Indonesian ban on social media transactions deals TikTok major blow

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TikTok’s ecommerce ambitions have taken a major hit after Indonesia, one of its largest and most promising markets, banned transactions on social media platforms.

Indonesian trade minister Zulkifli Hasan on Wednesday said the regulations, which apply to all social networks, aim to ensure “fair and just” competition and protect user data as well as offline small and medium-sized vendors in south-east Asia’s biggest economy.

TikTok’s app is not banned, but the barring of sales on social media platforms means the Chinese group can no longer facilitate transactions on its platform.

The rules take effect immediately and leave the ByteDance-owned short video app with yet another country where political backlash has derailed its future growth.

Indonesia was the first and largest market for TikTok Shop, the ecommerce marketplace launched in 2021. Such was the potential that chief executive Shou Zi Chew in June travelled to the country and pledged to spend $10bn over the next five years. Brands and influencers can broadcast live and sell products through livestreams or on shop pages on the viral video platform.

TikTok said it was “deeply concerned about today’s announcement, particularly how it would impact the livelihoods of the 6mn sellers and nearly 7mn affiliate creators who use TikTok Shop” in Indonesia.

“We respect local laws and regulations and will be pursuing a constructive path forward,” it added.

Indonesia, the world’s fourth-most populous country with a young, mobile population, has been one of TikTok’s most promising markets.

A worker finishes signage before the TikTok Southeast Asia Impact Forum 2023, which was held in Jakarta in June.
A worker finishes signage before the TikTok south-east Asia Impact Forum 2023, which was held in Jakarta in June. Indonesia has been one of TikTok’s most promising markets © AFP via Getty Images

More than a third of the app’s 325mn users in south-east Asia are in Indonesia, and the company poured resources into the developing economy as it faced political backlash in other markets, including the US, India and the UK. TikTok said more than 15mn businesses use the platform in south-east Asia.

The rules are a “major setback” and could inspire other governments in south-east Asia to pursue similar actions, according to Simon Torring, co-founder of Cube Asia, a market insights company for online retail in south-east Asia.

“Indonesia is known for being particularly strict on enforcement, especially when there is a perceived threat to the country’s local seller or consumer communities,” he said.

However, TikTok’s content app would probably “remain strong, and the company will be able to monetise it through advertising rather than integrated ecommerce”, he added.

TikTok Shop has been slow to attract consumers in western markets but it has gained huge traction in south-east Asia, especially in Indonesia and Vietnam, where social shopping habits are more developed.

Singapore-based consultancy Momentum Works estimated that the feature last year generated most of its revenue from south-east Asia, amounting to $4.4bn in gross merchandise value, a unit to measure sales. The consultancy’s report said that TikTok was aiming to raise that to $15bn this year.

The main driver of revenue for TikTok is advertising but ecommerce is its big pitch for future growth based on the success of the feature in its Chinese sister app Douyin.

The Financial Times this month reported that Indonesia had threatened to curb the TikTok’s shopping platform.

Source: Financial Times

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