TikTok has halted its online retail operation in Indonesia in order to comply with the country’s recent decision to ban e-commerce transactions on social media platforms. In a statement yesterday, the Chinese-owned video-sharing app announced that it would stop facilitating e-commerce sales on its TikTok Shop Indonesia by 5 p.m.
“Our priority is to remain compliant with local laws and regulations,” said the statement released Tuesday on its website. Since its launch in 2021, Tik Tok Shop has managed to capture around 5 percent of the e-commerce market, according to data from consultancy Momentum Works. Indonesia saw nearly $52 billion in e-commerce sales in 2022.
The Indonesian government announced the new regulation, which prohibits social media companies from facilitating sales of products on their platforms, on September 28. It says the policy is necessary to protect the archipelago’s millions of small businesses from e-commerce competition. One senior Indonesian official has accused e-commerce platforms of “predatory pricing.”
In a statement announcing the policy, Trade Minister Zulkifli Hasan said that the ban aims to “create a fair, healthy, and beneficial electronic commerce ecosystem by prohibiting marketplaces and social media sellers from acting as producers and facilitating payment transactions on its electronic systems.”
While the regulation will apply to all social media networks, its main target has been TikTok, which is owned by the Chinese tech giant ByteDance. Despite launching just two years ago, TikTok Shop sold $4.4 billion worth of goods in Southeast Asia last year. According to the research firm Momentum Works, that was expected to jump to $15 billion this year.
In a statement issued after the announcement of the policy, TikTok said that it regretted the Indonesian government’s decision, “especially how it will impact the livelihoods of the six million sellers and nearly seven million affiliate creators who use TikTok Shop.” However, it said that it would respect the new regulation and “take a constructive path forward.”
Nonetheless, the decision has dealt a significant blow to the social media platform, which was in the midst of an aggressive push into Southeast Asian markets, as it faces increasing scrutiny in the United States and other Western markets. “We’re going to invest billions of dollars in Indonesia and Southeast Asia over the next few years,” TikTok CEO Shou Zi Chew said at a forum in Jakarta in June. According to data from the consultancy Momentum Works, Indonesia accounts for just over half of the value of the region’s e-commerce transactions.
Earlier this week, I described Indonesia’s policy shift as a sign of its willingness to flex its regulatory muscles for strategic ends – in this case, to safeguard the economic security of an important social and political constituency: small business owners. At the same time, such lurching policy shifts also run the risk of having a countervailing impact on foreign investors, who have good reason to think twice before undertaking large-scale investments in the country.