Malaysia To Investigate Indonesia’s Ban On TikTok’s E-commerce Platform

10-10-2023 (KUALA LUMPUR) Malaysia’s Communications and Digital Minister, Fahmi Fadzil, has revealed that Malaysia will conduct an investigation into Indonesia’s decision to ban TikTok’s e-commerce platform. The move comes after TikTok’s recent announcement that it would remove its e-commerce feature from the Indonesian version of the platform, effective from October 5. This action was taken to ensure compliance with Indonesian regulations.

TikTok’s E-commerce Endeavor TikTok had introduced its e-commerce feature, TikTok Shop, in 2021. Unlike traditional e-commerce apps, this feature was integrated into the TikTok platform, allowing users to explore and purchase products directly through the app. Content creators on TikTok could also incorporate product links within their videos, simplifying the purchasing process.

While TikTok Shop had yet to outperform established e-commerce leaders like Shopee and Lazada in most Southeast Asian markets, it made significant strides in Vietnam. For the April-June 2023 quarter, TikTok Shop surpassed Lazada, becoming Vietnam’s second-largest e-commerce player.

Indonesian Ban and Consequences TikTok Shop had been operational in Indonesia since 2021, and with 125 million users, it was the second-largest market for the social media platform after the United States. TikTok stated that it had to discontinue TikTok Shop to comply with Indonesian law. However, the company expressed deep regret over the Indonesian government’s decision to ban the feature.

The ban has impacted approximately 6 million sellers and nearly 7 million affiliate creators who utilized TikTok Shop. TikTok, with about 325 million users in Indonesia and Southeast Asia, has a strong foothold in the region. CEO Chew Shou Zi, who is based in Singapore, pledged substantial investments in the region during his visit to Jakarta in June 2023.

Separation of E-commerce and Social Media Indonesia’s Trade Minister, Zulkifli Hasan, emphasized the government’s desire to maintain a clear separation between e-commerce and social media platforms. Small and medium-sized enterprises (SMEs) had called for more regulation of social media and e-commerce, expressing concerns about TikTok Shop’s pricing, which was perceived as “predatory.”

“Predatory” Pricing and Regulation Predatory pricing involves the illegal practice of setting unrealistically low prices for a product. In the case of TikTok Shop, there is ongoing debate about whether the subsidies provided through the platform constitute predatory pricing by temporarily reducing the cost of doing business for SMEs.

Digital economy observers have differing opinions on this matter, with some arguing that it does not qualify as predatory pricing. However, reports from Reuters and The New York Times highlighted the significant reliance of many SMEs on TikTok Shop for up to 80% of their revenue, leaving them at a loss to replace it.

Malaysia’s Response In response to the ban on TikTok Shop, Malaysia’s Communications and Digital Minister, Fahmi Fadzil, has instructed his ministry to investigate the basis of the Indonesian government’s actions. He has called upon TikTok to provide an explanation for the ban, particularly concerning the issue of predatory pricing.

Fadzil also expressed the intention to examine aspects of data protection and consumer rights and plans to engage TikTok in discussions about these matters in the near future.