Tense Moments for Indonesian Live Commerce: Where Do 6 Million Sellers Go?

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In the wake of a recent unprecedented storm during the Indonesian National Day, the entire landscape of Indonesian live commerce has been shaken to its core. Just two days before China’s Mid-Autumn Festival this year, on the night of September 27th, Indonesia’s Ministry of Trade issued Regulation No. 31 of 2023, which explicitly stated, “Social media platforms are prohibited as sales platforms for products.”

The platform most affected by this social e-commerce ban is none other than Indonesia’s largest social commerce platform, TikTok Shop. A mere seven days after the regulation was issued, on the afternoon of October 4th, TikTok announced with a heavy heart the shutdown of TikTok Shop in Indonesia.

This was undoubtedly a significant blow to TikTok’s Southeast Asian market. TikTok boasts 125 million monthly active users in Indonesia alone and considers Indonesia, with its massive population, one of its crucial markets. Over the past two years, many Southeast Asian businesses ventured into Indonesia, recruiting local influencers and diving into live streaming to capitalize on the Indonesian market’s potential.

However, with the ban in effect, the foundations of TikTok Shop in Indonesia seemed to crumble almost overnight. The platform’s early investments and aggressive spending efforts went in vain, leaving over 6 million small and large sellers in a state of uncertainty and confusion.

Fortunately, the impact of this ban in Indonesia is temporarily confined to social media platform e-commerce, specifically the thriving “live commerce.” TikTok’s short-video content business and other mainstream Indonesian e-commerce platforms like Shopee, Lazada, and Tokopedia remain unaffected.

In the ever-evolving landscape of Indonesian e-commerce policies, the 6 million local sellers on the TikTok Shop platform are left wondering about their future, how to minimize losses, and how to mitigate risks. What steps will TikTok’s official platform take in response to this situation?

Amid this turmoil, Southeast Asian logistics and shipping providers, independent platforms, and other e-commerce platforms looking to pivot or generate additional income are presented with opportunities. They can potentially leverage the current situation to their advantage.

Until the early hours of October 4th and throughout the morning, TikTok Shop live streams in Indonesia witnessed an unprecedented level of activity:

Several Southeast Asian girls wearing headscarves hurriedly showcased discounted products on screen. Under the imminent pressure of closure, many live streamers staged dramatic “closing down” scenes. Thanks to various factors, even smaller live streams garnered up to 70-80 thousand likes.

In some live streams, products were piled up in the background, and local hosts, despite looking fatigued after continuous live streaming, continued to rapidly introduce products. They hoped to capitalize on the last opportunity before the closure to sell as many products as possible and minimize their losses.

Before the shutdown, TikTok Shop had over 6 million local sellers in Indonesia, along with approximately 7 million live commerce professionals and short video content creators.

On the afternoon of October 4th, TikTok Shop’s e-commerce operations in Indonesia were officially shut down. Their email announcement stated, “We will no longer facilitate e-commerce transactions for TikTok Shop Indonesia. We will continue to collaborate with the government to find the best ways to serve you in the future.”

From the policy announcement on September 26th, the subsequent press conference on the following day, to the complete shutdown on October 4th, the Indonesian government gave TikTok Shop and e-commerce live streamers a mere seven days to adjust, which was referred to as the “one-week adjustment period.”

During this week, various rumors and messages circulated among domestic seller groups:

“For those with money in their shops, withdraw it quickly from the backend!”

“If you can go live, do it quickly, clear your inventory; there are too many people in the live streams.”

“Shopee also has live streaming and many marketing activities; you can create a new e-commerce account.”

Especially for many e-commerce sellers who heavily relied on TikTok Shop for live commerce, they found themselves in a state of uncertainty about their future.

“In fact, these days coincided with TikTok Shop’s key promotion period in the second half of the year, what we call ‘Mega Sales,’ similar to the Double 11 and Double 12 e-commerce promotions in China,” Mandy, who is preparing for the second-half “double day” live commerce in Indonesia, told the Xia Guang Society. “We prepared for it so meticulously, and we didn’t expect it to end so abruptly.”

In fact, TikTok Shop had invested heavily in the Southeast Asian market, particularly Indonesia, during the second half of the year. They collaborated on a show called “Nego King” in Indonesia, dedicated to live commerce, and enlisted Ibnu Wardani, who has 23.1 million followers on TikTok, as the host. This show aimed to compete with a similar live commerce show led by Li Jiaqi in China.

However, this show was specifically tailored for the Indonesian market and focused on recruiting brands and sellers for Indonesian live commerce. Many brands had invested in pre-launch marketing campaigns that now face an uncertain future.

“We initially thought these were just rumors, but they turned out to be true,” after the closure on October 4th, the entire Indonesian live commerce industry is undergoing a significant adjustment.

One particularly noticeable sector is the Southeast Asian logistics industry. Advertising promoting “Southeast Asian forwarding and reverse shipping services” began appearing in overseas seller groups, not only for returning to their home countries but also for sending products from Indonesia to Malaysia, Thailand, the Philippines, and other destinations.

However, some industry insiders speculate that if Indonesian live commerce stalls and combined with the previous restrictions on imported goods in Indonesia, many specific shipping routes associated with Indonesia may face reductions. The logistics landscape in Southeast Asia could change, affecting factors such as shipping efficiency, prices, and security.

This ban, including the social e-commerce ban affecting TikTok Shop, makes Indonesia the world’s first country to ban e-commerce businesses from operating on TikTok.

However, this recent ban in Indonesia was not entirely unexpected. Over the past two years, the Indonesian government has been tightening e-commerce policies, particularly regarding imported goods and cross-border e-commerce, which has never ceased.

It seems that Indonesia has been vigilant about the impact of e-commerce on its domestic businesses.

In 2019, when the e-commerce wave was sweeping through Indonesia, cross-border e-commerce businesses were strategically placing their warehouses in bonded zones, such as Batam Island. Initially, products with a value of over $100 were subject to taxation, but the threshold was soon lowered to $75 to curb imported goods.

In early 2020, the Indonesian government adjusted its taxation policy on imported goods, reducing the tax-free threshold from $75 to $3 per day. This was done to protect local sellers in Indonesia.

In 2021, Indonesia further restricted certain categories of cross-border e-commerce, including Muslim clothing, veils, prayer attire, and many textile and clothing items.

In August of the same year, a new policy was introduced that “prohibits online platforms from selling imported goods valued at less than $100 (1.5 million Indonesian rupiahs).” The Indonesian Ministry of Trade also announced that imported goods must first enter the Indonesian market before being sold, and e-commerce platforms cannot sell their own branded products, among other restrictions.

“Indonesia has been changing since 2019 because cross-border e-commerce became increasingly difficult, so we had to focus on local businesses,” said Mr. Lin, who works in e-commerce live streaming in Southeast Asia.

In fact, since 2021, platforms like Shopee and Lazada stopped recruiting cross-border sellers and only allowed local sellers to join. TikTok Shop, when it entered Indonesia that year, was also exclusively open to local sellers.

With the impact of the new regulation in Indonesian e-commerce (Regulation No. 31 of 2023), Shopee has officially stopped selling products from overseas or cross-border sellers. However, according to feedback from Indonesian overseas sellers, the platforms’ decision to stop selling cross-border goods did not affect many businesses that had already shifted to local sellers.

The complete closure of TikTok Shop is an extension of the previous restrictions on cross-border goods and actions to protect local products in Indonesia.

On September 26th, just before the TikTok Shop closure, Indonesian President Joko Widodo made it clear: “TikTok Shop’s growing influence is not beneficial to micro, small, and medium-sized enterprises. Businesses on social media sell imported products at unusually low prices, lower than the production cost of local products, affecting local businesses.”

In another widely circulated speech video of President Joko, concerns were expressed about imported products and the “90% being imported products” on the TikTok e-commerce platform, which he referred to as “predatory pricing”:

“A piece of clothing is sold for only 5,000 Indonesian rupiahs (2.3 Chinese yuan)… burning money, obtaining user data and consumption habits, we must be clear about these tactics.”

Indonesian Minister of Trade Zulkifli Hasan also emphasized when announcing restrictions on TikTok Shop: “E-commerce should not be associated with social media; they need to be separated.”

According to official Indonesian data, there are over 64 million small-scale businesses in Indonesia, accounting for nearly two-thirds of the Indonesian economy and 61.9% of the country’s GDP last year. Complaints about “the proliferation of imported products disrupting traditional markets and domestic industries” and “threatening local small and medium-sized enterprises” are not uncommon in the Indonesian domestic market.

Since TikTok Shop entered the Indonesian e-commerce market in 2021, it experienced rapid growth and increased its market share. This naturally triggered concerns about trade protection in Indonesia.

While the storm raged in Indonesia, other Southeast Asian countries were on edge, sparking a storm against TikTok and e-commerce platforms.

Before the closure of TikTok Shop in Indonesia, the Vietnamese government began a “comprehensive inspection” of TikTok for various violations starting from May 22nd this year. On October 5th, just after the closure of TikTok Shop in Indonesia, Le Khanh Toan, the Director of the Radio, Television, and Electronic Information Department of the Vietnamese Ministry of Information and Communications, announced the results of the comprehensive inspection of TikTok in Vietnam.

Unlike Indonesia, Vietnam’s inspection of TikTok extended beyond e-commerce operations and also encompassed the TikTok main app’s operation and services.

The results included violations such as “providing cross-border transaction hall services to Vietnam in violation of regulations, providing social network services to Vietnam in violation of regulations, cross-border advertising services,” and required TikTok to make corrections within 30 days and provide written notification to the Vietnamese Ministry of Information and Communications.

Vietnam’s announcement regarding TikTok Shop’s e-commerce services also contained numerous violations, such as not posting owner information on the TikTok Shop application’s homepage as required and incomplete storage of seller information.

Overall, the requirements TikTok faced in Vietnam were limited to “corrections,” and the harm to TikTok’s application itself and its e-commerce trade business was relatively minor.

“But given the situation in Indonesia, everyone is anxious, and many sellers are considering moving their businesses to Vietnam because Vietnamese consumers have relatively good purchasing power,” said a TikTok seller in Southeast Asia, Xiaoying.

TikTok’s situation in Malaysia is equally nerve-wracking.

Starting in Indonesia, the “storm” has now reached Malaysia. Malaysia’s Minister of Communications and Multimedia, Saifuddin Abdullah, announced that authorities would soon summon TikTok:

“The Ministry of Communications and Multimedia and the Malaysian Communications and Multimedia Commission (MCMC) are studying the basis for the Indonesian government’s ban on TikTok Shop. I believe TikTok should come forward and provide an explanation.”

Indonesia’s complete ban on TikTok Shop, combined with Vietnam’s “comprehensive inspection” and Malaysia’s “urgent summons,” cast a shadow over TikTok’s content and e-commerce platform, which was experiencing rapid growth.

However, as TikTok’s development in Southeast Asia is “forced to slow down,” Shopee and Lazada, both with backgrounds in Chinese e-commerce, may be presented with rare opportunities.

According to reports from Yienet, James Chang, the CEO of Lazada Indonesia, stated at an employee meeting on Friday that they are preparing to attract “sellers affected by Indonesia’s latest e-commerce regulations.”

In their efforts to attract more sellers who can no longer sell on “content e-commerce” platforms, traditional e-commerce platforms targeting the Indonesian market, such as Lazada, have waived fees for sellers conducting live sales on their platform. They are also offering incentives such as “zero commissions for three months, zero shipping fees for two months, and a voucher worth 300,000 Indonesian rupiahs” to attract sellers.

Shopee, in particular, has become the primary destination for former TikTok Shop sellers.

“If you are truly bullish on the Southeast Asian market, you should diversify across multiple platforms early, especially now that Shopee and Lazada also have live commerce models,” a TikTok seller in Southeast Asia told the Xia Guang Society. “When the market is there, people won’t leave; the key is to diversify risks, just like what happened with Amazon before the ‘account suspension’ crisis.”

Many sellers who initially tried TikTok Shop are now rushing to register accounts and expand their presence on Shopee, Lazada, and even Tokopedia, a local-based e-commerce channel.

Just as sellers find it difficult to abandon the enormous markets of Southeast Asia and Indonesia, TikTok also finds it challenging to ignore the significant traffic brought by social networks. There are rumors that TikTok is attempting to create a standalone e-commerce app under the guidance of Indonesian policies. After the complete closure of TikTok Shop, Indonesia’s Minister of Cooperatives and Small and Medium Enterprises, Teten Masduki, mentioned the possibility of TikTok creating a “new e-commerce application.”

As the trailblazer of content e-commerce in Southeast Asia, TikTok’s closure in Indonesia may not deter the interest-based e-commerce model it introduced. With numerous overseas sellers considering multiple e-commerce platforms, they may be on the cusp of new opportunities for value creation and seizing the spirit of the times.