Indonesian Regulators Tackle a New Phenomenon in the Digital Economy: Social Commerce
As we all know, the Internet is among the greatest revolutions in human history. Its impact on every aspect of life is huge, transforming how we communicate, how we access information, how we conduct business, and how we engage with the world outside. Not only does the Internet introduce profound changes, but these changes (can) also come in a very rapid manner.
Moreover, we are still in the early stages of this Internet age, and so there is ample room for innovative and creative minds to change society. Ongoing developments in the digital world (such as the Internet of Things or Artificial Intelligence) can shape a future that differs markedly from the world as we know it today.
For example, taxi operators were doing quite well in the cities of Indonesia. However once ride-hailing services Gojek arrived on the scene in the 2010s (offering efficient and cheap passenger transportation services through its application), the number of conventional taxicabs plunged. Their business dried up as the golden combination of Internet and smartphones opened up vast opportunities in terms of connectivity and innovation.
It is an environment that is challenging for regulators too. Laws and regulations fail to keep up with developments due to the unpredictable nature of business models that rely on transformative technologies, thereby exposing regulatory loopholes or we simply enter territory that is not regulated at all (a situation that typically means the government misses out on tax revenue from the rise of new business activities).
While this digital age brings massive opportunities, it is also an age that does damage to certain traditional forms of business. Like in the example above, conventional taxi services basically collapsed in Indonesia in the second half of the 2010s. And so, the government (through regulations and policymaking) needs to find the right balance between guiding this transition so that the vulnerable in society are protected but the country’s overall social and economic development is not deterred.
Moreover, regulators also have to deal with globalization. As connectivity improves, cross-border trade and other international activities grow accordingly, a situation that can damage domestic industries, especially in an economy like Indonesia where millions of micro and small entrepreneurs struggle to keep their business alive amid Indonesia’s high logistics costs and the difficulty of having/finding funds, expertise, and knowledge to expand business in a successful manner. So, when there is rising competition from foreign counterparts (through imported goods), there exists the risk of driving domestic entrepreneurs out of business, which could then trigger an increase in unemployment and poverty.
With this in mind, it is interesting to take a closer look at the case of the TikTok Shop. In early September 2023, it became clear that TikTok, the popular short-form video hosting service that is owned by ByteDance (a Chinese internet technology company headquartered in Beijing), is not allowed by Indonesian regulators to use its social media platform to facilitate transactions in Indonesia. Instead, it will need to start a separate e-commerce platform (registered in Indonesia) if it wants to generate sales from Indonesia. In Indonesian media, politicians stated that if TikTok fails to comply, sanctions can follow. Indonesia follows the example set earlier by the United States and India.
So, while the world had already become used to the presence of social media and e-commerce platforms, TikTok merged the two into one: a social media platform that facilitates online shopping transactions (called TikTok Shop); something new that had not been regulated before. What had become increasingly popular in Indonesia was the ‘live-shop’ feature of TikTok where sellers can go live to promote and sell their products (often at discounted prices). Consumers or viewers can then decide to buy the product by clicking a button that leads to a payment section (while still being on the TikTok application).
The rise of the TikTok Shop had led to some concern in Indonesian society. First of all, it was reported that the success of the online shop would damage the business of the country’s micro, small and medium enterprises (MSMEs), an argument we often hear in Indonesia. After all, there more than (an estimated) 65 million MSMEs active in Indonesia (mostly micro entrepreneurs). However, only around 21 million of the country’s MSMEs are estimated to be connected to the Internet. And so, the risk is that there does not exist a level playing field as business activity gradually moves to those who adopted a digital business model.
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