E32 – The Impulso Podcast – Indonesia bans purchases on social media platforms, TikTok Shop is given one week deadline

In the latest episode of our podcast, we delve into news that has sent ripples through the world of social media and e-commerce. Indonesia has just introduced a regulation that shakes up the way transactions and payments take place on social media platforms.

How will it impact the operations of TikTok Shop which thrives on its massive user base? TikTok Shop’s frictionless experience allowed it to flourish. But with Indonesia slamming the brakes on this practice, TikTok Shops face a significant challenge. How will it affect the business model?

In our episode, we explore the motives behind Indonesia’s regulatory move. What are the concerns driving this decision, can it serve as a blueprint for other countries’ policy?

Moreover, we investigate potential solutions. Indonesia has given a tight deadline of just one week for the issues to be addressed. Are there alternative strategies TikTok Shop can employ to continue its operations?

Join us in this episode as we unravel the complexities of Indonesia’s new regulation and its impact on TikTok Shop!

[Transcript]

Dalia 0:01
Hello, and welcome back to the impulsive podcast. Today in the studio, we have Jianggan.

Jianggan 0:05
Hello morning!

Dalia 0:06
And we have Weihan.

Weihan 0:07
Hello.

Dalia 0:11
Now, many things happen this week. But breaking news is, of course, Indonesia’s ban of TikTok. Just in the beginning of the month we released an article saying that the ban is unlikely. Yet on Wednesday, the government released a regulation. Now I’m really curious what exactly happened during this three weeks time? How exactly the situation evolves? Weihan, how about you give us some context.

Weihan 0:32
Okay, so I think just to start off, right how the the entire situation played out was that initially there were talks on potential bans on TikTok shot. And then afterwards, he went on to go into potential and show ban off social media transactions, but there is no specific target on who exactly is being the trigger point with many saying that is very likely to be TikTok, given how much they have been impacting the local merchants and how fast they’re growing on the ground. And then on Wednesday, the government has actually decided to ban social media transaction. But I think, to just a caveat is that they’re not completely banning social media or TikTok per se, but it’s more like they’re trying to bend this social media platforms from allowing consumers to directly transact and buy things of the platform. And I think this would inevitably impact Indonesia a lot given that TikTok is actually focusing so much on Indonesia. Now, since it is the second largest user base, it has the second largest user base, and is also the largest TikTok shop market. But I think Jianggan can give a little bit more insight as to what exactly is being banned and how will this move forward.

Jianggan 1:51
So the events that happened this month, actually, escalated, escalated from the seventh of September when the Minister for SMEs and cooperatives first said in a parliament that okay, we should not allow social media companies to do ecommerce. And at that time, people were thinking that, okay, this guy doesn’t have the extra power to actually enact any, any regulation. And he has probably objective objective to avoid was out in support of SMEs, who might be impacted by by current changes in E commerce landscape before the elections, which is coming next year. So a few a few days later, the Deputy Minister of Trade through his support, saying that, Oh, this should not be allowed. So we feel that there’s some lobbying and force behind the scene like, like I tried to get, get key government ministers to express their opinions one by one. And I think back then the the Minister for Communications and Information Technology, company info, actually voiced support for TikTok Shop. They said, Okay, TikTok Shop doesn’t violate any regulations. So, so that was, I think, the middle of the month, and then things started escalating, escalating on the 25th of, of September and president of Indonesia, Joko Widodo, or Jacoby actually chaired a meeting where we’re, I think that the directive was that okay, a new regulation should be coming out soon to, to not allow social media companies to ecommerce. And on Wednesday, the trade minister actually did a press conference announcing the new rules. What is in any new rules? I mean, there are a couple of things. But But I think for us, the most relevant thing is social media companies are not allowed to process transactions and payment which effectively says that okay, data shop with this current, like all inclusive model that they need to separate the transactional and ecommerce part from its social part, which can still be used for promotion and marketing of E commerce products. So So yeah, a lot has happened. And I think a lot of people in the ecosystem are trying to process this information. And obviously, detox is trying to figure out what’s going on. And TikTok’s competitors. I mean, software might have a role to play in a lobbying effort behind the scene. And and of course, a lot of sellers who own TikTok shops are wondering, Okay, what’s next? Sure, what should I do? It’s actually very, very complex and a messy issue. And I think at the moment of release of this podcast, I don’t think there’s a concluding answer of how things were exactly evolve, and, and how people will actually sort of ensure that compliance with the regulations or whether the regulation will be actually enforced.

Weihan 4:51
I think just a question on that. I heard that the Indonesian government is actually giving TikTok about over week or so to either create a brand new standalone app for TikTok shop, or else they will ban the app completely. What do you think are the the potential downsides if TikTok water follow through to create a to create a separate, separate app? And would this only be implemented just in Indonesia? Or would they do this for all the other markets? So

Jianggan 5:26
that’s a loaded question. A couple of things. So first, I think I think the first cousin building in China was also owned by bytedance. Tried it with a separate ad for humans before and the conversion was not good. Because the experience that he had to jump out to a separate app and, and do all the transactions is not ideal. So So you know, Indonesia, we know that they have a shop tab, which is marketing, this feature was embedded in TikTok app, which is performing better than though is same feature in China, but still, like 30% of all the transactions. So if there’s severe this direct conversion, sort of possibility within the same app, will they still have the efficiency and will still be worthwhile for them to do it? Rather than okay, I might as well sell the traffic to Shopee, Lazada, Tokopedia. So I think that’s a question that the default needs to figure out. From a technical capability point of view for them to launch a new app within a week, I think it’s perfectly possible with by dances, engineering, they used to be called app factory so they could launch apps. So so that I don’t think is the issue. What’s the second question? Again?

Weihan 6:40
Would this separation of the TikTok shop from the TikTok mean app be also applied to other countries? Or do you think this would just be in Indonesia in specific case

Jianggan 6:51
I’m sure that the politicians in different countries who do not like TikTok are watching this and trying to find inspiration. So so the question is that I mean, how they would actually take inspiration from this and what kind of agenda they want to push in their respective country and the what other sort of the Pro and counter forces sort of playing out against each other. So definitely, it’s not a good sign for TikTok, because I’m especially in America, right? I mean, they are trying so hard to crack ecommerce in America at the moment, if American pop, politicians do the same thing, and I think there’ll be a big trap of vertical.

Weihan 7:35
That’s interesting, because from what I understand, TikTok actually only just launched their shop tip in America. So if this were to be this, the same strategy will be to be used by the US government on TikTok, I think it will be another woven of Congress sessions again, and people fighting back. But I’m just curious why. Why should? Why does the government be being more concerned with banning TikTok shop completely, instead of just restricting certain usages, for example, like they’re concerned with, like, let’s say the prices on TikTok being very cheap, since a lot of it comes from perhaps cross border sellers from maybe in China or from other countries? Why not just like, restrict in terms of let’s say that TikTok, internally, restrict certain, like, cross border sellers and just focus on prioritizing the Indonesian merchants on the platform.

Jianggan 8:34
Practically is actually quite hard to do it. Because I think now TikTok Indonesia, does not allow cross border sellers, actually. So every seller on net has to be an Indonesian, Indonesia based entity. So but I mean, what does a good company does goods come from? Right? So I think I think lots of the goods that have been been produced, still come from cross border, but as imported in, in a piece of B2B way. So this is what has happened to Shopee. I mean, in before 2021. There were lots of cross border activities on Shopee, but there was some backlash. And I think Shopee restriction restricted and lots of lots of people set up business in Indonesia, or work within nation partners to import goods through a normal customs B2B import and actually sell on platforms. So the goods, the provenance provenance of the goods or public still come in the same way. And and I think, I think b2b customs clearance is it’s much more complicated seeing compared to like B2C Right? I mean, if you’ve shopped a lot less a large platform facilitates B2C is relatively easy for the government to monitor. But B2B, you have so many parts you have so many different agents, so many different inspection points. It’s very hard to monitor so I think the goods were still flowing.

Weihan 9:55
If that’s the case, right, then how different does that make it they’d like for example, in terms of like, back then Shopee, they have to appease the government in terms of like ensuring that it does not affect local merchants, what is it about TikTok that they can’t do it in a similar way?

Jianggan 10:14
I think people can do it, it’s just that they’ve not been doing it effectively, they’ve been focusing too much on developing your own business. So um, so if you look at what Shopee has been doing, right, and over the years, they have been running programs to change the, the merchants, Indonesia, we have been helping, like manufacturing, SMEs, Indonesia, export mainly to Brazil, and to a few other countries. It’s difficult for as I said, not that difficult. If you have a dedicated team you have if you have dedicated resources to do it, and if you organize it organization, once you put it as a priority, for instance, I think earlier this week, there was article in Jakarta Post saying that the the offline sort of merchants in Penang, which is large, sort of clothing and textile market in Jakarta, are companies in here, we have no customers. What do you think could have done is just to launch a training program for this guy’s head, I’ll teach you how to sell on TikTok or give you support in terms of traffic in terms of training, in terms of content creation, that you can benefit from. So I think TikTok can do it, and they should do it.

Weihan 11:26
I think, to that point, I think it’s very interesting is because for this physical merchants, right, that relies on footfall traffic in order to generate sales, when the other e commerce platforms were very prominent in Indonesia, for example, Shopee Tokopedia, they are also faced with similar issues. But then why is it specifically because of let’s say, TikTok that is affecting them so much?

Jianggan 11:54
Because you happened too fast? I mean, we have done a report, right? Three years ago, TikTok was like tiny, right? It’s 0.6 billion. And last year was 4.4 billion, and a lot of a majority coming from Indonesia. And by the mid of this year, they were doing I think, about $15 million a day in Southeast Asia, 1/3 of them coming from Indonesia, that’s like works out to be almost $20 million a day. For Indonesia, of course, I mean, that that sort of spending power will be taken for somewhere, and people will probably be spending this in offline stores and stuff. And now that they are doing online, so we do think that it might have converted more offline traffic to online compared to Shopee in a short period of time. So of course, that impacts people. The merchants who know how to use it effectively benefit a lot, because they will get traffic, right. And the merchants who do not know how to do it or who have not been able to crack it are suffering. So but But again, as I said, I mean, this is you should that you should be able to resolve right. I mean, just launch programs, I helped merchants help them export. I mean, they have they have the market in Saudi Arabia now. And they can help Indonesian merchants sell to Saudi Arabia, for example. (That’s very true) Just launched a TikTok shop report. And that was like a month ago in August, right? Yeah, it’s in August. So So of course, the report focuses a lot on understanding of TikTok shop and, and for operational point of view, and from a marketing point of view from from sort of competitive landscape point of view how it is. We also briefly mentioned to you the conclusion saying that, I think I think operationally, it’s very hard for the competitors to stop is a cent because every conversion is done within the app recon, like, halfway through Shopee comes in said, Hey, stop us using these come out and buy on Shopee instead. So it’s very hard. But we mentioned that there are a couple of factors factors, which might affect TikTok shops outcome in the region, first, obviously, is their their own sort of organization, as well as their commitment. So that’s their own internal organizational strength. The second is politics, geopolitics and policy. So in this episode, we seem to see that the both are acting together, right. So. So the politics in particular country is working against them. And internal organization point of view, and they seem to struggle to to give a proper response. I think they should press releasing earlier saying that, I think Indonesian government has to take care of the settlement of 6 million salers, while some along the lines of that, which I mean, it might work in the US but but I think Indonesia can work. People say that it is so offensive towards the government, which is not nice in such a high context country.

Weihan 14:51
So I guess it’s it’s a lot to do with the PR NGR team not being able to handle this kind of situations as well as many of the other platforms b e commerce platforms like Shopee or like back then Meta I think in terms of navigating the political sensitivities in the region.

Jianggan 15:12
Everybody needs to, right. So the particularities of Southeast Asia is that I mean, each country has its own sort of specific political environment. And Indonesia, being the largest country obviously attracts the most investment. But also because the most investment it disrupts the local ecosystem, some people benefit from it, some people don’t. And people don’t benefit free define and people who, who, who actually suffer from it, they will probably lobby against a particular change, and is this democratic government. So there’s been lots of people lobbying against sort of different love for or against different agenda, and especially as elections are coming. So there will be lots of lots of noises coming out. And, and I know lots of people asking us about headlines, but but I think it takes a bit of understanding about the political landscape to see what is really, really be behind. So do you think Tiktok shop will still work in Indonesia, as a business model?

Weihan 16:17
I think once Indonesia, let’s say it’s out of the picture, because being on a separate app really removes all the benefits that TikTok can actually give to all the sellers, the creators, with Indonesia being out. And if let’s say, the US decides to go something similar, I don’t think overall, it will be as sustainable because two of their largest markets are already not supporting them. The remaining is just like they can still have TikTok shop is like a side business that supports TikTok, but I don’t think it would be of much contribution in the long run.

Jianggan 16:58
And that that’s the argument they always have, right? I mean, for their traffic, does it make sense for them to to run in commerce itself? Or does it make sense for them to just run advertising sell this to people like Shopee or whatever? And, and, of course, so they’ve been so far committed to run e commerce and e Commerce has given given them the benefits, right? I mean, yeah, it gives them a much better understanding about their customers. Imagine if your social media collecting customer data, but for E commerce is natural. Right. Okay, I need, I need to know where you live. So I can deliver the goods to you. Yeah. So yeah. So I think I think that this is complex. Not sure if you guys noticed that roughly the same day or the day before there. Was this regular? The investigation in the US against Amazon for potential monopoly? Yeah. So I am thinking that there’s something in common between these two episodes, right? Because Amazon controls or tries to control multiple parts of the ecosystem. And that gives them very good pricing power of everybody else in the ecosystem. And the TikTok is trying to do the same thing. And of course, TikTok has not got there yet.

Weihan 18:13
Back then COVID started getting too big.

Jianggan 18:17
Yeah, but what is right thing to do or not? I don’t know. Time will tell right? Because Because once you you disrupt a how things evolve, things will evolve differently, and what is for the good or for the bad? Well, we have to monitor it depends on actors and how they respond and and stuff. But definitely, I think we should keep a close eye on what’s going on in Indonesia. And also for you, for those who are interested, you can read our TikTok Shop report, we we briefly mentioned about the political risk, but the business model and etc, etc. So still, I think it gives you some good understanding about how this business actually is.

Dalia 18:58
This report will be linked in the show notes and thank you very much Jianggan and Weihan for your wonderful insights. And for the rest of you. We will see each other next week. Thank you. Thank you. Bye bye.