The Future Of TikTok Shop E-commerce In Indonesia – Split, Independent Applications And Unknown Challenges

After officially suspending its e-commerce services in Indonesia, what is the future direction of TikTok e-commerce in Indonesia?

Although officials have not yet clarified its next steps, according to multiple sources and feedback from sellers, TikTok’s e-commerce and social media businesses in Indonesia may be split and an independent application launched.

An industry expert analyzed that if the e-commerce business is split and an independent application is launched in the Indonesian market, this will be TikTok's first independent e-commerce application. However, it is not yet known whether the previous performance can be maintained after the split, and whether "1+1=2" can still be achieved.

1. The separation of social networking and e-commerce is inevitable

For TikTok’s commercial development, the Indonesian market is crucial.

In February 2021, TikTok Shop was launched in the Indonesian market for the first time. Subsequently, TikTok began to further expand its e-commerce business to Thailand, Vietnam, Philippines, Malaysia and Singapore in Southeast Asia, as well as more overseas markets such as the United Kingdom and the United States.

Compared with Europe and the United States, TikTok Shop performs well in Southeast Asia, especially in the Indonesian market. According to Statista, TikTok Shop is growing rapidly in Indonesia. As of April 2023, Indonesia has 113 million TikTok users, making it the country with the second largest number of users in the world. It is expected that TikTok Shop’s GMV in Southeast Asia will reach US$20 billion by the end of this year, four times that of the same period last year, and the Indonesian market will account for the largest share. According to the "TikTok Ecological Development White Paper for the First Half of 2023" released by FastData, in the first half of this year, Indonesia was the country with the largest number of TikTok stores with sales exceeding US$10,000. It was also the country with the highest total duration and total number of viewers of TikTok's live broadcasts. .

The Indonesian market has always been TikTok's focus. In March this year, CEO Zhou Shouzi told the government in June that the company planned to invest US$10 billion in the country over the next five years.

However, with the implementation of the ban, TikTok’s uncertainty in Indonesia has increased sharply, and TikTok Indonesia’s 6 million local sellers and nearly 7 million affiliated creators are also facing more severe challenges.

Before the ban was issued, Indonesian Trade Minister Zulkifli Hassan said that TikTok Shop, the e-commerce section of the TikTok social platform, must be reorganized into an independent application within a week. TikTok Indonesia said in an email to sellers, "We will continue to work with the government to find the best approach."

Combining the government's position and TikTok's official attitude, TikTok Shop becoming an independent application is currently the most realistic and only option.

"Change is inevitable." May, a seller of TikTok Shop, said that under the ban, TikTok Shop has only two options. One is to launch an independent application and transfer existing sellers to a new platform; the other is to completely cut it. TikTok has returned to a pure social media platform. It cannot directly link to sell goods, and can only jump to third-party e-commerce platforms. "At the moment when we are striving to create a fully closed loop, TikTok is unlikely to continue to 'make wedding dresses' for other platforms."

2. Risks and challenges of TikTok

How to preserve the ripest fruits? Time is running out for TikTok.

Some industry insiders said that TikTok’s emergency closure of e-commerce functions will have a negative impact on Indonesian sellers and consumers. Sellers and users may turn to platforms such as Shopee and Lazada. The longer it takes, the greater the possibility of losing customers and sellers. The bigger.

Even if TikTok can respond in time, the loss of users is inevitable. Making the e-commerce function independent of another application will cut off the original link. Bloomberg Intelligence analyst Nathan Naidu believes that the split may prevent its 125 million local monthly active users (MAU) from further converting into shoppers.

While it is racing against time, it must appease sellers and buyers at the same time. "If it launches an independent application, the next thing TikTok will consider is how to retain these sellers. It must not only appease the current mood, but also lay out a smooth switch for them." Channel, smooth transition.”

In addition, TikTok also needs to readjust the local e-commerce ecosystem and conduct compliant operations under local laws and regulations. Trade Minister Zulkifli has said the new regulations are aimed at ensuring "fair and equitable" business competition and protecting users' data. He warned that social platforms cannot be allowed to become e-commerce platforms, stores and banks at the same time.

In addition to prohibiting social media platforms from confusing e-commerce transaction functions, government regulatory documents show that the new regulations also require Indonesian e-commerce platforms to set a minimum price of $100 for goods purchased directly from abroad, and require all products to comply with local standards; this It is to prevent the influx of cheap foreign products and protect Indonesia’s micro, small and medium enterprises. According to data, there are approximately 64.2 million small, medium and micro enterprises in Indonesia, contributing 61% of the gross domestic product (GDP). The government needs to regulate cross-border trade so that domestic SMEs can compete in the Indonesian digital market.

In addition to Zhou Shouzi's previous "goodwill" to the government, Reuters news shows that TikTok Shop has been actively seeking to obtain the country's payment license.

“Of course, if TikTok launches an independent application in the Indonesian market and succeeds, it will be TikTok Shop’s first independent shopping APP in various countries’ markets. Considering the risks and challenges TikTok faces in various countries’ markets, TikTok Shop’s Independent application trials will also be extremely important," May told Hugo Cross-Border.

In the past few years, TikTok has encountered some setbacks in its development in the United States and the United Kingdom, but this is the first time that Indonesia has taken action. After Indonesia became the first country to take action to limit the platform's growing popularity in social media commerce, it is unclear whether other countries and regions will take similar measures.

TikTok’s trials will continue.