The potential ban comes at a time when live-shopping, a form of social commerce, is on the rise in Indonesia. - AFP
JAKARTA (The Straits Times/Asia News Network): Promoting children’s clothes online, instead of to people passing by his stall in the Tanah Abang Market in Jakarta, was one of the best decisions entrepreneur Andre Oktavianus made.
Since he started selling on online platforms via live stream in 2017, nearly a decade after he started his business, Oktavianus, 37, said that his sales have increased.
“TikTok Shop in particular has helped me. With it, I’ve seen turnaround increase by between 30 per cent and 40 per cent,” he said, referring to the video sharing platform’s shopping arm, which launched in Jakarta about two years ago.
But the good times enjoyed by entrepreneurs such as Oktavianus who use social media to generate sales may not last much longer.
Several government officials have in recent weeks called for social media and e-commerce to be separated, taking aim at companies like TikTok and Shopee for what they say are unfair social commerce practices threatening local and small businesses.
Social commerce is a subset of e-commerce that involves social media, with consumers interacting with sellers while buying and selling products and services.
This comes at a time when live-shopping, a form of social commerce, is on the rise in the archipelago, and many businesses are making huge profits in a few hours.
No data is available on the number of businesses that use live-shopping, where a celebrity or salesperson goes live on a social media platform to talk up a product or service and interacts with viewers and answers their questions.
On Monday, Indonesian President Joko Widodo convened a Cabinet meeting to discuss issues related to e-commerce in the country.
Earlier, Widodo addressed the concerns about the growing reach and impact of TikTok Shop, saying it had adversely affected micro, small and medium enterprises in the country.
“TikTok should only be a social media (platform) and not a medium for (conducting) business,” said Widodo during a visit to East Kalimantan at the weekend.
TikTok, owned by Chinese technology giant ByteDance, has said that it has 125 million users in Indonesia, including two million small businesses on TikTok Shop.
Responding to Monday’s news of the Cabinet meeting, a TikTok Indonesia spokesperson told The Straits Times that 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.
“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,” the spokesperson added.
With a population of more than 270 million – half of them under 30 – many see Indonesia as a key market for e-commerce, including live-shopping.
A report by Singapore-based venture firm Momentum Works found that Indonesia was the biggest online spender in South-east Asia in 2022, accounting for 52 per cent of the region’s total gross merchandise value (GMV), which refers to the value of goods sold via e-commerce platforms
The total GMV in 2022 was reported to be US$99.5 billion (S$136 billion) and Indonesia’s figure was US$51.9 billion, almost 13 times that of Singapore’s US$4 billion.
Why ban?
Murmurs of potential moves to constrain TikTok and other firms like Shopee and Meta that use social media for commercial purposes started in early September.
Indonesian Deputy Trade Minister Jerry Sambuaga told a parliamentary hearing on Sept 12 that the country “must differentiate between e-commerce, social media and social commerce”.
There is little regulation of the social media e-commerce space, the minister said, calling for a change to current trade laws.
“A revision... will firmly and explicitly ban that,” he said, without confirming further details of his plan. Laws in Indonesia currently do not cover transactions on social media.
Predatory pricing is another big reason why the government has social media transactions in its cross hairs.
This refers to the business practice of setting prices for a product unrealistically low in order to eliminate competition.
Recently, Indonesian Minister of Cooperatives and Small and Medium Enterprises Teten Masduki raised concerns about businesses on social media selling imported products at unusually low prices, which fall below the production cost of local goods and affect home-grown businesses.
TikTok on Sept 12 criticised such calls, and its head of communications told AFP that Jakarta needs to “provide a level playing field”.
“Forcing social media and e-commerce to separate into different platforms would not only hamper innovation, it would also disadvantage Indonesian merchants and consumers,” said Ms Anggini Setiawan, head of communications of TikTok Indonesia.
While sellers like Oktavianus are lucky that the pivot to digital worked out, not all share his good fortune.
Many retailers in Tanah Abang Market, the largest market in Indonesia, have reported plummeting sales, because more customers are buying goods online.
The shopkeepers, some of whom have reported sales falling by more than 50 per cent in 2023, said that they do try to use live-streaming and selling on social media sites, but not everyone is savvy or has the time.
Oktavianus said that to achieve the gains he has made through online platforms, investments have to be made.
He has hired about five people to sell his items online, including via live-streaming, but said he was worried he may have to let his employees go should social media transactions be banned.
Weihan Chen, who leads the Insights team at Momentum Works, said that while no one can explicitly confirm that Indonesia’s potential ban is specifically targeted at TikTok, other platforms such as Shopee and Meta have been in the market much longer and are more experienced in navigating policy and other sensitivities.
“This ban would inevitably affect TikTok tremendously, given that Indonesia is TikTok’s largest and second-largest market in terms of TikTok Shop and user numbers, respectively,” she added.
But the effects of the ban will extend beyond TikTok, said Chen.
She pointed out that the concept of social commerce is strong in Indonesia and that word-of-mouth reviews from family, friends, and influencers are crucial in helping many make purchase decisions.
Social media, she said, is crucial in providing a platform that eases the dissemination process of such recommendations.
Coupled with the ability to transact directly on the platform, the overall customer journey is shortened, which Chen said benefits many merchants as sales can be achieved in a much shorter period of time.
“A ban on social media transactions could remove all the benefits brought about by social media platforms,” she added, referring to things like data that could be captured about customer behaviour and engaging them on a deeper level.
“This inevitably creates a much higher barrier of entry for entrepreneurs, especially those who are less experienced and less resourceful, which might potentially inhibit or slow down entrepreneurship growth in the long run.”
