Indonesia Tightens Control over Social Commerce: A Focus on Digital Transformation and Local MSME Protection

Indonesia Tightens Control over Social Commerce: A Focus on Digital Transformation and Local MSME Protection

Government’s Focus on Digital Transformation

In a recent restricted cabinet meeting held in the Merdeka Palace in Jakarta, Indonesia, the government, led by President Joko Widodo, deliberated on the issue of social commerce. Among the attendees of the meeting was Wishnutama Kusubandio, former Minister of Tourism and Creative Economy, who was invited to provide input concerning digital transformation. The presence of Kusubandio signals the government’s serious commitment towards understanding and navigating the complex landscape of digital transformation.

Revision of Trade Regulation

One of the significant outcomes of the meeting was the decision to sign the Revision of the Minister of Trade Regulation (Permendag) Number 50 of 2020. This regulation pertains to Licensing Provisions, Advertising, Guidance, and Supervision of Business Actors in Electronic System Trade. The revised policy is expected to introduce new rules for electronic commerce, particularly focusing on the role of social media.

Role of Social Media in E-commerce

With the new policy, the government aims to limit the role of social media platforms to promotion only, thereby prohibiting them from facilitating transactions. This move is mainly to prevent the misuse of public data, as social media platforms doubling as e-commerce sites can potentially breach data privacy. This regulation will significantly impact social commerce companies, forcing them to rethink their business models and strategies.

Protecting Local MSMEs

The revised Permendag also stipulates that digital platforms should not act as producers and sets a minimum import transaction of US$100. This move is seen as a response to the concerns raised by local Micro, Small, and Medium Enterprises (MSMEs), who have been struggling with the influx of cheap imported products, some of which are marketed through social commerce platforms like the TikTok application.

Local MSMEs, especially those operating in the Tanah Abang Market, have reported a significant drop in sales, attributing this decline to the rise of the TikTok Shop application. The new regulation, thus, comes as a relief to these traders, who see it as a protective measure against unfair competition.

Implications and Challenges Ahead

While the new regulation is a step towards protecting local businesses and ensuring fair trade, it also poses challenges for social commerce platforms. These platforms will need to adapt their operations to comply with the new rules, a process which could involve significant changes in their business strategies and models. Moreover, they will have to ensure that these changes do not adversely affect their user base and profitability.

On the other hand, the government will have to ensure that the new regulations are effectively enforced without stifling innovation and growth in the digital sector. Balancing the interests of local MSMEs and the dynamic e-commerce industry will be a crucial task.