Merchants selling via TikTok could be harming Indonesian economy: AC Ventures

Adrian Li, Founder and Managing Partner of AC Ventures

TikTok’s suspension of its online shopping service in Indonesia to comply with the new regulations will unlikely harm the Indonesian e-commerce market as players will adapt accordingly, according to Adrian Li, Founder and Managing Partner of AC Ventures.

New regulations effectively ban e-commerce transactions on social media platforms, preventing users from buying or selling goods on apps like TikTok and Facebook. Social media platforms cannot directly facilitate sales, sell imported items priced under US$100, and act as producers or manufacturers.

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Foreign goods have recently become more accessible in the country through social media platforms.

The move came shortly after President Joko Widodo called for stricter social media regulations, saying that the influx of such platforms has contributed to declining domestic business sales by flooding the market with foreign imports. Trade Minister Zulkifli Hasan said firms that do not comply with the ban on goods transactions would first be warned and then lose their license to operate in Indonesia if they fail to comply.

“Merchants who set up accounts on TikTok and ship goods from overseas without paying taxes could harm the local economy,” said Li in a podcast with AC Ventures’s Head of Communication Leighton Cosseboom.

While complying with regulations is its priority, TikTok voiced concerns over the impact on six million sellers and nearly seven million affiliate creators currently using TikTok Shop. Indonesia, with a population of more than 270 million, is home to 125 million TikTok users, and it’s the app’s second-largest market in the world.

One possible solution for TikTok to overcome the ban would be establishing a separate sales app. However, Sachin Mittal, Head of TMT Research at DBS Bank, recently warned that because most purchases on TikTok are impulse buys, the need to log into a separate app might lead to a high drop-out rate.

Indonesia’s e-commerce market is currently dominated by names such as Tokopedia, Shopee, and Lazada, but TikTok Shop has expanded rapidly since its launch in 2021 and gained significant market share.

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Overall, online sales in Indonesia have surged in recent years. The value of e-commerce is expected to increase more than sixfold between 2018 and next year, reaching around US$44 billion, according to the country’s central bank.

Li also questioned whether TikTok had stimulated this growth or simply eroded market share from other players. “My sense is that they probably haven’t significantly accelerated market expansion, and even if they did, it would likely be marginal,” he said, adding that Indonesians tend to adopt social media and internet products relatively quickly. Therefore, some consumers might have shifted to TikTok, affecting the existing e-commerce incumbents.

The regulation also prevents e-commerce marketplaces from manufacturing and producing their own white-labelled goods to compete with merchants who list their products. “I think that is very valid. Can you imagine Shopee or Tokopedia having their own merchants that compete with third-party sellers on their platform and being able to use their superior market competitive information and intelligence?” he asked.

He added that at some point, TikTok likely considered manufacturing white-labelled goods in China and selling them directly in the Indonesian market, giving the platform an advantage over local players. He drew a parallel with Amazon Basics, Amazon’s private-label brand.

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Leighton agreed that Indonesia should learn from the experiences of the West, such as the case of Amazon, to establish checks against the potential development of a monopoly.

The post Merchants selling via TikTok could be harming Indonesian economy: AC Ventures appeared first on e27.

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