Indonesia is poised to revise its trade regulations to prohibit the sale of goods via social media platforms. This move follows government claims that e-commerce sellers are exploiting predatory pricing techniques on these platforms, adversely impacting offline markets in Southeast Asia’s premier economy.
The Proposed Ban
Deputy Trade Minister Jerry Sambuaga, during a parliamentary hearing on Tuesday, underscored the government’s stance that social media and e-commerce shouldn’t be intertwined. Highlighting the proliferation of sellers employing the ‘live’ feature on TikTok to sell goods, Sambuaga stated, “Social media and social commerce cannot be combined. Revisions to the trade regulations that are currently underway will firmly and explicitly ban this.”
It’s noteworthy that the existing trade regulations in the nation don’t encompass transactions made directly on social media platforms.
TikTok, a significant player in Indonesia’s social commerce space, expressed its reservations regarding the proposal. The platform voiced concerns that bifurcating social media and e-commerce would stifle innovation. Anggini Setiawan, TikTok Indonesia’s head of communications, told Reuters, “It would also disadvantage Indonesian merchants and consumers.” He urged the government to ensure a level playing field for all entities.
TikTok’s Footprint in Indonesia
- TikTok is owned by the renowned Chinese tech behemoth ByteDance.
- The platform boasts a staggering 325 million active users every month from Southeast Asia, with Indonesia accounting for 125 million of these users.
- About 2 million sellers in Indonesia are associated with TikTok Shop.
- 5% of e-commerce transactions in Indonesia, which were close to $52 billion last year, took place on TikTok, primarily through live-streaming, as per data from Momentum Works.
Concerns About Market Dominance
Several government officials have recently expressed apprehension over potential monopolistic tendencies by major firms operating e-commerce platforms. These concerns are predominantly directed towards platforms like TikTok, which have rapidly expanded their market share since their inception. The underlying argument is that these platforms might be threatening the existence and growth of local and smaller businesses in Indonesia.
Trade Minister Zulkifli Hasan recently mentioned that potential revisions to the laws might necessitate companies to procure separate licenses for their social media and e-commerce endeavors. Additionally, Teten Masduki, Minister of Cooperatives and Small and Medium Enterprises, reportedly conveyed concerns about TikTok potentially emerging as a monopoly in the sector.
The Larger E-commerce Landscape
- Indonesia, with a population exceeding 270 million, witnessed e-commerce transactions worth nearly $52 billion in the previous year.
- Forecasts suggest that Indonesia’s e-commerce domain will expand to a whopping $95 billion by 2025, as highlighted in a 2022 industry report jointly authored by Alphabet’s Google, Temasek Holdings, and Bain & Company.
Meta’s Facebook, which also integrates a marketplace feature, remained tight-lipped, not responding to Reuters’ inquiries. Interestingly, despite reservations from certain officials, TikTok confirmed that they have no intentions of introducing a cross-border enterprise in Indonesia. This decision comes in light of the concerns that such an initiative could lead to an influx of Chinese goods in the Indonesian market.
Implications for Small Businesses
The backbone of Indonesia’s economy, like many other nations, lies in its small and medium enterprises (SMEs). With over 2 million sellers on TikTok alone, the proposed regulations have the potential to disrupt the livelihoods of millions. If platforms like TikTok are forced to separate their e-commerce operations from their primary social media offerings, these businesses could see a decline in online traffic and sales. The casual browser that might be tempted to make a purchase during a live stream could be lost, leading to reduced impulse buying.
The debate around social media platforms doubling as e-commerce outlets continues to heat up in Indonesia. While the government remains wary of potential monopolistic practices, platforms like TikTok emphasize the role they play in bolstering the local economy and promoting innovation. The coming months will undoubtedly be crucial in shaping the future of e-commerce in Southeast Asia’s largest market.
As Indonesia continues to grow as a significant player in the global digital arena, the decisions it makes regarding its e-commerce framework will not only impact its domestic economy but also set a precedent for other developing nations. Balancing the needs and concerns of local businesses while fostering an environment conducive to innovation is a delicate task that regulators face.