TikTok Shop Exits Indonesia: Southeast Asia’s E-commerce Landscape Will Change

The closure of TikTok Shop Indonesia indicates that the e-commerce landscape in Southeast Asia is about to change.

On October 4 this year, TikTok Shop officially exited the Indonesian market. Sellers can continue to promote goods through TikTok, but cannot sell products directly on TikTok. This will bring a big change to TikTok’s e-commerce development and even the e-commerce landscape in Southeast Asia.

Indonesia is the largest e-commerce market in Southeast Asia, and it is also the national market with the largest share of TikTok Shop in Southeast Asia. It is reported that in 2022, the GMV of TikTok Shop in Southeast Asia will be US$4.4 billion, of which the GMV of the Indonesian station will be US$2.5 billion, and the Indonesian station will account for nearly 60%.

With the closure of the Indonesian website, both sellers, service providers and e-commerce platforms need to make new challenges.

TikTok Shop is a shelf e-commerce, which is TikTok’s closed-loop e-commerce business. Consumers can place orders directly on TikTok without jumping to external links. After TikTok Shop is closed, sellers can only sell products by jumping external links, and transfer consumers to Shopee, Lazada, and independent sites for transactions.

After the news came out, it caused an uproar in the industry. The reason is undoubtedly because TikTok Shop Indonesia occupies a very important position in TikTok's entire overseas business.

TikTok's revenue is mainly divided into two major segments: advertising revenue and e-commerce. E-commerce includes short video delivery and live broadcast delivery. Advertising revenue is TikTok’s main revenue. According to market research company Insider Intelligence, TikTok’s advertising revenue in the United States will reach US$5.96 billion in 2022. However, as overseas policies tighten on TikTok, it has brought certain risks to TikTok’s social media.

E-commerce has become TikTok’s key module in increasing overseas revenue. Indonesia and the United Kingdom are the two major locations where TikTok e-commerce is testing the waters. At the very beginning, TikTok Shop took the lead in launching in these two countries, and then expanded to other Southeast Asian countries and international markets such as the United States.

At present, Indonesia is the most successful country for TikTok Shop. There are reports that TikTok has 125 million active users in Indonesia, second only to the United States. Moreover, in 2022, TikTok Shop's GMV in Southeast Asia will be US$4.4 billion, of which Indonesia's GMV will be US$2.5 billion, accounting for nearly 60%.

Indonesia's success has attracted a large number of Chinese cross-border sellers, MCN and TSP institutions to settle in Indonesia. With the closure of the Indonesian site, it has had a huge impact on both practitioners and the TikTok platform itself.

Indonesia's new regulations stipulate that the price of imported goods on e-commerce platforms cannot be less than 1.5 million Indonesian rupiah (about 100 US dollars).

As the country with the largest population and GDP in Southeast Asia, Indonesia has a population of 276 million and a total GDP of US$1.3 trillion in 2022. Previously, Indonesia has been TikTok Shop’s largest market in Southeast Asia, accounting for the majority of TikTok’s revenue.

In other words, Indonesia has gathered a large number of sellers and service providers from China. Some sellers moved to Southeast Asia after the wave of Amazon account closures in 2019, and the closure of the Indonesian site had an impact on them no less than that year.

On October 4th, Indonesia’s TikTok Shop live broadcast room experienced a lively and tense day. The anchors who bring goods take advantage of the last moment to try every means to sell products. The anchors "sell hard" in the live broadcast room, sell discounted products, and display a large amount of goods accumulated in the warehouse, hoping to take advantage of the last opportunity to reduce inventory losses.

After TikTok Shop is closed, what awaits sellers will be a long process of clearance and transformation.

Before the shutdown, TikTok Shop had nearly 6 million local sellers and more than 7 million live-streaming practitioners and short video creators in Indonesia. There are also a large number of sellers from China who store their goods in Indonesia in overseas warehouses. Regardless of whether it is a cross-border seller or a local seller in Indonesia, how to deal with the accumulated goods, decide to leave the market or change direction, will become the next focus.

After the Indonesian site was shut down, a document called "TikTok Shop ID Post-Disaster Reconstruction Guide" circulated in the circle. Wang Huan, the initiator of the document, wrote: "It hurts like being dumped by your first girlfriend… But you have to cheer up. We still have so many practitioners who need to solve practical problems, such as wages, rent, payment for goods, Internet fees, Utility bills and a whole host of other things.”

Many sellers turn to other platforms for live streaming of goods, such as Shopee Live and LazLive, or transfer goods to Shopee, Lazada, independent websites and local e-commerce platform Tokopedia for sale. There are also sellers who still live broadcast on TikTok, but earn sales on other platforms through jump links. However, it is said that the effect is not ideal, and the conversion rate is far lower than the original TikTok Shop.

Some sellers even plan to transfer their goods to other countries in Southeast Asia for sale. According to sources, many Indonesian sellers and TSP service providers are already planning to enter Vietnam.

In addition, this closure has also had a certain impact on many local small and medium-sized businesses in Indonesia. Some Indonesian small and medium-sized merchants conduct online sales through TikTok Shop. After the closure, the income of these merchants will decrease rapidly.

TikTok Shop opened its Indonesian station in October 2022. In just one year, it brought the gene of live streaming to Indonesia, bringing abundant employment opportunities and transforming the local e-commerce ecology to a certain extent. After the shutdown, Indonesia’s e-commerce landscape will also be reshuffled.

Is live streaming of goods stagnant in Indonesia, or is it a new opportunity?

In fact, Indonesia’s crackdown on TikTok was not a one-time move. In the past few years, Indonesia has been imposing restrictions on cross-border e-commerce and imported goods. The reason is the impact on local companies. In order to protect domestic business, Indonesia has always been wary of imported e-commerce.

According to Indonesian official data, there are more than 64 million small businesses in Indonesia, accounting for 61.9% of Indonesia's total GDP in 2022. Cross-border e-commerce, taking advantage of China's supply chain, can provide lower commodity prices, which has undoubtedly had a certain impact on local companies.

One of the triggers for Indonesia's announcement to ban social media as a sales platform for goods was that local traders were dissatisfied with the impact of online e-commerce represented by TikTok Shop on their business. At Tanah Abang Market, the largest textile and clothing wholesale center in Southeast Asia, some traders posted posters on their stalls urging the Indonesian government to shut down TikTok Shop.

In the past few years, Indonesia has always been wary of the impact of cross-border e-commerce on local business.

In 2019, cross-border e-commerce began to enter Indonesia and flourish. In order to limit the development rate of cross-border e-commerce, Indonesia lowered the threshold for cross-border e-commerce taxes and fees, starting from a tax of more than 100 US dollars, and reducing it to $75. At the beginning of 2020, the threshold amount for cross-border e-commerce imported goods was lowered to US$3.

In August this year, Indonesia announced a ban on the sale of imported goods below 1.5 million Indonesian rupiah (approximately US$100) on online platforms. Moreover, imported goods need to be imported into the Indonesian market before being sold, and e-commerce platforms cannot sell their own brands. This also means that it is difficult to implement the "new consumption" business model from 0 to 1 online in Indonesia.

Restrictions apply not only to social media such as TikTok, but also to e-commerce platforms. Starting in 2021, platforms such as Shopee and Lazada will stop recruiting cross-border sellers and will only allow local sellers to settle in. TikTok Shop will also only open to local sellers to settle in. Therefore, a large number of Chinese overseas sellers choose to switch to local sellers for sales.

The closure of TikTok Shop this time is just part of Indonesia’s long-term protection measures for local businesses. As Indonesia's restrictions on cross-border e-commerce and imported goods become increasingly tighter, this also sends a clear signal that the dividend period of vigorous growth of cross-border e-commerce in Indonesia in the past few years has faded.

After TikTok Shop is shut down, the first to profit will be e-commerce platforms such as Shopee and Lazada. It is understood that a large number of TikTok Shop sellers are preparing to deploy e-commerce shelves such as Shopee and Lazada, and are even targeting the local e-commerce platform Tokopedia. As for shelf e-commerce, they already have a complete live-streaming delivery model, which will become an opportunity for TikTok Shop sellers to transform. They may even encounter the influx of this group of live-streaming sellers into Shopee and Lazada, which will create new opportunities for e-commerce. The live streaming section of the platform has injected fresh blood.

It has been revealed that Lazada has begun to launch preferential policies for sellers to attract sellers who sell goods through live streaming to settle in Lazada.

Although TikTok Shop was forced to close down, the business model of live streaming has taken root in Indonesia, and a number of local MCN organizations have been cultivated. Although TikTok Shop has been closed, the opportunities brought by the business model it cultivated still exist. It is reported that TikTok may establish an independent e-commerce APP in the future. As for who will be the next winner of the dividend, anything is possible.