Social media app TikTok is suspending its online shopping service in Indonesia to comply with new rules in South East Asia's biggest economy.
According to the revised Indonesian Trade Minister Regulation No. 31 of 2023, local social media platforms are banned from being used as sales platforms for goods, which has triggered a series of chain reactions:
On October 4th, TikTok Shop Indonesia officially closed. On the same day, Shopee Indonesia officially stopped selling products from overseas or cross-border sellers. Lazada also stated that, according to the latest Indonesian regulatory requirements, some products may be taken off the shelves or limited, and the LGS logistics service for shipments from overseas to Indonesia and the fulfillment of new orders may also be affected. Countless practitioners have been caught off guard by being “killed” time and time again.
The revised Indonesian Trade Minister Regulation No. 31 of 2023, which has turned the Indonesian e-commerce market upside down, was released on September 27th and includes “four prohibitions”:
1. Social media platforms are prohibited from being used as sales platforms for goods and can only be used for product or service promotion.
2. The selling price of foreign goods on e-commerce platforms must not be lower than $100.
3. E-commerce platforms are not allowed to sell self-branded products.
4. Imported goods must comply with Indonesian government certification requirements for food, drugs, and cosmetics.
The impact of the first point mentioned above is particularly prominent, resulting in the direct closure of TikTok Shop Indonesia, which had a GMV of over $2.5 billion in 2022 and accounted for 57% of the Southeast Asian market. Lazada, Shopee, Tokopedia, and other platforms have also been affected to varying degrees. At the same time, a large number of brands and service providers have also fallen victim to this “nightmare.”
The person in charge of a new emerging brand in Southeast Asia said: “Since Indonesia officially closed the TikTok Shop on October 4, the brand’s turnover has dropped by 25%.”
The head of another Chinese team that established a beauty brand in Indonesia said: “The impact this time is very big, and the team is still figuring out how to respond in the future. What we can do now is to try our best to consume huge inventory through independent websites and Shopee. .”
The person in charge of another large service provider revealed that Indonesia is its largest market. In order to develop its business, a team of 300 people has been formed locally. Now the “one-paper ban” will reshuffle the industry.
Indonesia’s official “killer move” is mainly used on social e-commerce and cross-border goods. The original intention is to protect the country’s real economy and small, medium and micro enterprises, and prevent the nascent manufacturing industry from being devastated by the outside world.
Indonesia’s manufacturing industry cannot meet the needs of the domestic e-commerce market, and China has a strong and excess supply chain capacity. After entering the Indonesian market, it has a crushing advantage and has broken the original market structure. Major e-commerce platforms are flooded with low-price products. Taking TikTok as an example, the price of a facial mask is as low as 5,000 Indonesian rupiah (=USD0.32).
According to statistics from DailySocial, the proportion of Indonesian users who use social media for shopping is as high as 86%, of which 46% choose TikTok Shop. As an emerging and major consumer platform in Indonesia, TikTok Shop has had a great impact on local small, medium and micro enterprises and products. Long-term low-price competition is not conducive to the healthy development of the Indonesian economy.
An Indonesian government official even said: “It is necessary to ban the import of goods that already have domestic production capacity (clothing, cosmetics, shoes and other daily necessities), and we should prefer to import technology products worth more than 100 US dollars, such as mobile phones, digital cameras, etc. High-end electronics.”
Indonesia has taken a drastic step this time and closed TikTok’s embedded e-commerce channels, but retained its entertainment and communication functions. Merchants can still create and share content on the platform to promote products. Just as Huang Jialing, CEO of Global Goods Selection (Indonesia), said: “The sellers affected this time are mainly those who operate TikTok as a single channel. Sellers who operate multiple platforms (Shopee, Lazada, etc.), although affected, are not affected. As for returning to zero, merchants with localized business capabilities and the ability to operate matrix short video content will have more opportunities.”
The person in charge of an Indonesian e-commerce service provider also bluntly said that the e-commerce business of TikTok Indonesia station was shut down, and those who suffered the most were single-channel service providers, sellers with large quantities of goods, and the TikTok platform. “Sellers who have prepared large quantities of goods for the ‘Double Festival’ (Double 11 and Double 12) have begun to file for bankruptcy liquidation.”
Indonesia’s regulation of e-commerce platforms is just a starting point, and other countries may follow suit. This may bring pain to many platforms and practitioners, but a new and standardized e-commerce market order is gradually being established. For merchants who have been overseas for a long time, the changes in the e-commerce ecology are good.
The person in charge of a brand exporting to Indonesia further explained: “The emergence of new business formats will inevitably lead to a survival of the fittest situation, which eliminates a group of merchants with weak risk resistance and no sustainable profit model. At the same time, it limits those who only do one-time businesses. Merchants who have run away from business sell products across borders, which is conducive to maintaining local market order and product pricing mechanisms.”
In the future, Chinese businesses going overseas should focus on three major directions: long-term, localization, and standardization to enhance their competitiveness. Merchants need to go deep into the market, take excellent product quality as the cornerstone, and combine local regulations, policies and humanistic environment to improve their business qualifications so that their products meet circulation standards. At the same time, they need to deploy multiple points to avoid being at a loss when facing emergencies.
In order to speed up the localization of the supply chain, Kim Ho, the founder of nose herbalindo, a local cosmetics OEM factory in Indonesia, also suggested choosing a local cosmetics factory with large scale, strong R&D strength and complete qualification certification to cooperate.
Judging from the current industrial situation in Indonesia, the Indonesian government’s decision is correct. Looking at the development in the past five years, China is suspected of being over-internetized, and the behavior of some Internet platforms has affected the livelihood of the underlying groups. The live streaming industry is rising rapidly, but there are not many ways for businesses to profit from it. Instead, it has had a huge impact on many industries. Given the weakness of Indonesia’s industry, live streaming may have a disruptive impact on its industrial ecology. The Indonesian government must have seen this and pressed the pause button.
This time, the Indonesian government banned the e-commerce functions of social platforms, but it did not restrict the ports that divert traffic from social platforms to other e-commerce platforms.
“One of the current changes in marketing concepts is that Tiktok should not only be regarded as a sales channel, but also as an advertising communication platform. This new type of communication platform ensures that the brand has sufficient exposure. At the same time, there is also the transformation of ROI. The proportion of merchant input and output has digital support, which is not available in traditional media. Because of this, the Indonesian government banned the e-commerce function of social platforms, but did not ban its media function. , which is similar to China’s domestic development trend.”
In the short term, Indonesia’s move will hit those businesses that want to make hot money in a “short-term and quick way”. It not only protects its weak domestic industrial base, but is also a benefit to China and other businesses that want to enter the Indonesian market for long-term operations. Only businesses that insist on long-term (not short-term speculation), localization (encouraging foreign investment to enter the local market for long-term development), and standardization (only if they are legal and compliant can they operate sustainably) can be welcomed by the Indonesian market. This standard is the same in any country.