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TikTok’s Southeast Asia ambitions take a major hit with Indonesia ban

TOPSHOT – On September 27, 2023, in Bogor City, West Java Province, employees of a small shoe manufacturer showed off their new products, made an introduction video and posted it on social media. Indonesia has banned the trading of goods on social media platforms such as TikTok and Facebook. Jakarta’s Trade Minister said on September 27 that Instagram is implementing a new regulation that Jakarta aims to control direct sales on major platforms, saying that these platforms are harming the interests of millions of small businesses.

Aditya Aji | AFP | Getty Images

TikTok’s Southeast Asian ambitions will take a major blow after Indonesia banned shopping transactions on the social media app, analysts told CNBC.

Wednesday, Indonesia sets one-week deadline Make TikTok a standalone app without any e-commerce functionality. If TikTok does not comply with the regulations, it risks being shut down in the country.

“(Being a standalone app) could create significant friction for existing TikTok users, negatively impacting the user experience,” said Jonathan Woo, senior research analyst at Phillip Securities Research.

Indonesia bans e-commerce transactions on social media platforms such as TikTok Shop Facebook. This means that users are not allowed to buy or sell goods and services through such platforms.

Even if it can obtain a separate operating license, running as a standalone application may still be challenging.

TikTok is owned by Chinese tech giant ByteDance and has come under scrutiny from U.S. lawmakers who are concerned about the company’s ownership structure and ties to China.

In June, TikTok’s chief executive said the app would inject “billions of dollars” into Southeast Asia over the next few years as the company looks to diversify its business globally as U.S. pressure intensifies.

The company said Indonesia is TikTok’s largest Southeast Asian market and the second largest market in the world, with 125 million users, second only to the United States.

“Given that most (purchases on TikTok) are impulse purchases, the need to log into a separate app may would result in higher exit rates,” it reported Thursday.

We are not banning social media sites, we are just trying to regulate them: Indonesian Deputy Trade Minister

Mittal previously told CNBC that impulse purchases brought about by viewing content are TikTok’s strengths.

“Even if it gets a separate license to operate, operating as a standalone application may still be challenging,” Mittal said.

New social media rules

On Saturday, Indonesian President Joko Widodo Widodo calls for stronger social media regulationsaying such platforms impact micro, small and medium-sized enterprises and the economy.

“Because we know this affects MSMEs, small businesses, micro-enterprises and markets where sales are starting to drop due to the influx of people,” he said in a statement.

Crucially, the only business affected will be challenger TikTok Shop, whose entire business model relies on social commerce.

go ahead, Indonesia needs e-commerce platform The country imposes a $100 minimum price on certain goods purchased directly from overseas. All products supplied shall comply with local standards.

“Crucially, the only business affected will be challenger TikTok Shop, whose entire business model relies on social commerce,” BMI said in a report on Tuesday, adding that TikTok Shop numbers were expected to decline.

TikTok Shop accounts for 5% of Indonesia’s total e-commerce merchandise value, according to one company Singapore consultancy Momentum Works June report.

TikTok Shop trails Shopee (36%), Tokopedia (35%), Lazada (10%) and Bukalapak (10%), the report stated.

“We believe that TikTok Shop must demonstrate that its e-commerce is a separate business from its social media, that there is no back-end data sharing, and that it may be a clear source of funding for e-commerce losses that were earlier caused by advertising on its social media app. business,” Mittal said.

TikTok is “deeply concerned”

In response to Indonesia’s latest move, TikTok said it will respect local laws and regulations.

“We are deeply concerned about this announcement, particularly how it will impact the livelihoods of the 6 million sellers and nearly 7 million affiliated creators who use TikTok Shop,” a TikTok spokesperson told CNBC.

“We respect local laws and regulations and will seek a constructive path forward,” the person added.

TikTok, meanwhile, has been looking to grow outside the United States as the Chinese-owned app faces political headwinds.Its flagship app is Montana was the first state to ban it on personal devices, as was India.

TikTok Shop has been aggressively expanding into Southeast Asia, competing with Sea’s Shopee and Alibaba’s Lazada. These e-commerce efforts also include live streaming shopping.

“In the short term, the main beneficiaries of this regulation will be existing e-commerce players such as Shopee and GoTo,” said Woo of Phillip Securities Research.

BMI said the e-commerce market accounts for a large share of Indonesia’s digital payment data.

In July, the value of digital transactions in Southeast Asia’s largest economy reached a record high, reaching 160 trillion rupiah ($10.3 billion), with transaction volume reaching $1.7 trillion. According to BMI data, compared with the same period last year, these two indicators increased by 65.8% and 71.5% respectively.

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