Previously competitors in the Indonesian e-commerce scene, TikTok and GoTo have now joined forces. TikTok Shop Indonesia’s business will be integrated into GoTo’s e-commerce arm, PT Tokopedia.
In addition to transferring the business, TikTok will invest US$840 million to acquire a controlling 75.01% stake in PT Tokopedia. The remaining shares will be retained by GoTo. Furthermore, TikTok plans to invest an additional US$1.5 billion in the new entity to foster growth.
This development followed the ban of TikTok Shop in Indonesia in October 2023. The Indonesian government imposed the ban, citing that it adversely affected the country’s micro, small, and medium enterprises (MSMEs) by promoting inexpensive imported goods directly to consumers.
The government argued that TikTok Shop was not compliant with local regulations, which prohibit transactional activities in media such as television, radio, and, by extension, social media.
Indonesia was TikTok Shop’s first e-commerce venture and its largest market globally by daily transaction volume. Consequently, there was a significant incentive to resurrect its Indonesian operations promptly. Remarkably, it took only two months post-ban to finalize this deal.
The new joint entity has pledged to better support MSMEs, including introducing skill development programs and aiding local brands in international sales. These efforts seem designed to appease the Indonesian government, suggesting that the joint venture could soon return to its growth trajectory. While it remains uncertain if the Indonesian government will approve this arrangement, an outright ban extending to Tokopedia seems unlikely, given its status as a domestic company with extensive MSME involvement.
Despite these developments, GoTo’s share price plunged by 20% in a single day.
Some analysts attribute this drop to profit-taking by investors following a surge in GoTo’s share price due to rumors in November. However, I propose that the deal appears less favorable for GoTo, seemingly conceding defeat in Indonesia’s e-commerce competition. GoTo’s e-commerce segment has been experiencing declining gross transaction values and remains EBITDA negative, far from achieving profitability. The presence of formidable competitors like Shopee and Lazada, even without TikTok Shop, adds to the challenges.
By selling the majority stake to TikTok while retaining a minority interest, GoTo may have secured a vital opportunity to revitalize its e-commerce prospects. This arrangement seems to be a pragmatic union for both TikTok and GoTo.
Following this announcement, Sea Limited, the parent company of Shopee, saw its share price drop by 11% at market opening and subsequently regained part of the loss to close down 5%. TikTok Shop’s comeback in Indonesia signifies intensified competition, potentially eroding Shopee’s market share.
According to Momentum Works, Shopee leads Southeast Asia’s e-commerce market with an estimated 45.9% share. Despite the ban on TikTok Shop in Indonesia, it still held an estimated 13.9% market share. Combined with Tokopedia’s 14.2%, their total market share would increase to 28.1%, narrowing the gap with Shopee.
Moreover, TikTok Shop’s entry into the market is believed to have reduced Shopee’s market share from 48.1% in 2022 to 45.9% by October 2023.
Just when we thought the e-commerce space had been cemented by established players, we now see TikTok Shop rapidly gaining ground as a newcomer. Let’s not forget SHEIN and Temu, which have made significant strides over the years. It looks like the e-commerce war is just getting started.
