Can Indonesia's social media e-commerce ban help merchants?

Indonesia's government has issued a new regulation to reign in e-commerce on social media platforms, citing harm to small businesses hawking their wares mostly offline.

The regulation comes in response to long-time complaints from small-scale offline traders saying their income have been hurt by the rise of online sales.

Indonesian Minister of Trade Zulkifli Hasan said in a press conference on Wednesday that the step was taken to enable small and medium-scale enterprises to compete in a fair, healthy, and beneficial business ecosystem.

According to the new regulation issued by the Ministry of Trade, social media can only be used as an advertising platform for goods and services, and not for direct transactions.

"Social commerce can advertise products, but social media is separate, you cannot combine social media and social commerce," Hasan said.

"Any government would protect local small businesses," he said, adding that the regulation aims for "equality in business competition."

The ban applies to social media platforms operating directly with affiliated online stores, such as on the Chinese social media app TikTok. Indonesia had been one of the biggest markets for "TikTokShop."

Hasan told DW that although the ministry did not specifically discuss TikTokShop, the rule "applies for all" platforms.

TikTok said on Thursday that it regretted the Indonesian government's decision.

Indonesian merchants struggle for business

Nada Agi, a 25-year-old traditional apparel merchant in Jakarta's Tanah Abang market, said she doesn't expect the new regulation to have a great impact, as sales have been low in recent years.

Besides her offline store in Tanah Abang, she also sells clothes online via an e-commerce platform. According to her, in-person sales was dropped mostly because of the pandemic as many did not feel comfortable shopping directly at the market.

Tanah Abang was once among the biggest textile markets in Southeast Asia. However, it now struggles to attract customers.

"Many stores are closed, and people stop selling their goods directly. This has an impact on the existing stores, as people are not really interested in visiting any kind of empty and quiet market," Yasril Umar, the chairperson of the Tanah Abang market trader's association, told DW.

According to Umar, there are about 20,000 stores in and around the Tanah Abang district, and now about 20% of the capacity is empty.

Umar said that most merchants have been struggling since the beginning of the pandemic in March 2020.

"People have less purchasing power since the pandemic, so our sales are low," he said, adding that people's shopping habits have changed since the pandemic, and sales at the market remain low, despite the economy picking up.

How have small businesses responded?

Hedy Djaja Ria, from the Indonesian Shopping Center Retailers and Tenants Association (Hippindo), a public interest group, said the association strongly supports the government's decision.

Ria said it is hard for market-based merchants to compete with online retailers.

Shopping online "makes it easier for buyers, and more affordable," he told DW. However, he added that he was sure that Indonesian customers "will want to go to department stores to have the experience."

Ria believes that online and offline markets in Indonesia can co-exist in a healthy business environment, as long as the online shops obtain legal permits and meet the same requirements as offline shops.

"We hope online shops will not sell goods below the market price. That will, for sure, have an impact on offline stores," he said.

Hippindo members comprise 300 department store owners across Indonesia.

Will customers respond?

Toto Prastowo, a Jakarta resident, admitted that the price of goods offered on Tik TokShop is more affordable. "I once bought a vacuum cleaner for my car and it costs under 40,000 rupiah (€2.43 euro) with free shipping," he said.

Lower costs and rapid, free shipping can lure any customer to rely on online shopping. However, market merchants say the government can help make in-person shopping an enjoyable experience that will attract customers.

"For instance, by adding facilities to improve fun shopping experience, making it easier to obtain permits for holding interesting events in the market, or curbing illegal traders will create a lively environment and therefore make it more attractive for people to shop offline with us," he said.

Edited by: Wesley Rahn