Indonesia bans purchases on social media, in a blow to TikTok’s e-commerce ambitions

Indonesia bans purchases on social media, in a blow to TikTok’s e-commerce ambitions

Indonesia is taking steps to further regulate e-commerce within its borders, with specific measures aimed at social media platforms. According to the country’s Ministry of Trade, Indonesia will restrict transactions on social media, allowing these platforms to be used solely for promotional purposes, not for actual buying and selling of goods and services.

This move effectively means that users in Indonesia won’t be able to conduct commercial transactions on platforms like TikTok and Facebook. Minister of Trade Zulkifli Hasan emphasized the need to separate the realms of social media and e-commerce to prevent excessive control over algorithms and the misuse of personal data for business purposes.

The Indonesian government is also planning to regulate which overseas goods can be sold within the country, bringing them under similar treatment as domestically available products. This decision comes as foreign goods increasingly find their way into the Indonesian market through social media platforms.

Indonesia’s President Joko Widodo has expressed concerns about the impact of social media platforms on local businesses and the economy, leading to calls for tighter regulations. He noted that the influx of products through these platforms has affected micro, small, and medium-sized enterprises (MSMEs) and local markets.

A report from BMI highlighted the significant role of online marketplaces in Indonesia’s digital transactions. In July 2023, the total value of digital transactions in the country reached an all-time high of 160 trillion Indonesian rupiahs ($10.3 billion).

Impact on TikTok and Opportunities for Competitors

These new regulations are expected to have a substantial impact on TikTok’s e-commerce aspirations in Indonesia. TikTok is the second-largest market for the platform, with 113 million users, just behind the United States. The company had announced plans to invest billions of dollars in Indonesia and Southeast Asia over the next few years.

A TikTok spokesperson acknowledged the need to respect local laws but also highlighted the potential impact on millions of sellers and affiliate creators who use TikTok Shop for their livelihoods.

Citigroup (Citi) noted in a report that these regulations could benefit competitors like Shopee, the e-commerce arm of Sea Limited, and local players in Indonesia’s e-commerce sector. The competitive dynamics between TikTok and Shopee, in particular, could shift as a result of these regulatory changes.

Citi suggested that depending on the timing of implementation and the transition process to possible alternative apps, any disruptions experienced by TikTok sellers during the transition could favor Shopee and other traditional e-commerce platforms in the coming months.

As Indonesia moves to strike a balance between regulating the digital economy and supporting local businesses, the e-commerce landscape in the country is poised for significant changes. The outcome of these regulatory measures will likely shape the future of e-commerce and social media platforms operating in Indonesia.

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