be threatening the interests of local small and medium-sized enterprises (SMEs).

On October 4, under government pressure, TikTok was compelled to shut down its TikTok Shop feature in Indonesia. Faced with this ban, the six million sellers who were live-streaming on TikTok Shop had to halt their sales activities and seek alternative platforms.

The suddenness of this ban caught TikTok off guard, with Kang Zeyu, TikTok's e-commerce chief, stating in internal communications, "This incident happened rather suddenly, and the reasons behind it are quite complex."

However, TikTok's presence in Indonesia did not necessarily harm small businesses. Firstly, since its launch in Indonesia, TikTok Shop only allowed local sellers to join and did not engage in cross-border e-commerce. Secondly, its live-streaming sales model actually reduced customer acquisition costs for small and medium-sized merchants, benefiting local micro-enterprises in customer acquisition and exposure.

Some physical retailers in Indonesia welcomed and supported this ban, while most small businesses gained more customers and sales through TikTok's live-selling platform. The closure of the platform's e-commerce function means the end of their good days, so they all voiced opposition.

Responding to the grievances and concerns of sellers, Indonesian Minister of Trade Zulkifli Hasan stated that the media ecosystem must be regulated. Indonesia does not ban the use of TikTok but rather intends to regulate it. Businesses must have e-commerce-related licenses to sell goods on social platforms.

This means that if TikTok wants to continue operating its e-commerce business in Indonesia, it must obtain an e-commerce license. In its statement on October 4, TikTok stated that it will continue to closely cooperate with relevant authorities to seek constructive approaches.

However, TikTok not only has to address compliance issues in the Indonesian e-commerce market but also faces the risk of other Southeast Asian countries following Indonesia's lead.

After Indonesia issued this ban, Malaysian Minister of Communications and Multimedia Fahmi Fadzil stated that they would explore the basis for Indonesia's prohibition of TikTok Shop. One of the reasons TikTok's e-commerce activities are restricted in Indonesia is pricing competition, which threatens local businesses' interests and requires an explanation from TikTok. Some media outlets reported that the Malaysian government is considering a policy similar to Indonesia's, considering banning the platform's e-commerce transaction function. Fortunately, Fahmi Fadzil later stated that the national circumstances are different, and there will be no ban at this stage.

Before TikTok entered the Southeast Asian market, a landscape of multiple strong players had already been formed with platforms like Shopee, Lazada, and Indonesia's local platforms Tokopedia and Bukalapak. However, the rapid development of TikTok Shop has made other local e-commerce platforms wary.

Data released by Singaporean research institution Momentum Works in June this year revealed that the overall GMV (Gross Merchandise Volume) in the Southeast Asian market in 2022 was $99.5 billion. Shopee ranked first with a GMV of $47.9 billion, accounting for nearly 50% of the market share, while the second-ranked Lazada's GMV was only half of Shopee's. At that time, TikTok's GMV was only one-tenth of Shopee's.

However, just a year later, Momentum Works estimated that TikTok Shop's market share in Indonesia would increase from 4.4% to 13.2% in 2023, consistent with industry estimates of TikTok Shop's GMV reaching $15 billion this year. This volume almost reaches one-third of Shopee's.

With the ban in place, most practitioners on the platform have ceased operations, seeking new platforms for live sales, prompting a melee among local e-commerce platforms to attract these departing sellers.

Among them, Tokopedia is Indonesia's largest local e-commerce platform, backed not only by investments from giants like Alibaba, Tencent, and Didi but also with close ties to Indonesia's Ministry of Cooperatives and SMEs, making it the platform most familiar with local conditions.

Lazada waived the fees for sellers conducting live sales on its platform in Indonesia. Additionally, they offered a promotion policy of "three months of zero commissions, two months of free shipping, and a value of 300,000 Indonesian rupiahs."

Similarly, Shopee boasts a wide user base and brand influence in the Southeast Asian market, with advantages in marketing and operations. It also absorbed some TikTok Shop sellers.

In this battle for talent, it's unclear which of these e-commerce platforms will emerge as the biggest winner. Meanwhile, TikTok's e-commerce business, although suspended, has not been sentenced to "death." Leveraging its content advantage, TikTok still boasts 125 million monthly active users in Indonesia, with a strong traffic pool and influence.

Furthermore, after years of cultivation, TikTok has rooted the social e-commerce innovation model in Indonesia. Even if banned, the rise of social e-commerce represented by TikTok Shop has become a new trend, driving the digitalization of many micro-enterprises and enjoying support from many users and sellers. TikTok is evidently not ready to give up on this market easily.

Moreover, Indonesia will hold its presidential election in April next year. Whether it's the meeting between TikTok CEO Zhou Shouzi and the current president on October 30 to November 5 or policy changes after the election, there are significant turning points for TikTok. According to the current requirements of the Indonesian government, TikTok must obtain a license to resume its e-commerce business. Once TikTok establishes an e-commerce platform, with its unique experience and massive traffic, the departed sellers are likely to return.

It's worth mentioning that while facing setbacks in Southeast Asia, TikTok also encountered renewed government crackdowns in the U.S. market this year and faced questioning and criticism from Western countries. Overall, TikTok faces multiple regulatory hurdles in both major markets, and breaking through these obstacles can only be achieved by complying with local regulations, strengthening communication and cooperation with governments, and gaining more support and trust.