The future of TikTok Shop in Indonesia has never been so cloudy

The biggest economy in Southeast Asia plans to ban selling goods on social media under new trade regulations.
26 September 2023

TikTok CEO Shou Zi Chew delivers his opening speech during the TikTok Southeast Asia Impact Forum 2023 in Jakarta on June 15, 2023. (Photo by BAY ISMOYO / AFP)

  • TikTok Shop, which sees Indonesia as its first and biggest market, is at risk of being banned.
  • Local ministers see e-commerce on social media platforms as a threat to offline markets in Southeast Asia’s biggest economy.

It has been a challenging year for TikTok, with governments worldwide scrutinizing the short-form video streaming giant. But it appears like the worst is far from over for the ByteDance-owned platform, with TikTok Shop facing its first regulatory headwinds in Indonesia, its biggest e-commerce market.

The biggest economy in Southeast Asia wants to disallow the integration of online shopping into social media platforms, specifically targeting TikTok. The ban, anticipated to be announced this week, will make Indonesia the first Southeast Asian nation to take a stand against TikTok. 

“Social media and social commerce cannot be combined,” the country’s Deputy Trade Minister Jerry Sambuaga said earlier this month, vowing to ban the mix. For Indonesia, banning the selling of goods on social media under new trade regulations is mainly a move intended to quell threats to offline markets in Southeast Asia’s biggest economy.

Smbuaga specifically cited TikTok’s “live” features that allow people to sell goods. He and other local ministers have highlighted their concerns over TikTok Shop’s role in the downslide of local Micro, Small and Medium Enterprises (MSMEs) and traditional markets. Even the country’s President, Joko Widodo, has been voicing his concerns over e-commerce sellers using predatory pricing on social media platforms, threatening offline markets in Indonesia. 

“TikTok is supposed to be a social media, not an ‘economic media,'” he said during a trip last week to East Kalimantan. Current trade regulations in Indonesia do not specifically cover direct transactions on social media. “Revisions to the trade regulations that are currently underway will firmly and explicitly ban this,” Sambuaga told parliament earlier this month. 

On Monday, Trade Minister Zulkifli Hasan said the move, directed at ByteDance Ltd.’s TikTok, would mean companies can only advertise products but not conduct direct transactions. For context, Indonesia is home to 64.2 MSMEs that contribute 61% of its gross domestic product. 

Therefore, the policy seeks to keep those millions of MSMEs from being squeezed out by social commerce companies. To date, TikTok is Indonesia’s only social media company that allows direct e-commerce transactions on its platform. “India and the US dared to reject and ban TikTok from simultaneously running social media and e-commerce businesses. Meanwhile, in Indonesia, TikTok can do both,” Teten Masduki, Indonesia’s minister of cooperatives and SMEs, said in a statement.

Masduki also argued that TikTok could potentially monopolize the market because online shoppers are “influenced by conversations on social media.” During a government meeting earlier this month, he shared concerns about TikTok Shop’s control over payment and logistics systems.

There have also been reports indicating that the Indonesian government is also considering a ban on selling imported goods priced below US$100 through cross-border services on e-commerce platforms and barring marketplaces from acting as manufacturers.

What will the ban mean for TikTok in Indonesia?

To begin with, it’s been TikTok’s ambition over the last two years to boost its vast audience into a money-making shopping arm, TikTok Shop. Unfortunately, the endeavor has faced obstacles in the US due to fears of a nationwide ban. TikTok also faced setbacks in the UK last year due to unmet goals and managerial issues. But TikTok Shop has rapidly gained ground in Indonesia, the company’s second-largest market after the US. 

So much so that TikTok is betting on Indonesia as a blueprint to expand into other online shopping markets, including the US. It all started in April 2021, when TikTok Shop fully launched in Indonesia, one of the first countries to pilot the feature outside China. Today, the country is home to an estimated 125 million users, according to TikTok, including two million small businesses on TikTok Shop. 

TikTok's download in Indonesia.

TikTok’s download in Indonesia.

By the end of 2022, TikTok Shop had become the fifth-largest e-commerce platform in Indonesia, according to data from Singapore-based venture outfit Momentum Works. Despite its operations, TikTok has yet to receive an Indonesian payments license and relies on third-party payment service providers within the country. A license would enable TikTok to earn from transaction fees and compete more effectively with other payment services entities. 

But amidst the rave over TikTok Shop in Indonesia, thousands of brick-and-mortar merchants, according to The Jakarta Post, complain about the impact of the app’s booming e-commerce arm on their business. They have urged the government to close or at least regulate TikTok Shop. TikTok has criticized calls for a ban, saying it would harm Indonesian merchants and consumers. 

“Close to two million local businesses in Indonesia use TikTok to grow and thrive through social commerce,” Anggini Setiawan, TikTok Indonesia’s head of communications, told AFP earlier this month. Momentum Works said the country represented 42% of TikTok’s US$4.4 billion regional gross merchandise value (GMV) last year.

In short, managing the conflict with Indonesia will be crucial for TikTok as governments worldwide observe how the largest nation in Southeast Asia responds to the growing e-commerce influence of the social media giant. Moreover, TikTok only recently announced plans to invest billions of dollars into the Southeast Asian region.

So far, TikTok has shown no sign of bowing down. The social platform giant has pushed back against the proposed policy. It argues that separating social media and e-commerce into different platforms hampers innovation and disadvantages millions of Indonesian merchants and consumers. The company says some rely on its platform to make a living.

“Social commerce was born to solve a real-world problem for local traditional small sellers by matching them with local creators who can help drive traffic to their online shops,” a TikTok Indonesia spokesperson said in a statement, according to Bloomberg. “While we respect local laws and regulations, we hope that the regulations take into account its impact on the livelihoods of more than six million sellers and close to seven million affiliate creators who use TikTok Shop.”

Overall, experts reckon the ban, if it comes through, will deal a massive blow to the social media giant. Bloomberg Intelligence’s analyst, Nathan Naidu, considers TikTok’s possible split of e-commerce and social media operations in Indonesia could impede further conversion of its 125 million local monthly active users (MAU) into shoppers, benefiting Sea’s Shopee, which, like TikTok Shop, relies on beauty and personal care for most of its domestic sales.




“GoTo’s Tokopedia, which had 34 million MAU in August vs. Shopee’s 138 million and Alibaba-owned Lazada’s 37 million, should be better able to defend its GMV share in Indonesia, which drove 90% of the group’s 2022 sales,” Naidu added. Meanwhile, Jianggan Li, CEO of Momentum Works, noted in an e-mail that Shopee has been voicing their support for Indonesian MSME exports yearly.

“Banning TikTok Shop could be operationally very messy (and many of our friends say impractical). There are many different permutations of how things can evolve (e.g., a separate e-commerce app or specific programs for MSMEs). Regardless of how the ban proceeds, TikTok’s vast consumer traffic will continue to be harvested for e-commerce, through TikTok Shop or other means, by TikTok or by other parties,” he noted

Li also believes it is not too late for TikTok “to engage and turn the tide .”He reckons TikTok needs to be bold and local.