TikTok Shop blocked, local e-commerce unblocked

What opportunities and challenges does the TikTok Shop blocking present for other e-commerce platforms in Indonesia? What are the hidden political and business factors behind it?

It’s been a week since TikTok Shop was blocked in Indonesia, but the debate is still festering.

While many people are focusing on the Indonesian e-commerce market, which has become a “mess”, what lies deeper behind the scenes is the complex local political and business environment. Behind the visible policy suppression, but also with the Indonesian e-commerce industry, several major giants of the back and forth wrestling closely related.

In Indonesia’s e-commerce track players, TikTok Shop as a “social e-commerce” dark horse, less than three years after the launch of Indonesia, GMV from the first year of 600 million U.S. dollars on the basis of 7-8 times. Shopee, Tokopedia and Lazada, the traditional platform players in Indonesia’s “shelf e-commerce”, are also facing unprecedented challenges.

The rapid growth of TikTok Shop has broken the original competition pattern of the three major shelf e-commerce platforms of Shopee, Tokopedia and Lazada in the Indonesian market, and Shopee, Tokopedia and Lazada, under the pressure of the rapid growth of TikTok Shop, have also launched a live mode of goods, making the competitive situation of Indonesian e-commerce was once very fierce.

The TikTok Shop ban fiasco seems to be a “relief” for traditional Indonesian shelf e-commerce platforms, especially local e-commerce platforms Tokopedia and shopee.

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Who benefits from the fall of Indonesia’s TikTok Shop?

Indonesia’s internet e-commerce market is dominated by a few giants.

According to techinasia, in addition to TikTok Shop, there are three main e-commerce platforms in the Indonesian market: Shopee, Tokopedia, and Lazada. in 2022, the market share in Indonesia will be 36%, 35%, and 10%, respectively, according to TechinAsia.

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Although TikTok Shop, a new entrant to the Indonesian market since 2021, has a market share of 5%, TikTok has 125 million monthly active users in Indonesia. Since the second half of 2022, TikTok Shop has been growing wildly on social media e-commerce in Indonesia, and its strength should not be underestimated.

Other shelf e-commerce platforms such as Shopee, Tokopedia and Lazada have also launched live streaming with their products, but the content influence and traffic is far less than that of TikTok Shop. this, coupled with last year’s rise in seller entry standards, fees and commissions by platforms such as Shopee, has also pushed more new entrant sellers to TikTok Shop.

So the competitive battle between Indonesian e-commerce platforms faced another escalation. Until the Indonesian government issued a ban on social e-commerce, which pressed the pause button on TikTok Shop’s stampede.

After TikTok Shop Indonesia was forced to shut down, other e-commerce platforms reacted quickly.

Balques Manisang, Shopee Indonesia’s head of government relations, immediately went on record to say that Shopee supports the government’s decision to support the trade ecosystem. He announced that he would “stop selling foreign products” and highlighted that “less than 1 per cent of transactions are cross-border” on his platform.

In addition to this, Shopee’s head of government relations was not shy about making a goodwill gesture to the local government in a written statement: “Because Shopee shares the government’s mission to always help and prioritise MSMEs.”

TikTok Shop’s “overnight collapse” did bring Shopee a lot of good.

Shares of Sea Limited, Shopee’s parent company, soared after the closure of TikTok Shop in Indonesia. As of 12 a.m. EST the next day, Sea’s stock rose 11 per cent.

At the same time, Shopee, Lazada and other platforms are also recruiting a large number of “exiled merchants” who left the original TikTok Shop due to the ban on social e-commerce.

For example, Lazada Indonesia CEO Zhang Seung Hwan in an internal meeting not long ago, revealed that by the Indonesian government’s “ban on social media as a platform for the sale of goods” regulations, Lazada is now continuing to attract more sellers.

In order to attract former TikTok Shop merchants, Lazada is offering generous conditions to recruit sellers, including “new sellers who register themselves will enjoy zero seller commission for 3 months, zero free shipping for 2 months, and Rp 3 million worth of seller solution credits”.

Meanwhile, in a town hall meeting with Indonesian employees, Lazada Indonesia CEO Chang Seung Hwan spoke about his views on Indonesia’s enactment of new regulations and the banning of TikTok Shop, saying that the move “brings a more positive and healthier competitive environment for the long-term growth of our industry”.

In the face of Indonesia’s e-commerce “rules of the game” of the rapid adjustment, TikTok Shop and Shopee, Tokopedia and other competitors have quietly changed the vantage point.

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Indonesian e-commerce players tussle

Beyond TikTok Shop, Indonesia’s other e-commerce platforms Shopee, Tokopedia and Lazada all have “not weak backgrounds”, especially Tokopedia, a local e-commerce brand that has always had a close relationship with the local government.

Tokopedia is the second largest local e-commerce company in Indonesia in terms of market share after Shopee. The Indonesian technology giant GoTo, which is known as “Southeast Asia’s Ali, DDT and Meituan complex”, is the parent company of Tokopedia, the “originator of Indonesian e-commerce”.

In 2021, Tokopedia and local taxi giant Gojek merged to form GoTo Group, which raised $1.1 billion to list in April 2022, contributing to the third-largest IPO in Indonesia’s history, and has since merged two of Indonesia’s largest unicorns into an “Internet giant” capable of influencing Indonesia’s economy. On the one hand, the GoTo Group’s companies have become the “Internet giant” that can influence Indonesia’s economy.

On the one hand, GoTo Group’s businesses span e-commerce, taxi, logistics and distribution, takeaway and financial services. Together with many apps, GoTo Group has more than 100 million local monthly users in Indonesia, and holds the lifeblood of 2 million drivers and 11 million merchants. Data shows that GoTo’s eco-economy accounts for 2% of Indonesia’s $1 trillion GDP This also means that GoTo as a business group has a great deal of influence on Indonesia’s economy, society and policies.

On the other hand, behind GoTo Group stands a series of influential and large capitals including Tencent, Alibaba, Softbank, Google, Sequoia and others. As early as 2017, Alibaba participated in Tokopedia’s Series F financing and held more than 40 per cent of the shares at that time.In 2018, Alibaba, together with SoftBank, led Tokopedia’s US$1.1 billion Series G financing and is one of the major shareholders of Tokopedia.

GoTo Group’s presence in Indonesia gives Tokopedia, a local e-commerce brand, a particularly prominent competitive advantage.

Tokopedia has long had a close relationship with Indonesia’s Ministry of Small and Medium Enterprises. Nadiem Makarim, the original co-founder of Gojek, the local ride-hailing giant that merged with Tokopedia, was even elected Minister of Education and Culture in 2019 alone, becoming one of more than 30 presidential cabinet officials.

Even on Tokopedia’s official website, you can see local officials standing up for it everywhere. Indonesia’s Minister of Small and Medium Enterprises, Teten Masduki, has also publicly stated, “We are grateful to Tokopedia, which has been a government partner in accelerating the digital transformation of Indonesia’s MSMEs.” The same Minister of Cooperatives and Small and Medium-sized Enterprises (SMEs) has been calling on the Indonesian government to regulate the TikTok Shop since 6 July this year through media campaigns that “TikTok Shop is harming the interests of MSMEs in Indonesia”.

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According to data from the Association of Indonesian Internet Service Providers (APJII), Tokopedia is the e-commerce platform with the highest number of local Indonesian sellers among these competing platforms.

The survey data shows that 73.73 per cent of local Indonesian SMEs, have set up shop on Tokopedia. This also means that Tokopedia has always had the upper hand in the logic of the Indonesian government’s argument that “the proliferation of imported goods disrupts the traditional market and domestic industry” and “threatens local small and medium-sized enterprises” and has become the e-commerce platform that has taken the most advantage of this wave of benefits. Platforms.

In addition to Tokopedia, Shopee, the largest cross-border e-commerce platform in Southeast Asia, also benefited from the Indonesian government’s ban on TikTok Shop.

Shopee’s parent company Sea was listed on the US New York Stock Exchange in 2017, when Tencent took a 40 per cent stake. And after Tencent reduced its stake in Sea Ltd, the shareholding fell from 21.3 per cent to 18.7 per cent. However, Tencent is still one of Sea Ltd’s largest shareholders.

According to Sea Group’s Q2 2023 report, about two-thirds of the company’s revenue comes from its e-commerce business. And according to Momentum Works data, Shopee’s GMV in Indonesia reached $2.5 billion last year. This also means that Shopee’s e-commerce business in Indonesia is crucial to parent company Sea.

On 15 September this year, Sea Group founder Li Xiaodong issued a letter to all staff, which refers to the “full combat mode” to deal with the enemy, is in Southeast Asia in social e-commerce in the emergence of TikTok Shop. “After TikTok Shop was banned in a flash for only a week, Indonesia’s Trade Minister Zulkifli Hasan spoke out at this time, saying that he was “grateful to Shopee” and even called on merchants to join Shopee.

Although TikTok Shop has two major “killer apps” in its business model of short videos and live streaming, it is not as strong as other local Internet giants that have a long and deep local background, and so it has suffered a disastrous defeat in the unbalanced battle of policies.

TikTok in Indonesia, the story is not yet finished

Indonesia’s e-commerce giant tug-of-war, and finally ended in such an “unexpected” way.

In fact, Tiktok in previous operations, has repeatedly said that it will not open cross-border e-commerce.

As early as 26 July, TikTok Indonesia spokesman Anggini Setiawan said he would not launch cross-border e-commerce business in Indonesia. He also made it clear that. “One hundred per cent of TikTok Shop merchants are registered business entities or local micro-entrepreneurs.” But this did not affect the Indonesian government’s final decision to block TikTok Shop.

For companies going overseas, changes in local politics and policies often affect the fundamentals of business and brand operations. Especially in the era of global economic downturn and the consequent rise of trade protectionism in various regions around the world, coupled with the special political situation in different countries, overseas enterprises will face even tougher challenges.

From another perspective, this time Indonesia became the first country in the world to ban the opening of e-commerce businesses on social media platforms, also affected by the upcoming Indonesian presidential election in 2024. Usually, the introduction of a new policy can pull votes from one side. Following the ban, Indonesia’s Trade Minister Zulkifli Hasan has also spoken out to “thank Shopee”.

A week after the TikTok Shop was banned in Indonesia, amidst the turmoil and speculation, Indonesia’s official attitude towards TikTok itself seems to be diversifying again.

Anies Baswedan, one of Indonesia’s three current leading presidential candidates, criticised the government’s policy of shutting down TikTok Shop as recently as 30 September, arguing that “the fundamental problem does not come from the TikTok Shop function, but from the imported products sold on social media.”

Sandiaga Uno, Indonesia’s Minister of Tourism and Creative Economy, also expressed his disagreement with the policy of banning Tiktok Shop altogether. He argued that “many micro, small and medium-sized enterprises have been helped to sell their products on the platform.”

Indonesian Trade Minister Zulkifli Hasan also said in a recent media interview, “We don’t ban TikTok …… We regulate TikTok, we don’t want to shut it down.”

Also not wanting TikTok Shop Indonesia to shut down are many Indonesian small and medium-sized sellers.

TikTok Shop originally had 6 million local sellers, and even though some of these small and medium-sized sellers have been absorbed and carved up by other e-commerce platforms such as Shopee, Tokopedia, and Lazada, there are still many sellers who are facing losses.

A local Indonesian seller named Muzdalifah had earned tens of millions of rupees through TikTok Shop. In his opinion, “The government can regulate TikTok, but hopefully TikTok Shop will open again.”

Although TikTok Shop is temporarily in the doldrums due to the announcement of the Indonesian government’s ban on social e-commerce, the TikTok short video platform still has 125 million monthly users in Indonesia, with huge influence and traffic, and the innovativeness represented by the social e-commerce it represents is still superior.

TikTok’s story in Indonesia is not yet over.

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