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Analysis: TikTok gets controlling stake in Tokopedia
The agreement, which was reached on Dec. 10, 2023, requires Tokopedia to spend US$340 million to buy the exclusive rights to own and operate TikTok Shop’s Indonesian business, while TikTok in turn will spend US$840 million to buy 75.01 percent of Tokopedia’s shares and together form a joint venture
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Indonesia's six unicorns shown on a screen on Aug. 3, 2021. The six are ride-hailing company Gojek, e-wallet OVO, online travel agency Traveloka, logistics company J&T Express and e-commerce platforms Tokopedia and Bukalapak. (JP/Norman Harsono)
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hinese tech firm ByteDance’s social media subsidiary TikTok has bought a controlling stake in Tokopedia, Indonesian tech company GoTo Gojek Tokopedia’s electronic commerce (e-commerce) platform. The corporate action led to the reentry of TikTok’s integrated online shopping service TikTok Shop after it was booted from Indonesia by a ministerial regulation that bans social commerce (s-commerce). The transaction looks set to be a major shift in the Indonesian online retail market, but it also raised concerns about foreign firms’ domination.
The agreement, which was reached on Dec. 10, 2023, requires Tokopedia to spend US$340 million to buy the exclusive rights to own and operate TikTok Shop’s Indonesian business, while TikTok in turn will spend US$840 million to buy 75.01 percent of Tokopedia’s shares and together form a joint venture. TikTok will also invest further in Tokopedia, bringing a total outlay of US$1.5 billion, and give Promissory Note worth US$1 billion to Tokopedia. Stakeholders agreed that GoTo’s stake in Tokopedia will not be diluted and with such sizeable investment, it is expected that GoTo will no longer have to give funding to Tokopedia.
GoTo stated that the transaction process is targeted for completion by the first quarter of 2024. According to Bloomberg Intelligence, TikTok’s gross merchandise value could rise by 15 percent with TikTok Shop’s return to Indonesia. Furthermore, although the deal could mean GoTo is giving away its e-commerce potention, it would also allow GoTo to cope with its high cash burn and shaky liquidity by leveraging TikTok’s 125 million active users to boost its logistics, payments, and banking services.
The s-commerce ban, which led to TikTok Shop’s exit from Indonesia previously, was stipulated in the Previously, Trade Minister Regulation (Permendag) No. 31/2023 on Business Licensing, Advertising, Guidance, and Supervision of Business Actors in Trading Through Electronic Systems bans s-commerce due to increased risk of monopolistic practices and unfair competition from the integration of social media and e-commerce.
With Tokopedia and TikTok joining forces, the joint venture now complies with both the s-commerce ban and Article 17 of Law No. 5/1995 on the Prohibition of Monopolistic Practices and Unfair Business Competition. Before holding hands with Tokopedia, TikTok also explored alternative options, such as BliBli.
TikTok Shop’s market share in Indonesia, which is the service’s second-biggest market after the United States, is projected to triple from 4.4 percent in 2022 to reach 13.2 percent in 2023 according to Singapore-based venture builder firm Momentum Works data in October. Their report also noted that Tokopedia and TikTok would jointly hold a 40 percent share of Indonesia’s e-commerce market after their transaction process is done, in comparison to the 35 percent currently held by Sea Group online shopping unit Shopee.
Indonesian Digital Empowerment Community (IDIEC) chairman M. Tesar Sandikapura viewed TikTok Shop’s return through collaboration with GoTo is something that was planned by GoTo investors as a way for them to exit from the online retail firm. According to him, Indonesia’s ban on s-commerce hampers TikTok Shop’s operation in a way that is difficult for TikTok to resolve with options that did not involve working with GoTo. He claimed the funds needed for the collaboration would then serve as an exit strategy for GoTo investors to exit the firm.
TikTok Shop’s return to Indonesia will likely benefit the micro, small, and medium enterprises (MSMEs) as well as content creators benefited from its online retail ecosystem prior to its exit. However, on the other hand, the service’s return might also hurt brick-and-mortar MSMEs, such as Tanah Abang vendors who campaigned for the service’s exit. The Indonesian government needs to raise MSMEs competitiveness, such as by providing digitalization and marketing training, access to funding, and ecosystem support to protect and empower MSMEs.
What’s more
GoTo has yet to book a profit, even after the tech firm’s net loss has fallen from Rp20.23 trillion in September 2022 to Rp9.55 trillion net loss as of September 2023 and its net revenue soared to Rp10.51 trillion by growing 32 percent year-on-year (yoy). Mirae Asset Sekuritas senior technical analyst Nafan Aji Gusta Utama explained that this is due to the intense e-commerce competition, which has forced GoTo to do high cash burn for Tokopedia promotions and discounts. Meanwhile, the falling net loss is mainly due to GoTo’s big job cuts as indicated by its general administrative costs dropping 57 percent to Rp4.61 trillion.
Bank Indonesia estimates the country’s e-commerce transaction value to grow by 2.8 percent to reach Rp487 trillion in 2024, and by 3.3 percent to reach Rp503 trillion in 2025. The central bank also projected digital banking transaction value to grow by 23.2 percent to Rp71.58 quadrillion by 2024, and then by 18.8 percent in 2025 to reach Rp85.04 quadrillion, which is a positive outlook for GoTo-affiliated digital lender Bank Jago. Meanwhile, research firm Populix estimated the total valuation of Indonesia's e-commerce will reach US$82 billion by 2025.
What we’ve heard
A number of TikTok and GoTo internal sources said that, of the several e-commerce companies operating in Indonesia, the Chinese company is most comfortable working with GoTo. They are aware that GoTo executives are close to key officials in the government, which is why TikTok hopes that this closeness can be relied upon should Byte Dance's subsidiary ever be faced with legal or regulatory problems, such as what they experienced last October. "GoTo is close to policymakers," said the source.
By entering Tokopedia, TikTok hopes to bring back their flagship feature: carrying out online buying and selling activities in the Indonesian market backed by promotion through their social media features. Moreover, TikTok also sees Tokopedia's live shopping feature as lagging behind its rivals, giving rise to an opportunity for TikTok to close the gap. This weakness of Tokpedia became the basis for TikTok’s decision to buy the majority of Tokopedia's shares. The cooperation between the two companies was initiated shortly after the government banned the TikTok Shop in October, triggering TikTok’s offer to become a storefront for GoTo.
Tokopedia themselves realized their weakness in developing live shopping features. With the entry of TikTok, Tokopedia hopes to take a niche in the e-commerce market, which is currently dominated by Shopee Indonesia, especially through their Shopee Live service.
Additionally, Tokopedia hopes that the entry of TikTok can hoist GoTo's shares on the capital market. However, this hope has not come to pass.
Meanwhile, other sources say that there were rumors that the TikTok ban was originally designed to pressure the Chinese company into forming a partnership with Tokopedia. "From the beginning TikTok was directed to work with Tokopedia," said a source in the government.
Furthermore, the cooperation between TikTok and Tokopedia may not be as smooth as what was hoped. Sources in the government said that the MSMEs Ministry was again outraged by the way TikTok sold live through their application. It was Trade Minister Zulkilfi Hasan who made the concession.
Apparently MSMEs Minister Teten Masduki and Trade Minister Zulkilfi Hasan are not of one voice with how Tiktok entered Tokopedia. In the eyes of the MSMEs Ministry, the 4-month transition period before TikTok fully integrates with Tokopedia is too long.
This is not the only time Teten and Zulkifli have been at odds. Teten is said to have been annoyed with Zulkifli Hasan because the trade minister did not immediately revise the rules regarding the activity of buying and selling goods on social commerce such as the TikTok Shop.
Disclaimer
This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access the latest edition of Tenggara Backgrounder to read the articles listed below:
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