President Joko “Jokowi” Widodo has tasked Communications and Information Minister Budi Arie Setiadi and Deputy Minister Nezar Patria with monitoring social media and electronic commerce (e-commerce) issues, including TikTok’s controversial Project S.
resident Joko “Jokowi” Widodo has tasked Communications and Information Minister Budi Arie Setiadi and Deputy Minister Nezar Patria with monitoring social media and electronic commerce (e-commerce) issues, including TikTok’s controversial Project S. The President plans to form a task force to manage said issues, as well as base transceiver stations and satellites, along with information and communications technology (ICT) issues in general.
TikTok is looking to introduce Project S in the hope of competing with established giants such as Shein and Amazon as e-commerce continues to be a driving force for the short-video platform. While TikTok Shop operates as an online selling platform that allows sellers to showcase and sell their products, Project S is more akin to Amazon Basics, where the company directly sells its own wares. As part of the project, TikTok parent firm ByteDance trialed a dedicated TikTok section named Trendy Beat for the United Kingdom.
The introduction of Project S adds to the concerns of Indonesian micro, small and medium enterprises (MSMEs) regarding the rise of cross-border marketplaces. Indonesia MSMEs Industry Association (AKUMANDIRI) chair Hermawati Setyorinni said the concern was further amplified by Indonesia’s lack of sufficient cross-border marketplace regulation, especially on social commerce. Currently, products sold through cross-border marketplaces are largely exempt from duties and taxes, due to generally low prices and small volume.
Cooperatives and Small and Medium Enterprises (SMEs) Minister Teten Masduki said Project S could put local MSMEs under pressure, with the TikTok initiative suspected of gathering data on products that are popular in a country and then producing similar products from China. He added that TikTok Shop has already threatened the local online retail market since most products sold by its vendors are made in China and enter the country without going through proper import processes intended to protect local products. Therefore, the minister noted that the MSMEs face stricter regulations and standards for their products.
The main threat presented by products sold through both Project S and the preexisting TikTok Shop is the potential for local MSMEs to be outcompeted on pricing. Moreover, the largely untaxed social commerce in Indonesia meant both services and their competitors did not contribute as much as more regulated economic sectors do to the Indonesian economy. Consumers are also potentially put at risk by products which would not have passed regulatory standards in more regulated sectors.
Therefore, Teten advocates for the revision of Trade Ministerial Regulation No. 50/2020 on business licensing, advertising, guidance and supervision of business actors in trading through electronic systems to protect MSMEs against negative impacts from the rise of cross-border marketplaces. The revision would include subjecting social commerce to prevailing regulations for e-commerce and setting a price floor on products sold by social commerce vendors.
House of Representatives Commission VI member Amin AK believes protection for the MSMEs sector from potential threats such as TikTok S is crucial since it employs 97 percent of the country’s workforce, with a total of 65 million MSMEs contributing 60.3 percent of Indonesia’s gross domestic product. He also claimed that 90 percent of the total Rp 476.3 trillion (US$31.76 billion) e-commerce value recorded by Bank Indonesia, or Rp 428.67 trillion, is received by foreign producers, especially those from China.
What’s more
In response to the controversy surrounding Project S, TikTok Indonesia indirectly denied the introduction of Project S to Indonesia by stating that the project does not operate in Indonesia and that there is no cross-border marketplace element in TikTop Shop Indonesia, although the local TikTok office also said it did not state TikTok had no cross-border products in the social commerce service. TikTok Indonesia also stressed its commitment to empowering local vendors and MSMEs with initiatives such as the company’s TikTok Jalin Nusantara program.
TikTok, Shopee and Lazada are the most popular platforms for live selling in Indonesia according to findings from delivery firm Ninja Logistics subsidiary Ninja Xpress’ live selling trend analysis, which was published in Suara UKM Negeri Vol. 2 in January. Tiktok is in first place with 27.5 percent of the 300 survey respondents choosing it, followed by 26.5 percent for Shopee and then 21.5 for Lazada. The research also found that one in three e-commerce shippers in Indonesia has done live selling.
What we’ve heard
Sources in the government have stated that the SMEs Ministry has already mapped the dangers of Project S TikTok. With Project S, TikTok would be capable of mapping customers' shopping habits, including the products they like worldwide and those that are currently trending, and then producing those items there.
Another source adds that TikTok feels more personalized to customers because it can adjust and adapt to what the Indonesian e-commerce market desires. By studying what is trending and popular in the Indonesian market, TikTok then sells cheaper versions of those products.
All of this happens because TikTok and TikTok Shop are suspected of collecting customer data, starting from email addresses and phone numbers, location, IP addresses, interaction patterns based on clicks, to gadget types and phone screen resolutions.
Furthermore, they also gather data such as names, addresses, postal codes, logistics information, product purchase history, product reviews, and credit card payment information. Data from social media is combined with shopping behavior data.
That's why TikTok is suspected of excessively collecting and processing user data in Indonesia. "They are suspected of exploiting the loophole because Indonesia does not yet have a personal data protection institution," said the source.
The same source revealed that due to Project S, SMEs Minister Teten Masduki once lodged a complaint with Trade Minister Zulkifli Hasan because the Trade Ministry did not regulate the flood of imported products sold through online selling platforms, including TikTok.
One of the proposed responses has been to revise Trade Ministry Regulation Number 50/2020. In this regulation, the Trade Ministry did not include the regulation of social commerce business models like Project S— thereby overlooking the impact of cross-border marketplaces and online retail platforms.
In the eyes of SME players, this shows a lack of coordination among the government itself. The wave of imported retail products in the e-commerce market has already been occurring since before the TikTok era. The government has always been late to react and caught off guard.
A marketplace player revealed that Project S has long been prepared by ByteDance, TikTok's parent company, for years to prepare their e-commerce line. TikTok is rumored to have ambitions to take over the Alibaba and JD markets. To facilitate this plan, they have prepared a large-scale workforce and logistics system.
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