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Since August 2023, Temu has entered Malaysia, the Philippines, and Thailand, and in October of this year, it has also launched sites in Vietnam and Brunei, bringing its total number of sites in Southeast Asia to five. However, Temu seems unable to enter Indonesia, the largest e-commerce market in Southeast Asia.

Recently, media reports stated that Indonesia's Minister of Information and Communication said that Indonesia would continue to ban the e-commerce platform Temu from entering its domestic market due to concerns that the platform might harm local small, medium, and micro-enterprises. Subsequently, it was reported that Indonesia had written to the Apple Store and Google Play Store, requesting that Temu be removed from their platforms in Indonesia.

Previously, since September 2022, Temu has made three unsuccessful attempts to enter Indonesia. With its focus on low prices, does Temu still have a chance to enter Indonesia?

01

A Market That Must Be Fought For

According to DataReportal, as of January 2024, Indonesia had a population of 279 million, making it the most populous country in Southeast Asia. In terms of population structure, Indonesia's median age is 30, with only 7.1% of the population over 65 years old. In early 2024, Indonesia had 185.3 million internet users, with an internet penetration rate of 66.5%, and 139 million social media users, accounting for 49.9% of the total population.

These demographic dividends have fueled the development of e-commerce in Indonesia. According to data from Bank Indonesia, Indonesia's e-commerce transaction value reached 454 trillion Indonesian rupiahs (approximately US$28 billion) in 2023. Meanwhile, the "2024 Southeast Asia E-commerce" report shows that Indonesia's e-commerce GMV was approximately US$53.8 billion in 2023, far exceeding Thailand's US$19.3 billion and Vietnam's US$13.8 billion.

Mordor Intelligence predicts that Indonesia's e-commerce market will grow at a compound annual growth rate of 15.5% from 2024 to 2029.

As a result, Indonesia has become an indispensable market for cross-border e-commerce in Southeast Asia. According to Momentum Works, Shopee, Tokopedia, Blibli, TikTok Shop, and Lazada accounted for 40%, 30%, 11%, 9%, and 7% of the market share in 2023, respectively.

The rise of these e-commerce platforms is also inseparable from "price wars." Cross-border consulting agency OOSGA's survey data shows that low prices are the primary reason for Indonesian consumers to shop online, with 50.5% of people choosing to purchase products due to free shipping, and 48.3% ordering due to discounts and promotions.

Shopee initially grew through low-cost tactics such as "free shipping, no commission policy, and shopping subsidies," and successfully surpassed Lazada to become the leading e-commerce platform in Southeast Asia in 2019. Since then, platforms like Shopee and Lazada have been competing for users by "burning money."

TikTok Shop launched in Indonesia in February 2021 and joined the price war. In the early stages, TikTok Shop employees directly invited Shopee and Lazada merchants to migrate their stores to TikTok Shop, offering traffic incentives. In May 2022, media reported that Shopee required sellers to choose between the two platforms, signing an "exclusivity agreement" stating that monthly subsidies would be provided but only if the sellers did not sell on TikTok. This underscores TikTok's threat to Shopee.

With commission policies, promotional activities, and more, TikTok Shop has grown rapidly. According to the "TikTok Ecosystem Development White Paper H1 2023," Indonesia had the highest number of small shops with sales of ≥10,000 in the first half of 2023, followed by the Philippines and Thailand.

After years of subsidies, the goal of Southeast Asian e-commerce platforms has shifted from growth to profitability. In July of this year, Lazada achieved its first monthly EBITDA profit, and Sea Group expects Shopee's adjusted EBITDA to turn positive in the third quarter of this year.

Temu, with its focus on low prices, has grown rapidly globally. Its low-cost business model is seen as highly compatible with the Indonesian and Southeast Asian markets. However, with the gradual improvement of Indonesian policies, Temu has been rejected.

02

To Protect Local Industries

In recent years, Indonesia has continuously regulated cross-border e-commerce policies, primarily to protect the development of local industries.

In December 2019, the Indonesian government stated in Government Regulation No. 80 of 2019 that businesses or stores selling on cross-border e-commerce platforms must possess a business license issued by the government to determine the number of e-commerce enterprises.

That year, Indonesia also lowered the tax threshold for imported goods from US$100 to US$75 and then further to US$3 to protect local sellers.

In 2021, the Indonesian government banned social media platforms from conducting e-commerce activities due to concerns about data privacy and information security risks.

In the same year, Indonesia banned manufacturers from directly sending products to consumers without the involvement of distributors, posing an obstacle for Temu, which connects directly with factories.

In 2022, the Indonesian government announced tax regulations for e-commerce platforms, requiring them to handle tax registration and filing for sellers to ensure tax legality and standardization.

In 2023, Indonesia's most-favored-nation tariffs on eight new commodities took effect, including 5%-25% tariffs on textiles, 5%-30% on footwear, 15%-20% on bags, and 10%-15% on cosmetics. Among the new commodities, imported bicycles face tariffs of 25%-40% (40% for electric bicycles), watches 10%, cosmetics 10%-15%, and steel 0%-20%.

The e-commerce policies introduced that year also temporarily shut down TikTok Shop. In September 2023, Indonesia issued Trade Minister Regulation No. 31 of 2023, which prohibits social media platforms from engaging in product sales and trading activities and requires imported goods on e-commerce platforms to have a minimum price of IDR 1.5 million (approximately US$100). Additionally, imported goods sold in Indonesia must meet the white list requirements and comply with Indonesian government certifications for food, medicine, and cosmetics. E-commerce platforms are not allowed to sell their own products.

In October of the same year, Indonesia decided to restrict imports of toys, electronics, footwear, cosmetics, textiles, traditional medicines, health supplements, clothing, and bags, among other goods.

The restrictions on e-commerce platforms and the increase in import tariffs demonstrate Indonesia's commitment to protecting local industries.

Platforms have also taken corresponding measures. In October 2023, Shopee Indonesia announced that it would gradually stop displaying and selling cross-border goods on its Indonesian site in accordance with Indonesian government policies. From December 31, 2023, Shopee Indonesia's overseas and third-party warehouses will no longer be open to cross-border sellers. Lazada and other platforms have also issued similar notices.

In March of this year, TikTok Shop Indonesia returned through a merger with Tokopedia, strengthening its support for local industries. It issued a statement committing to creating millions of new jobs over the next five years. Over 90% of the merged business's merchants are small, medium, and micro-enterprises. The two companies will take a series of joint measures to support them, including promoting Indonesian products on Tokopedia and TikTok platforms and enhancing the capabilities of Indonesian small and medium-sized enterprises.

Additionally, Shopee Indonesia announced that, starting July 1, 2024, all local stores operating in Indonesia will be required to undergo mandatory real-person facial recognition verification. Shopee Indonesia has also vigorously promoted the "Choose Local" feature in the first half of the year to increase exposure for local products.

Reports state that since September 2022, Temu has made three unsuccessful attempts to enter Indonesia. Under Indonesia's policy of supporting local industries, it appears that Temu, which relies on factory supply chains to provide low-cost goods, will not easily enter Indonesia. Furthermore, although rumors circulated that Temu planned to acquire Indonesian e-commerce listed company Bukalapak to gain access to the Indonesian market, these rumors were denied. Under Indonesia's "blockade," Temu, which has already been rejected three times, will need to find a balance between platform interests and the development needs of Indonesia's industries to enter the Indonesian market.

Author | Fanie

Source | WhaleDimension (ID: WhaleDimension)

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