Right around the corner of Sudirman Avenue in central Jakarta sits Tanah Abang Market (also natively known as Pasar Tanah Abang). It’s a wholesale fabric and textile market with a history spanning centuries, and it is the largest of its kind not only in Indonesia, but across Southeast Asia. In September 2023, however, media reports emerged of a significant decline in foot traffic at Tanah Abang Market. This has led to a substantial decrease in sales, leaving traders grappling with financial challenges.
This scenario is not unique to Tanah Abang Market. Similar concerns are echoed at other markets in the country, such as Andir Market in Bandung, West Java. A significant number of merchants operating out of these markets have voiced their grievances regarding the growing number of online shops. They believe that their digital counterparts are drawing shoppers away from their businesses, negatively impacting their earnings. Specifically, merchants singled out TikTok Shop, an e-commerce solution integrated with its namesake short video app.
President Joko “Jokowi” Widodo responded by convening an internal cabinet meeting to discuss electronic business regulation on September 25. Various ministers involved in the e-commerce sector attended the meeting, including minister of trade Zulkifli Hasan, coordinating minister for economic affairs Airlangga Hartarto, minister of cooperatives and small businesses Teten Masduki, and minister of communication and information technology Budi Arie Setiadi. The meeting’s agenda encompassed discussions related to social commerce platforms like TikTok Shop, focusing specifically on the potential for cross-border trade facilitated through online platforms and social media. Social commerce has been a focal point of the Indonesian government for months, since rumors of TikTok’s Project S began to spread across the country.
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Following the meeting, on September 26, trade minister Hasan officially issued Regulation No. 31 of 2023 (Reg 31/2023). This regulation pertains to business licensing, advertising, guidance, and supervision of electronic commerce operators in Indonesia. Its primary objective is to support and empower Indonesia’s micro, small, and medium businesses, as well as domestic electronic trading entities, while fostering the growth of electronic commerce and adapting to the fast pace of technology development. This change was deemed necessary in view of the outdated nature of Regulation Number 50 of 2020 (Reg 50/2020), which governed similar aspects but was no longer aligned with legal advancements and the needs of the public.
The new regulation is introduced to segregate social media activities from e-commerce transactions, with the aim of preventing any undue influence and safeguarding personal data from being misused for business purposes. Additionally, Reg 31/2023 will introduce a list of goods permitted for trade, applicable both to imported and domestic products. Imported goods must adhere to the same rules as domestically traded goods, including certification requirements such as halal certificates for food products, BPOM licenses for medicine and beauty products, and compliance with the country’s national standards for electronic devices. The new regulation also states that online marketplaces are prohibited from producing their own products, in a bid to prevent market monopoly. Digital platforms will also be disallowed from facilitating transactions of imported goods with values less than or equal to USD 100 per unit.
TikTok responded promptly in an official statement released on October 3, expressing its commitment to comply with local laws and regulations, including the new regulation. As TikTok is legally permitted to operate in Indonesia only as a social media platform and not an e-commerce platform, it complied by discontinuing access to TikTok Shop’s e-commerce features in Indonesia, effective as of 5:00 p.m. (Jakarta time) on October 4.
According to minister Masduki, small traders and MSMEs can migrate to other e-commerce platforms that are registered and solely dedicated to online buying and selling transactions.
However, the regulatory change has not been equally welcomed by all sellers, eliciting a mix of responses. Meilody Indreswari, a former small clothing store owner in Tanah Abang Market, closed her shop after facing bankruptcy amidst the 2020 pandemic. She subsequently ventured into e-commerce by establishing her local brand, Momelca, on various online platforms. According to Indreswari, the livestreaming feature of TikTok Shop had proved instrumental in attracting a large customer base for Momelca, allowing her business to expand. In less than two years, she started producing her own clothing and employed over 100 workers. While Indreswari is disappointed by TikTok Shop’s closure, she plans to continue selling online through other e-commerce platforms with livestreaming features like Shopee.
Indreswari’s success with Momelca underscores the transition of commerce in Indonesia to a new paradigm. The country’s digital economy is rapidly expanding and is projected to surpass USD 200 billion by 2030, according to Cynthia Krisanti, director of innovation at Pijar Foundation. E-commerce plays a pivotal role in this growth, with Indonesia witnessing a sixfold increase in e-commerce gross merchandise volume (GMV) over four years (2018–2022), constituting roughly 52% of Southeast Asia’s total GMV during that period.
On the other hand, Indreswari’s current predicament illustrates the delicate balance the Indonesian government must navigate—protecting traditional sellers without hindering businesses eager to leverage digitally driven opportunities. Nurul Arifin, a member of Indonesia’s legislative body, emphasized this point, highlighting that the advantages of economic digitalization can extend beyond major corporations to benefit society at large, including underprivileged groups. To achieve this, every segment of society must be allowed to capitalize on new opportunities stemming from evolving consumption patterns.
During a press conference held in Jakarta, trade minister Hasan denied allegations that the government was banning all of TikTok’s operations. Rather, the country is regulating social commerce to ensure that each operates within a standardized framework. “If TikTok wishes to engage in e-commerce, they can apply for the necessary permits from the government, and we will assist. So, there’s no need to worry,” Hasan said.
Edho Zell, CEO of Social Bread, an Indonesian social media agency specializing in TikTok live shopping, opined that stricter regulations on online trading could be beneficial if accompanied by support in literacy and digital facilities for MSME merchants. For example, this could include providing access to reliable and affordable internet connections in wholesale centers like Tanah Abang Market.
Rhenald Kasali, professor of management at University of Indonesia’s Faculty of Economics and Business, said that the closure of social commerce platforms will not necessarily revive wholesale centers like Tanah Abang. Other factors may contribute to the decline in visitors at wholesale centers, including parking availability, visitor comfort, and rental costs. Piter Abdullah, executive director of the Segara Research Institute, attributed the decline in wholesale shopping centers like Tanah Abang Market to changes in consumer lifestyles that have become more digital, which will be difficult to revert. “Consumers are attracted to online shopping because it is easier, more convenient, and many products are considered to be much cheaper,” Abdullah said.