Uncertain future: TikTok Shop faces first regulatory headwinds in Indonesia

In June, TikTok CEO Shou Zi Chew, dressed in the traditional Indonesian attire batik, appeared at a forum in Jakarta – three months after being grilled in front of the US Congress.

“We’re going to invest billions of dollars in Indonesia and Southeast Asia over the next few years,” he reportedly said.

During the trip, the TikTok boss met with several Indonesian ministers, attempting to court government officials in Southeast Asia’s biggest economy, including Trade Minister Zulkifli Hasan.

Chew has all the reasons to do so. Indonesia has about 125 million monthly active TikTok users (MAUs), while its ecommerce arm TikTok Shop recorded gross merchandise value (GMV) of US$2.5 billion in 2022 – 57% of its GMV in Southeast Asia, according to venture builder Momentum Works.

TikTok CEO Shou Chew / Photo credit: TikTok

So it might come as a surprise that Indonesia is even contemplating some forms of banning TikTok.

The argument? Some government officials fear that TikTok’s algorithm, known for making users become addicted to its short-form videos, may now also dictate their purchases. The officials believe such power enables the company to monopolize the market.

“It will be a huge blow to TikTok Shop,” says an executive at a local ecommerce firm who wants to remain unnamed, referring to the Ministry of Trade’s proposal to separate TikTok Shop from its social media platform.

But do Indonesian regulators have a point or is it a case of “if we can’t control it, ban it”?

No solid basis

Teten Masduki, Indonesia’s minister of cooperatives and SMEs, has been the most outspoken critic of TikTok. He has been accusing the company of selling products at lower prices than market rates while controlling payment and logistics systems.

It should be noted that his ministry doesn’t have the authority to regulate ecommerce in the country, which falls under the purview of the Ministry of Trade.

Ignatius Untung, a digital economy expert and former chairman of the Indonesian Ecommerce Association, says there is no solid basis to claim that TikTok Shop engages in monopolistic practices – not yet at least.

He points out that recommendation algorithms, which aim at directing users to specific products based on their online behaviors, are also common in other tech platforms.

The worst-case scenario

An uncertain future?