TikTok shops around for options in wake of Indonesia app ban

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TikTok is boosting its resources to explore ways of saving its ecommerce business in Indonesia — such as building a new app or partnerships with local companies — as the Chinese-owned group battles to remain in its biggest marketplace.

Beijing-based ByteDance, owner of the viral TikTok video app, has put together product and technology teams in Singapore to discuss ideas after Jakarta imposed a ban. One suggestion has been to create an online commerce platform that would be separate to its video app in a bid to satisfy regulators in the south-east Asian economy, according to three people with knowledge of the matter.

Another source at TikTok said the situation was “fluid” and, although the company was not actively working on a separate app, all options were being considered.

Indonesia last month banned transactions on social media platforms to ensure “fair and just” competition as well as to protect user data. The move took effect immediately and was widely seen as unofficially targeting TikTok, which debuted TikTok Shop in the country in 2021.

The company warned at the time of the September 27 announcement that such a prohibition would hit the livelihoods of the 6mn sellers and nearly 7mn influencers who use TikTok Shop in Indonesia. Before the ban was placed, the Chinese company had hoped to generate about $6bn in gross merchandise value in Indonesia, nearly triple the figure from 2022, multiple people said.

Jakarta’s block added to the political backlash facing the ByteDance-owned video app from abroad. The Chinese group has suffered curbs on being used on government devices across Europe and North America.

Indonesia was the first and until now the biggest market for TikTok Shop and, given its huge success, was widely considered a potential blueprint for its ambitions in other markets, including the UK and US.

But ByteDance has struggled in the west to emulate the strong take-up of its livestream shopping model where consumers are able to purchase products within the TikTok Shop app via links in videos or live broadcasts.

Senior management, who have been spending time in Jakarta since the ban was imposed, have also held discussions with retail companies about partnerships, including with local technology champion GoTo. This would be another option they believe could allow them to continue ecommerce transactions. However, many attempts to meet more senior Indonesia ministers to discuss the issue have been unsuccessful, one of the people close to TikTok said.

While senior management are putting people and resources into building a second app, there are reservations over precedents being set in other markets.

“We are already worried about the contagion effect in other south-east Asian markets including Vietnam and Malaysia,” said one regionally focused executive for TikTok Shop. “If we separate Shop from the main TikTok app in Indonesia, we may then be put into a position where we are forced to also do that in the US. That would be disastrous.”

A second person close to TikTok said the group had yet to receive concrete assurance from the Indonesian government that a new shopping app would be allowed to operate. “They can build the app extremely fast if they want [to], but they don’t want to put in all that time if [the government] won’t allow that, either.”

Analysts agreed that the plan for a second app had drawbacks. “[It is] better to let go of Indonesia,” said Venugopal Garre, managing director at Bernstein. “If you create a separate app, it sets a precedent. The US is a very big opportunity. If they can succeed in the US, I don’t think they need south-east Asia.”

Garre added: “How do they ensure customer data will not be used in the TikTok Shop app? If they were to delink customer data, livestreaming-based ecommerce gets killed.”

Indonesia’s move has prompted internal conversations at TikTok about whether to base more high-level executives in the Shop unit outside China, one of the people said. Many decision makers working on ecommerce are still based on the mainland. That contrasts with the wider TikTok social media business, which has offices globally and many employees in south-east Asia, including in its Singapore hub.

Some believe TikTok would have been caught less off-guard by the swiftness of the Indonesian rule change if there had been more people on the ground to understand the regulatory and popular mood better, the person added.

“Our priority is to remain compliant with local laws and regulations,” TikTok said in the days following Indonesia’s September ban. “As such, we will no longer facilitate ecommerce transactions in TikTok Shop Indonesia . . . and will continue to co-operate with the relevant authorities on the path forward.”