On September 26, 2023, Indonesia signed Regulation No. 31 of 2023 concerning Business Licensing, Advertising, Guidance, and Supervision of Business Actors in Trading via Electronic Systems, introducing new restrictions on e-commerce activities involving imported goods. 1 This regulation replaces the previous Regulation No. 50 of 2020.
The new Regulation No. 31 of 2023 makes several key revisions, impacting businesses operating in the e-commerce sector:
1. Social media platforms, such as TikTok, are now prohibited from serving as sales platforms for goods. They can only be used for promoting products or services;
2. The minimum Free on Board (FOB) price for imported goods sold on e-commerce platforms is set at US$100 per piece;
3. E-commerce platforms are no longer permitted to sell products produced by the platform itself;
4. Imported products sold online must meet Indonesian regulatory requirements, including product notification and halal certification, before being available for sale.
Reasons of Revision
Indonesia's micro, small, and medium enterprises (MSMEs), accounting for 61% of the GDP and comprising over 64.2 million enterprises as of October 2021, are pivotal to the country's economic development. However, these businesses have long expressed dissatisfaction with online e-commerce. Online sellers often leverage supply chains and platform subsidies to offer lower prices than physical stores, negatively impacting Indonesia's offline market and posing challenges for local businesses. 2 Furthermore, the influx of imported goods has disrupted the market share of domestic products in Indonesia.
Regulation No. 31 of 2023 aims to address these concerns, especially protect the market share of local products and foster a healthier economic environment, by safeguarding the interests of Indonesian MSMEs and the real economy.
Impact on Enterprises and Countermeasures
Impact
The ban on e-commerce activities on social media will have significant implications for TikTok's e-commerce operations in Indonesia. Previously, the local online shopping market in Indonesia was dominated by three major platforms: Tokopedia, Shopee, and Lazada. In the past two years, TikTok Shop had gained traction and expanded its market share. Currently, TikTok boasts 125 million users in Indonesia, including 6 million seller accounts and numerous content creators.
As of October 4, TikTok officially discontinued its "TikTok Shop" feature, transforming into a short video content platform without e-commerce functionality in the Indonesian market. This means that sellers can still create and share content on TikTok to promote their products but cannot directly sell them on the platform.
Industry speculation suggests that after the exit of TikTok's e-commerce function in Indonesia, two scenarios may unfold. First, TikTok could temporarily rely on external link jumps as it did before, with merchants using TikTok ads to redirect traffic to other e-commerce platforms such as Shopee, Lazada, or independent websites. Second, TikTok Shop might be spun off from TikTok and transformed into an independent application. 3
The impact on small sellers and new brands on TikTok Shop is expected to be relatively limited. These sellers typically have limited investments and a smaller follower base, allowing them to adapt to alternative platforms. However, prominent brands and internet celebrities deeply rooted in TikTok, with a substantial followers, may encounter greater challenges. The separation of TikTok and TikTok Shop could affect the traffic conversion and subsequently impact product transaction volumes for these entities. 4
Countermeasures
Some Indonesian e-commerce operators believe that TikTok Shop will eventually return as a standalone application. In the meantime, they have begun taking steps to adapt to these new circumstances, including: 4
Establishing a landing page or independent website to capture existing TikTok advertising traffic;
Redirecting TikTok traffic to other e-commerce platforms such as Shopee or independent brand websites for transactions;
Collaborating with logistics service providers to transport product inventory out of Indonesia and continue selling goods in other Southeast Asian countries through local TikTok Shops;
Collaborating with distributors to sell inventory offline in Indonesia.
Despite the uncertainties surrounding the regulation of Indonesia's e-commerce industry and the possibility of additional local protection policies, many cross-border sellers maintain a positive outlook on the Indonesian e-commerce market. They recognize the potential opportunities that arise from the country's demographic dividend. However, operating in this market is becoming more challenging. The main difficulties stem from the need for long-term localization and compliance. This entails making substantial investments in local production and sales, establishing a presence in the Indonesian market to ensure sustainable growth, and being adaptable to unpredictable policy changes.
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