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What TikTok did to keep its Indonesian online store alive

Image Credits: UnsplashImage Credits: Unsplash
  • TikTok successfully revived its ecommerce business in Indonesia by partnering with local platform Tokopedia, demonstrating adaptability in the face of regulatory challenges.
  • The TikTok-Tokopedia partnership created a unique hybrid model, combining social media engagement with established ecommerce infrastructure to comply with government regulations.
  • TikTok's experience in Indonesia highlights the importance of understanding and adapting to local markets and regulations for global tech companies expanding their ecommerce operations.

[WORLD] TikTok's journey in Indonesia's ecommerce landscape has been nothing short of a rollercoaster ride. From dominating the market to facing a sudden shutdown, and then making a remarkable comeback, the story of TikTok Shop in Indonesia is a testament to the company's resilience and adaptability in the face of regulatory challenges.

Indonesia, with its population of 270 million spread across 17,000 islands, has long been a critical market for TikTok. The country was the first to experience TikTok's ecommerce feature, TikTok Shop, which allowed users to buy and sell products while watching viral videos. This innovative blend of social media and ecommerce quickly gained traction, making TikTok Shop one of the most popular online shopping platforms in Indonesia.

"Indonesia was a critical market and the first place where TikTok rolled out this feature. The app, owned by the Chinese tech giant ByteDance, had about 130 million users, nearly as many as it had in the United States. Since its launch here in 2021, TikTok Shop had become one of the most popular places for Indonesians to buy things online."

The Sudden Shutdown

However, TikTok's success in Indonesia's ecommerce sector was short-lived. In a surprising turn of events, the Indonesian government declared that social media platforms would no longer be allowed to process online payments. This decision forced TikTok to abruptly halt its ecommerce operations in the country.

The reasons behind this government decision were multifaceted. Some officials argued that TikTok's popularity threatened to monopolize online shopping, while others claimed the company lacked the proper licenses. Industry insiders, however, suggested that the government might have been acting on behalf of TikTok's competitors in Indonesia.

The Impact on Sellers

The sudden shutdown of TikTok Shop had a significant impact on the many small businesses that relied on the platform for their livelihood. Agata Pinastika Kenastuti, who runs a children's clothing shop in Jakarta, shared her experience:

"When I found out, I cried for three days."

Kenastuti's story is just one of many. Thousands of merchants who had built their businesses on TikTok Shop found themselves suddenly cut off from their primary source of income.

TikTok's Strategic Response

Faced with this existential threat to its ecommerce ambitions in Indonesia, TikTok's executives knew they had to act fast. The company began exploring partnerships with local companies to find a way to continue offering ecommerce services while complying with the new regulations.

Within weeks, TikTok had set its sights on Tokopedia, one of Indonesia's main ecommerce platforms. The two companies quickly entered into negotiations, with TikTok setting an ambitious deadline of December 12 to get Shop back online.

"TikTok wanted Shop back online by Dec 12, according to two people familiar with the discussions who were not authorised to speak publicly."

This date was significant, as it had long been one of the biggest days for deals on ecommerce platforms in China, a trend that had caught on in Indonesia as well.

The TikTok-Tokopedia Partnership

The partnership between TikTok and Tokopedia was a strategic masterstroke. Tokopedia, as part of the Indonesian tech conglomerate GoTo, brought years of experience in developing payment and delivery technology tailored to Indonesia's unique geography and demographics.

Under the terms of the deal, TikTok received majority ownership of Tokopedia, which in turn paid TikTok for the right to operate TikTok Shop in Indonesia. GoTo retained just under a quarter of Tokopedia's shares and was promised a share of future TikTok Shop profits. TikTok committed to an initial investment of $840 million, with the potential to increase this to $1.5 billion in the combined entity.

The New TikTok Shop

On December 11, just one day before their self-imposed deadline, TikTok Shop relaunched as a pilot program under government supervision. While the Shop feature still appeared as a tab within the TikTok app, it now sported Tokopedia's logo and signature green branding.

The most significant change, however, was behind the scenes. When a user clicked "Buy," the checkout process now ran on Tokopedia's system. This arrangement allowed TikTok to continue offering ecommerce services while satisfying the government's requirement that transactions take place on infrastructure built by an Indonesian company.

Farras Farhan, a senior analyst at Samuel Sekuritas, an investment firm in Jakarta, noted the unique value proposition of this partnership:

"Combined with the content and experience on TikTok, that's unique."

Challenges and Adjustments

Despite the successful relaunch, the new TikTok Shop faced several challenges. The marketplace had become more competitive, with the number of merchants increasing from about 6 million before the shutdown to 23 million after the merger with Tokopedia.

Many sellers reported difficulties in regaining their previous viewer numbers and sales figures. Edri, a merchant at Jakarta's Pasar Tanah Abang market, shared his experience:

"He said he was selling about 30 pairs of jeans a day on TikTok Shop these days – down from about 100 before the shutdown last October."

The Future of TikTok Shop in Southeast Asia

TikTok's experience in Indonesia has significant implications for its ecommerce ambitions in Southeast Asia. With TikTok Shop available in eight countries, including the United States and Britain, the majority of its operations are concentrated in Southeast Asia, where its transaction value topped $16 billion last year.

Jianggan Li, CEO of Momentum Works, a consultancy in Singapore, emphasized the importance of the Southeast Asian market for TikTok:

"They'll have to evaluate what they have and Southeast Asia is something they already built."

This is particularly crucial given the potential ban TikTok faces in the United States, which could begin as early as January 2025.

Regulatory Challenges Ahead

TikTok's experience with the Indonesian government over Shop is likely not the last time its ecommerce business will face regulatory scrutiny. In Malaysia, where TikTok Shop held nearly 20% of the ecommerce market last year, officials are considering implementing rules for the platform.

Even in Indonesia, the regulatory landscape continues to evolve. Rifan Ardianto, a director at the Ministry of Trade, indicated that the government isn't finished regulating the ecommerce industry. This ongoing regulatory scrutiny underscores the need for TikTok to remain agile and responsive to local concerns as it expands its ecommerce operations.

TikTok's journey in Indonesia's ecommerce sector demonstrates the company's ability to navigate complex regulatory environments and adapt its business model to local requirements. By partnering with Tokopedia, TikTok not only saved its ecommerce business in Indonesia but also created a unique hybrid model that combines the strengths of social media and traditional ecommerce platforms.

As TikTok continues to expand its ecommerce operations globally, the lessons learned from its experience in Indonesia will undoubtedly prove valuable. The company's success in overcoming regulatory hurdles and forging strategic partnerships sets a precedent for how global tech companies can work within local regulatory frameworks while still pursuing their business objectives.

The story of TikTok Shop in Indonesia is far from over. As the ecommerce landscape continues to evolve and regulatory scrutiny intensifies, TikTok will need to remain innovative and responsive to maintain its position in this crucial market. The company's ability to do so will likely shape the future of social commerce not just in Indonesia, but across Southeast Asia and beyond.


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