Indonesia says no to the integration of social networking and e-commerce. Will other Southeast Asian countries follow suit?
The National Day holiday can be said to be the darkest moment for sellers in the Indonesian market of TikTok Shop.
Because TikTok Indonesia officially announced that TikTok will suspend its online shopping service (i.e., small store business) in Indonesia to comply with new local regulations, the move will take effect at 17:00 Jakarta time (10:00 GMT). The Indonesian government said the regulations are intended to help protect local entities and online retailers.
In the past few years, TikTok’s development in the United States and the United Kingdom has encountered some setbacks, but TikTok Shop has not only quickly gained a place in Indonesia, but has also become the second largest overseas market after the United States. It is also the best performing site among all TikTok Shop sites.
TikTok believes that dividing social media and e-commerce into different platforms will hinder innovation, and hopes that the government will provide a level playing field for the company. According to reports from Indonesian sellers, TikTok has begun mobilizing sellers to release support videos. At present, the TikTok platform has appeared on the TikTok platform to support the video-related topic campaign #kamiumkmditiktok (We are TikTok small and micro enterprises), as well as a signed letter to President Joko, all with the intention of supporting TikTok.
But for businesses, the greater uncertainty is whether Indonesia’s measures will lead other Southeast Asian countries to follow suit.
01 TikTok Shop “surges” in Southeast Asia
Before the release of this new regulation, although TikTok’s live broadcast sales were failing in the United Kingdom and the United States. However, in Southeast Asia, where the economy is not very developed, not only has it found its home court, but its sales have even exceeded official expectations.
It has been reported that the GMV of TikTok Shop in Southeast Asia in 2022 will be US$4.4 billion, of which the GMV of the Indonesian station will be US$2.5 billion, accounting for nearly 60%.
Why is it so popular?
First of all, the three-year epidemic has greatly enhanced the online shopping awareness of Southeast Asian consumers, which is the basis for the popularity of live streaming. As early as 2021, the SEA e-commerce weather report showed that Southeast Asian consumers have rich experience in online shopping, with an average of about 66 online orders per person per year. Among them, Vietnamese consumers ranked first in the number of online purchases in a year, with an average of 104, followed by Thailand (75/year), Singapore and the Philippines (58/year), and Indonesia (52/year). year) and Malaysia (46/year).
Secondly, the population structure in Southeast Asia is getting younger (the proportion of the population under 35 years old is as high as 40~50%), the Internet penetration rate is high (>70%), and the per capita mobile access time is growing. Such a heavy Internet usage environment has made e-commerce Commercial consumption has a strong imagination space. In addition, in the past five years, affected by the shift of industrial belts, Southeast Asia has become one of the fastest growing economic regions in the world.
Because of this, TikTok has 325 million monthly active users in Southeast Asia. Such a large number of users has helped the development of the platform’s e-commerce business. In the past four years, urban affluent users and young digital natives have been the most active users of digital services in Southeast Asia. Affluent users see services as part of their modern lifestyle, while younger digital natives naturally gravitate towards services that are convenient and accessible.
Finally, there is the crazy subsidy policy that TikTok Shop has tried and tested. According to the person in charge of a Shopee top seller, since 2021, the major platforms have “tacitly agreed” to stop burning money, reduce marketing expenses, and cancel some “high subsidies”, even such as the 8.8 promotion At such a node, the Shopee platform does not offer free shipping all day long.
However, after TikTok opened the registration of Indonesian stores, it directly provided a strategy of 0 commission + postage subsidy, attracting a large number of platform sellers. Not long ago, the threshold for sellers to enter five markets in Southeast Asia was lowered, that is, the third-party platform rating and praise rate were adjusted from the original 4.5 and 95% to 4.3 and 90%. At the same time, TikTok Shop also provides incentives such as coupons and free shipping to newly arrived Southeast Asian sellers and those in the cold start and growth stages, and has lowered the category deposits for sellers.
Previously, TikTok Shop CEO Zhou Shouzi said: “In the next few years, we will invest billions of dollars in Southeast Asia (mainly Indonesia) to vigorously build its e-commerce platform TikTok Shop.” But judging from the results, real money There is no intention to “save” the Indonesian government.
02 Why Indonesia “killed” TikTok Shop
According to data from Momentum Works, TikTok’s e-commerce market share in Southeast Asia is expected to triple from 4.4% last year to 13.2% by 2023. Therefore, TikTok, which has been running wildly, not only achieved dazzling results, but also attracted the attention of the Indonesian authorities.
As the largest economy in Southeast Asia, Indonesia is the must-have choice for almost all Southeast Asian companies going overseas. However, due to policy issues in the country, almost all platforms have suffered losses. First, the import tax exemption was reduced from US$75 to US$3, and then Lazada and Shopee were asked to remove 13 categories of related products. Even Shein, who was invincible in Europe and the United States, was disgraced by the authorities.
From an economic perspective, the Indonesian authorities believe that the development of TikTok shop in Indonesia has had a negative impact on its offline economy. Last week, Teten, Minister of Cooperatives and Micro, Small and Medium Enterprises, inspected the Tanah Abang Market, the largest wholesale center in Southeast Asia. He said that during the inspection, he learned that the profit losses of local physical store sellers exceeded 50% because they could not compete with low prices. compete with imported products.
As China’s economy maintains medium-to-high growth and has formed a complete industrial chain, China has become an important export destination for ASEAN’s primary products and intermediate products. Izzudin Al Farras Adha, an economist at the Indonesian Economic and Financial Development Research Institute (INDEF), said at a forum a few days ago: “The prices of Chinese products on the TikTok e-commerce platform are much cheaper than those of local small and medium-sized enterprises, which may give Local SMEs pose a threat.”
According to calculations based on data released by the existing Indonesian E-commerce Association, as of October 2021, Indonesia has more than 64.2 million small, medium and micro enterprises, accounting for 61% of the GDP. Among them, only 29.6% of small, medium and micro enterprises have achieved digitalization . In Indonesia, local small and medium-sized enterprises contribute more than 60% of Indonesia’s gross domestic product (GDP) and more than 90% of employees.
It can be said that both local small and medium-sized manufacturing companies and retailers are very opposed to the overwhelming online platform. TikTok’s report also shows that TikTok has 110 million users in Indonesia in 2023, and nearly half of the Indonesian population is TikTok’s social media audience. On average, they spend more than 100 minutes on the app every day, and they are already accustomed to swiping for entertainment and shopping. If this continues, there is still a lot of room for growth in the future.
The fully managed model that TikTok is constantly advancing around the world is even more worrying for the Indonesian government. From a platform perspective, e-commerce business is essentially an efficiency game, and overseas e-commerce competition mainly depends on the supply side. Therefore, it is understandable to rely on China’s supply chain advantages to more accurately recommend cost-effective products to overseas consumers. However, this model will gradually eat away at the living space of local sellers during the expansion stage. After all, this group of sellers is basically unable to fight a (quality) price war with the platform.
From a political perspective, the five-yearly Indonesian presidential election is approaching. The current Jokowi government hopes to enhance its political reputation by protecting local small and medium-sized enterprises and strive for a favorable position for the election in early 2024.
In order to protect local small and medium-sized enterprises, the Indonesian Ministry of Trade announced in July this year that it was revising relevant regulations on online trade. One of the rules is to limit the minimum price of imported goods on the country’s e-commerce platform to no less than 1.5 million Indonesian rupiah ( Approximately $100). On July 17, Indonesian President Joko Widodo implemented a cabinet reshuffle, but did not add core members of his party or remove a certain minister. This reorganization choice may indicate that the 2024 Indonesian general election and its economic policy will not be successful. Big changes.
03 Is localization also a hurdle?
The global cross-border e-commerce market developed rapidly during the epidemic, but now the dividends brought by the epidemic are gradually shrinking. From brutal growth to high-quality products, and then to the development of supply chain advantages to brand development, Southeast Asia still has certain traffic dividends, but the window period is shortening.
The different political, economic and cultural backgrounds of Southeast Asian countries are forcing overseas companies to pay more attention to local market trends for product positioning. In this process, “do as the locals do” and “localized operations” have become keywords that most Southeast Asian sellers pay attention to. As early as early 2020, when Indonesian Customs increased tariffs on cross-border small packages, a considerable number of Indonesian cross-border e-commerce sellers had given up cross-border business and switched to local business.
But the imagination is beautiful, but the reality is very skinny.
The first one to bear the brunt is the logistics problem. With the exception of Singapore, most of Southeast Asia has poor logistics infrastructure. Congested roads, sparse railways and congested ports have greatly lengthened e-commerce delivery times and pushed up transportation costs. The profits of low-priced products for the public cannot easily cover the relatively high logistics costs, which objectively makes it more difficult for e-commerce merchants to make profits. Even if you register a logistics company locally and operate it with a local account, you will still inevitably suffer losses if you are not familiar with the local government-enterprise relations and cannot understand the local business environment.
Secondly, it is dealing with local employees. The relevant person in charge of an Indonesian overseas warehouse once called it “metaphysics”. Because local employees rarely accept overtime, delivery efficiency is not high, and competition awareness is not strong enough. 996. Teams working overtime together to rush for delivery are common phenomena in large Chinese factories, but they are often boycotted in Southeast Asian countries. It can be said that the needs and awareness of people in Southeast Asia are very different from those in China. It is not feasible to copy the domestic system in Southeast Asia.
Moreover, the payment problem is also a constant problem. There is currently no third-party payment platform as popular as Alipay in Southeast Asia. Judging from the actual payment methods used, Southeast Asian consumers usually choose cash on delivery (COD) for online shopping, which has problems such as complicated returns and refunds, low transaction conversion rates, and high contract performance risks; followed by credit card payment, but fraud , ChargeBack and other issues harm the user experience; bank transfers are relatively safe, but the payment process is cumbersome and will also affect the final payment conversion rate.
Finally, with the exception of Singapore, the political stability in Southeast Asia is generally low, and unrest and unrest have always been lurking in Southeast Asian society, which has also led to the continuity of its policies being a mystery. Most of these countries are still implementing the political traditions inherited from the pre-colonial era. Coupled with the complex ethnic groups, strong religious forces and the intervention of external forces, these countries have become the main reasons for the political unrest in each country.
Nowadays, with Indonesia’s trend of vigorously protecting localized enterprises, there is no guarantee that other Southeast Asian countries will not follow suit, and the road to “local compliance” still has a long way to go. For platform companies such as TikTok, the long-term solution is to maintain a rational judgment on the environment and always implement Plan B.
Zhejiang Provincial E-Commerce Promotion Association: Research Report on Cross-border E-commerce Development in Southeast Asia (2022)
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