Jakarta – Two months ago, Indonesia introduced a regulation that forced TikTok to shut down its e-commerce operations in the country, which the government claimed was to protect small and medium enterprises (SMEs).

TikTok was at the time caught in the middle of a debate about whether so-called social commerce, a kind of online shopping that utilizes social media, poses a threat to small businesses.

TikTok has now returned to Indonesia's online shopping theater after it struck a US$1.5 billion deal to acquire homegrown tech giant GoTo's e-commerce arm Tokopedia.

Acquiring Tokopedia might only solve some of the hurdles TikTok faces to enter the Indonesian marketplace, as the company still needs to be cautious in dealing with the government as a regulator given that the rule of the game has remained in flux and is often susceptible to populist demands.

It is hard to say whether TikTok's comeback to e-commerce is bad for SMEs, as some of the small businesses rely on online platforms to sell their products. However, it is also equally difficult to deny that the sale of goods in Indonesia has been disrupted by the emergence of e-commerce.

With or without TikTok, consumers have shifted to online shopping and the trend is here to stay. This includes the fact that consumers prefer goods with affordable prices regardless of where they come from and whether they are legitimate.

Even though TikTok was restricted from the virtual market during the past two months, SME players, such as vendors in Tanah Abang market in Jakarta, hardly saw changes in their sales and so some of them eventually demanded that the government curb e-commerce altogether.

The return of TikTok has taught us a lesson that to help Indonesian SMEs, the government needs to do more work on the supply side instead of the demand side.

TikTok's acquisition of Tokopedia proves that banning transactions on social media alone will not stop the company from entering the Indonesian market.

To protect the local SMEs, the government has also tried to curb imports coming through e-commerce by requiring that imported goods sold on domestic e-commerce platforms have a minimum freight-on-board (FOB) price of US$100 per unit.

But experts have argued that such a restriction can be circumvented in many ways, such as by having goods shipped in bulk to exceed the minimum FOB threshold.

The cooperatives and small and medium enterprises minister also proposed barring e-commerce platforms from selling goods that fall under a certain value of production cost (HPP), pointing to a similar practice in China.

These policies, however, will likely not do much to improve the performance of local SMEs, unless the government massively improves the competitiveness of their products.

Improving competitiveness does not necessarily mean it is enough to have the SMEs able to sell their goods online as the government sought to achieve its "Go Digital" campaign.

It demands massive improvement on how SMEs can improve productivity and access to raw materials and technology used in various processes.

This is meant to ensure that local SMEs can meet global standards while remaining attractive on the local market.

The government could also help in reducing obstacles and ensuring a favorable local business environment to support the development and upscaling of SMEs.

Other areas that could be explored to help further enhance competitiveness include research and development and access to financing for local SMEs.

Keeping foreign goods at bay may have limited effectiveness, but helping local businesses produce more competitive domestic goods may offer a more sustainable solution.

By then, the government may not need to worry about the influx of goods from overseas, but it could start looking on how domestically produced goods could compete with overseas products.

Source: https://www.thejakartapost.com/opinion/2023/12/13/time-is-ticking-for-smes.htm