Social Commerce Had Been Developed in Indonesia Before
We have been seeing the significant development of retail market activities since Kaskus facilitated trading activities between online sellers and purchasers. Founded in 1999, Kaskus was the main platform used by most Indonesians to engage in digital social interaction. I still remember vividly how I posted my first comment in Kaskus. Kaskus has a unique feature which allows users to assemble in a specific group discussion and exchange views. As a result of this hype, users founded a business opportunity to sell goods or services in Kaskus. I sold my first goods, a bodyfat tracker, in Kaskus by opening a Lapak, a special post made by the sellers to inform that they were selling goods and purchasers were allowed to chat, comment, or message the sellers. Seeing this behaviour, Kaskus opened the Forum Jual Beli or FJB to facilitate trade in the platform in 2011. It helped Kaskus to place itself as a cornerstone in a common practice that we are about to see later, the marketplace business model. This model is adopted by some renowned marketplace platforms i.e. Tokopedia, Shoppe, Bukalapak, and more. They act as a platform operator to bridge sellers and purchasers. In return, they generate income by charging certain fees like admin fees or platform fees to the purchaser by adding such fees to the total fee charged to them. Another scheme may be conducted by setting a commission fee to the seller.
As we have seen in Kaskus’ story, trade activities are an incremental interaction between users in a digital platform. The potential of social media to turn itself into an e-commerce platform is highly possible due to these two factors. One, social media has an extensive social platform to accommodate types of social dialogues. This is because one of the inherited traits of social media is users are free to express themselves or we can say that social media is a user-generated platform. Therefore, users may post their goods or services on social media without deterrence. Second, social media gathers a variety of users, and it is good. Social media can be used by any kind of user, which makes it inclusive for digital consumption. Thus, it is a common behaviour for any e-commerce platform because the sellers do not have to make extra efforts to attract potential consumers.
Because of the above factors, social media like Meta or TikTok has an upper advantage as a potential platform for e-commerce activities. TikTok, for example, has gained four times Gross Merchandise Value (GMV) growth to a humongous US$ 4.4 billion in 2022. In addition, Indonesia was the country in the Southeast Asia Region to gain the largest income generated by influencers in Quarter 4-year 2022. This proves the potential commercialization of social media that affects social preferences in commencing trade activities. Consequently, these activities have attracted the government’s attention as this myriad potential may need to be administered through a regulation. The government of Indonesia has been conducting several regulatory assessments of social commerce activities from 2022 to 2023 and some publications have implicitly elaborated the government’s position to stringent the current regulation on e-commerce businesses, especially social media. Such perception was crystalized through the enactment of the Minister of Trade Regulation Number 31 of 2023.
Guardrails for Social Commerce
The regulation stipulates types of electronic commerce business models, and it is an advanced content because in the previous regulation, the Minister of Trade Regulation Number 50 of 2020, there was no e-commerce business models classification. The new regulation put social commerce as a part of e-commerce regulation. Therefore, this business activity falls under the terms and conditions of this regulation. One of the most discussed articles is Article 21 because it mentions the prohibition applied to social commerce to act as a producer and facilitate payment transactions. The government of Indonesia argue that this prohibition rehabilitates fair competition between offline sellers and online sellers. This is backed by some of the offline sellers arguing that TikTok has deteriorated their sales results. On the other hand, the online sellers expressed their disappointment. They said that they have enjoyed the benefits of TikTok by facilitating live sales on the platform.
The government stated three problem statements about social commerce. One, social commerce opens the importation activities to Indonesia. Second, it causes unfair price determination. Some of the offline sellers said that the price in TikTok is cheaper than theirs. Third, the assurance of imported goods standards must be preserved at all costs. These problem statements are answered in the regulation, such as US$ 100 as the price minimum set by the offshore merchants (Article 19 paragraph (2)), the obligation for merchants to protect the price of goods free from price manipulation (Article 13 paragraph (1)), and obligation to put standard certification (Article 11).
The impact of this regulation can be catastrophic. The current merchants who have conducted business in social commerce must adjust their business models to comply with the regulation. Besides a set of prices and standard certification, the prohibition of social commerce to add payment features could influence purchasers to reconsider their preference in commencing their purchasing activities. In addition, social media influencers may be affected by this regulation. They may lose financial income because of this ban since usually some of the influencers are engaged by the social commerce platform to stimulate trade activities by promoting and doing live streaming. However, we must acknowledge that this regulation relieves the offline merchants’’ surviving burdens. The most visible alleviating part is the price determination must be fairly set by the online merchants in social commerce. Thus, it helps the offline merchants to keep their competition.
The Real Root Cause
It is common to understand that the retail growth in Quarter 2-year 2023 was 1.2 %. Compared to quarter 1 in the same year which was 2.6%, it decreased by more than 100%. It was affected by several factors, the society’s behaviour to saving their money for education cost, global uncertainty, and the changing of social preference to an online platform. Therefore, what we need is support for offline merchants to embrace digital platforms as their sales funnel. Unfortunately, the banning of social commerce in procuring payment facilities may limit the potential for those merchants to get more income and benefits from social commerce. To avoid any further consequential damage, the government may conduct these things: 1) implement the small and medium businesses’ expansion of their sales media to the digital platform. This can be done by facilitating partnerships between e-commerce providers and the Ministry of cooperation and small-medium businesses. 2) setting the systemize supervision on the price determination. The price determination may be set by the e-commerce provider to attract consumers. Furthermore, this price may be heavily reduced to stimulate trade activities. The government must ensure that such determination is made under reasonable and common practice in the retail market. 3) re-evaluating the Minister of Trade Regulation Number 31 of 2023. This re-evaluation is made to assess the relevancy of the regulation with the current retail market behaviour. The government must, at some point, embrace any market development including the adoption of social commerce.