At 17:00 Jakarta time on October 4, 2023, TikTok Shop stopped taking orders in Indonesia. The BBC reported that the app was suspending its in-app shopping service to comply with new trade rules, ending a business it had piloted in the country in 2021.
“Our priority is to remain compliant with local laws and regulations,” TikTok said in a statement on Tuesday. “As such, we will no longer facilitate e-commerce transactions in TikTok Shop Indonesia.”
The rule behind it
The trigger was Trade Ministry Regulation No. 31 of 2023, issued on September 26, 2023. Asian Business Review described it as a mandate to separate social commerce from e-commerce: social media operators may not handle payment transactions inside their own systems. Trade Minister Zulkifli Hasan put it bluntly at the announcement. “Now, e-commerce cannot become social media. It is separated,” he said, and platforms were given a week to comply or risk losing their licence to operate.
His line on advertising was narrower. Social commerce “can place ads like TV, but it mustn’t be transactional, they can’t directly sell.” The rules also set a minimum price of $100 for certain goods bought directly from abroad on e-commerce platforms, and bar marketplaces and social commerce firms from making goods themselves.
The government did not name a company. Observers read the rule as aimed at TikTok anyway, Asian Business Review noted, since TikTok was the only social media firm allowing direct purchases on its platform. The minister added that TikTok did not yet hold a permit to run as an e-commerce platform.
Small traders at the centre
The stated aim was to protect micro, small and medium-sized enterprises. Government figures cited by the BBC counted more than 64 million of them, accounting for almost two-thirds of the economy. Cooperatives and SME Minister Teten Masduki said average sales for offline traders in Tanah Abang, Jakarta’s giant textile market, had dropped by more than 50 percent because they could not match the prices of imported goods sold online. The ban was also meant to curb the pull of platform algorithms and the use of personal data for business ends, the outlet reported.
Akumindo, an association of small and medium businesses, welcomed the rule as a fresh chance for offline sellers. One of those sellers, Sukmamalingga, who has run a Muslim clothing stall in Tanah Abang for nine years, told BBC News Indonesia that none of his customers from the regions shop with him anymore, even when he sends photos of new models.
What TikTok stood to lose
Indonesia had more than 125 million TikTok users, and about 6 million sellers on TikTok Shop. Before the ban took effect, TikTok Indonesia told Retail Asia it was fielding questions from worried sellers. It said it hoped regulators would weigh the effect on more than 6 million sellers and nearly 7 million affiliate creators.
DBS Research Group, in a note dated September 28, put TikTok Shop’s market share at 12-15% and said that share could be spread among existing players, including Shopee. Tokopedia and Lazada were also among the platforms dominating the market, the BBC said.
Chief executive Shou Zi Chew had visited Indonesia in June 2023 and pledged to invest billions of dollars in the region over three to five years. The BBC called the new rules another setback for a company already under scrutiny in the US, the EU and the UK.
Sources
- Indonesia restricts social commerce for local traders | Asian Business Review
- TikTok: Social media app shuts shop after Indonesia ban | BBC News
