Indonesia bans e-commerce transactions on social media in major blow to TikTok

Indonesia has prohibited online shopping on social media platforms, the trade minister announced on Wednesday, dealing a blow to TikTok, the short video app that is doubling down on Southeast Asia’s largest economy to build its e-commerce business.

The decision, which takes effect immediately, is intended to protect offline retailers and marketplaces, according to the government, who said that predatory pricing on social media platforms is affecting small and medium-sized businesses.

Indonesia bans e-commerce transactions on social media in major blow to TikTok

The decision comes just a few weeks after TikTok announced a billion-dollar investment in Southeast Asia, mostly in Indonesia, over the next four years as part of a significant drive to grow its e-commerce platform TikTok Shop.

TikTok, which is owned by China’s ByteDance, has more than 125 million active monthly users in Indonesia and is attempting to convert the massive user base into a significant e-commerce revenue source.

A spokesman for TikTok Indonesia stated the company will take a positive approach and was “deeply concerned” by the move, “particularly how it would impact the financial security of the 6 million” local vendors operating on TikTok Shop.

Indonesia Trade Ministry Zulkifli Hasan told reporters on Wednesday that the legislation is meant to maintain “fair and just” corporate competition, as well as user data protection.

He warned against using social media as an e-commerce platform, shopping, and banking all at the same time.

According to the regulation document accessed by Reuters, the new law also compels Indonesian e-commerce platforms to set a minimum price of $100 for specific things that are directly purchased from overseas, and that all products offered must fulfill local requirements.

TikTok has one week to comply to the law or face shutdown, according to Zulkifli. Earlier this month, Indonesia’s Deputy Trade Ministry Jerry Sambuaga cited TikTok’s live streaming functionality as an example of people selling things on social media.

According to BMI, the transaction ban would solely effect TikTok, and the measure would have little impact on the expansion of the digital marketplace industry.

The e-commerce market in Indonesia is controlled by domestic software firm GoTo’s Tokopedia, Sea’s Shopee, and Chinese e-commerce giant Alibaba’s Lazada.

According to figures from consultant Momentum Works, e-commerce transactions in Indonesia totaled about $52 billion last year, with TikTok accounting for 5% of that total.

TikTok Shop has launched in Indonesia, one of the few nations where the company hopes to capitalize on its massive user base.

Its 125 million active monthly users in Indonesia are roughly on par with those in Europe, but fall short of the more than 150 million users in the United States. TikTok just established an online shopping business in the United States.

Retailers’ reactions were divided.

Fahmi Ridho, a TikTok vendor selling garments, said the site was a means for retailers to recover from the Covid-19 outbreak.

“Sales don’t have to be necessarily via [brick and mortar] shops, you may conduct it online or wherever,” he stated. “Everything will still have a portion.”

However, Edri, who goes by one name only and sells garments at a big wholesale market in Jakarta, agreed with the policy and emphasized that things offered online should be limited.

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