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Indonesia’s E-Commerce Ban Threatens TikTok’s Southeast Asian Ambitions

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By: Priti Naik
Indonesia’s E-Commerce Ban Threatens TikTok’s Southeast Asian Ambitions

Indonesia’s recent decision to ban e-commerce transactions on social media platforms could pose a significant threat to TikTok’s Southeast Asian aspirations. This regulation has given TikTok the ultimatum to evolve into a standalone app devoid of any e-commerce features within a week or face the risk of being shut down. The impact of this directive on TikTok’s user experience could be substantial, potentially leading to a high drop-out rate, given that most purchases on the platform are impulse buys.

Particularly, this regulation poses a significant challenge to TikTok Shop, which operates entirely on social commerce. TikTok, which has been under scrutiny in the United States, responded by expressing its respect for local laws and voicing its concerns about the announcement’s impact on its sellers and creators.

Protecting Local Economies

Indonesia’s President Joko Widodo has defended these regulations, arguing that they are necessary to safeguard micro-, small-, and medium-sized companies as well as the overall economy. The new Trade Ministry regulation enacted on Tuesday prohibits social media platforms, including TikTok, from acting as marketplaces for online transactions, limiting their roles to promoting goods and services.

The decision followed widespread complaints from offline sellers, particularly those operating shops throughout the traditional markets, who claimed that their revenues have drastically fallen due to the increasing reach of social media platforms as online marketplaces.

(Read Also: Dengue Fever in Indonesia: Vaccines, Challenges, and Solutions)

Impact on Sellers and Creators

TikTok Indonesia expressed its deep regret over the government’s decision, highlighting that the move could jeopardize the livelihoods of six million sellers and seven million affiliated content creators that use TikTok Shop. Despite this, TikTok acknowledged that it would ultimately respect the regulations and laws that apply in the country, promising to focus its attention on a more constructive path moving forward.

With 113 million users, TikTok ranks as the third most popular content-sharing platform in Indonesia, making the country home to the platform’s second-largest audience globally, after the United States. This user base accounts for more than half of TikTok’s total audience in Southeast Asia.

(Read Also: Indonesia’s War on Corruption: Agriculture Minister’s Residence Raided)

Fair Competition and Data Protection

Trade Minister Zulkifli Hasan stated that the new ministerial regulation, the first piece of legislation addressing online commerce in Indonesia, was intended to ensure fair competition and protect users’ personal data. He warned against allowing social media platforms to become e-commerce platforms, shops, and banks simultaneously. The regulation restricts social media platforms from facilitating payment transactions through their electronic systems.

Under the new regulation, sellers operating on online marketplaces must adhere to legal requirements regarding licenses, quality standards, restricted products, and tax regulations. They must also obtain halal certification and Food and Drug Monitoring Agency (BPOM) permits. The regulation sets a minimum price of $100 for certain foreign goods sold on e-commerce platforms.

Mixed Reactions

The new regulation has elicited mixed reactions. Some offline sellers at the Tanah Abang market in Jakarta applauded the government’s decision. However, others, such as a 29-year-old cookie baker in Bali, expressed disappointment over the ban. The move has been seen as a major setback for TikTok, which had recently pledged to invest billions of dollars in Southeast Asia in the coming years.

While the ban aims to protect small businesses from e-commerce competition, it could potentially harm digital marketplace industry’s growth and hamper TikTok’s plans to leverage its large user base in the country. With its 125 million active monthly users in Indonesia, TikTok had planned to translate this large user base into a major e-commerce revenue source, a plan that now seems to be in jeopardy.

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