Transforming MSMEs through TikTok Shop: Opportunities and Challenges in Indonesia’s Digital Economy Era

TikTok serves as a social media platform that fosters creative ideas and innovations among its users, enabling them to engage more informatively and wisely with social media.

TikTok serves as a social media platform that fosters creative ideas and innovations among its users, enabling them to engage more informatively and wisely with social media. With its diverse technological features, TikTok supports societal activities, including the development of Indonesia’s digital economy, which is crucial for Micro, Small, and Medium Enterprises (MSMEs) (Rahajeng, 2022).

In Indonesia, MSMEs play a vital role in the economy by contributing significantly to employment and the gross domestic product (GDP). However, many MSMEs face challenges in accessing broader markets and competing with larger companies. Digitalization is pivotal in overcoming these barriers, allowing MSMEs to enhance operational efficiency, increase visibility, and access global markets through digital platforms such as social media and e-commerce. Government support through pro-MSME policies and technological infrastructure development is also essential to ensure that MSMEs can fully leverage digitalization’s potential, thereby driving inclusive and sustainable economic growth in Indonesia. This article delves deeper into the opportunities and challenges in transforming MSMEs in Indonesia through TikTok Shop, explaining how this platform supports the development of the digital economy by harnessing wide-ranging innovation and creative potential on TikTok, as well as the challenges MSMEs face in adopting and optimizing digital technologies to access global markets.

Opportunities of TikTok Shop for MSMEs: Understanding the context and benefits of the collaboration between TikTok Shop and Tokopedia, we can see how this digital transformation opens various opportunities for MSMEs in Indonesia. Through the integration of advanced features and access to a wider audience, TikTok Shop presents significant opportunities for MSMEs to thrive, such as the collaboration between TikTok Shop and Tokopedia, which provides numerous benefits for the development of MSMEs in Indonesia. Firstly, this collaboration enhances the visibility of MSMEs by reaching more potential customers through popular digital platforms. Secondly, digital platforms facilitate marketing by offering various tools such as advertising, social media, and influencer marketing. Thirdly, this collaboration supports the enhancement of MSMEs’ skills through training and education. Bima emphasizes that a well-planned strategy in this collaboration will benefit MSMEs, consumers, and the digital platform itself, driving the advancement of Indonesia’s digital industry and economy by expanding market reach and strengthening digital economy through increased online transactions and financial inclusion (Lestarini, 2024). To capitalize on these opportunities, based on research conducted by Maria & Janah (2024), MSMEs need to implement effective marketing strategies, such as maintaining marketing consistency, strategic planning, defining clear target markets, managing budgets appropriately, and utilizing a marketing mix that includes product, price, distribution, and promotion. Moreover, having a website, strengthening branding, running effective promotions and advertisements, and managing customer relationships well are crucial for enhancing the visibility and competitiveness of MSMEs in the digital era.

Challenges Faced by MSMEs: Despite TikTok Shop offering various opportunities for MSMEs, such as enhanced visibility and access to broader markets, there are several significant challenges that small business owners must confront. These challenges can hinder the ability of MSMEs to compete effectively in a highly competitive platform. Here are some key challenges faced by MSMEs in leveraging TikTok Shop. A primary challenge encountered by MSMEs on TikTok Shop is intense competition, demanding strong and creative marketing strategies to differentiate themselves. Dependence on TikTok Shop algorithms is also problematic, as success often hinges on how algorithms promote products, which can change unpredictably. Additionally, MSMEs must swiftly adapt to changing consumer trends and preferences. The quality of products or services is also crucial; failing to meet consumer expectations can adversely impact business reputation. Over-reliance on a single platform is risky, especially if TikTok Shop experiences popularity declines or technical issues. MSMEs also need to tackle technology challenges in managing inventory, online transactions, and customer data security, while understanding privacy and data security regulations (Hadun, 2023). Overall, despite TikTok Shop promising ample opportunities for MSMEs to expand their markets and enhance visibility, these challenges must not be overlooked. By effectively addressing these challenges, MSMEs can maximize the potential of TikTok Shop for business growth and success.

Efforts by TikTok and the Government: After understanding the challenges faced by MSMEs on TikTok Shop, it is crucial to discuss the efforts that can be undertaken by both TikTok itself and the government to address these challenges. Collaborative efforts between TikTok and the government can focus on developing digital training programs for MSMEs, providing more affordable technology infrastructure, and supporting policies that promote inclusion and growth of MSMEs in the digital economy era. On December 11, 2023, the GoTo Gojek Tokopedia Tbk Group announced a strategic partnership with TikTok to merge Tokopedia and TikTok Shop businesses under PT Tokopedia, with TikTok committing to invest over $1.5 billion. TikTok will control PT Tokopedia, while GoTo remains an ecosystem partner with digital financial services from GoTo Financial and on-demand services from Gojek. This partnership aims to expand access and benefits for users and MSME players in Indonesia, starting with the Buy Local campaign to be launched on December 12, aligned with National Online Shopping Day, to promote local products through Tokopedia and TikTok applications (Tiktok, 2023). Furthermore, government efforts to support MSMEs in Indonesia are crucial to drive inclusive and sustainable economic growth. Concrete steps include issuing various policies and support programs such as business capital assistance, entrepreneurship training, and improving infrastructure and broader market access through digital platforms. The government is also actively creating regulations that support the MSME ecosystem, such as Minister of Trade Regulation No. 31 of 2023, addressing challenges in tax regulations, licensing, and legal protection. In the context of TikTok Shop, cooperation with platforms like Tokopedia supported by significant investments from TikTok is a tangible example of how the government can collaborate with the private sector to enhance MSME competitiveness in this digital era. These measures are expected to provide more equitable and sustainable access for MSMEs to grow and thrive in an increasingly global and digital market.

Recommendations: Building on the initiatives already undertaken by TikTok Shop and the government, it is possible that challenges and obstacles may still arise in the field. Recommended efforts to support MSMEs on TikTok Shop as a form of digital economic development can involve several strategic steps. Firstly, intensive training programs are necessary for MSMEs to understand and optimize the use of the TikTok Shop platform, including creative marketing techniques and effective content management. Secondly, the government needs to expand digital infrastructure and technology access in rural areas to ensure MSMEs across Indonesia can connect and operate efficiently on TikTok Shop. Thirdly, supportive policy measures such as regulatory simplification, tax incentives, and improved legal protections need continual enhancement to create a conducive environment for MSMEs. Based on research by (Maria & Janah, 2024), recommendations also include government coordination to establish regulations for MSME protection and development, as well as providing financial support through loans and financing. Additionally, the government should conduct monitoring to ensure MSME activities align with applicable plans and regulations, while organizing digitalization-based training programs to enhance technical skills among MSME operators. These measures aim to foster a supportive ecosystem where MSMEs can thrive and contribute significantly to Indonesia’s digital economy.

Conclusion: The conclusion of this article is that TikTok Shop offers significant opportunities for MSMEs in Indonesia to leverage digital transformation in expanding their businesses. However, there are several challenges that need to be addressed, including intense competition, dependence on platform algorithms, and the necessity for quick adaptation to changing trends and technologies. Collaborative efforts between TikTok and the government, such as partnerships with Tokopedia and various support programs initiated by the government, demonstrate strategic steps to support the growth of MSMEs within the TikTok Shop ecosystem. To enhance effectiveness, recommended efforts are expected to optimize platform utilization, expand digital infrastructure nationwide, and improve regulations and policies that sustainably support MSME protection and growth in the digital economy era. Thus, these measures are anticipated to create a conducive environment for MSMEs to thrive and compete in an increasingly interconnected and digital global market.

Hayuningrum Citra Maharsi
Hayuningrum Citra Maharsi
Master’s Student of International Relations majoring Digital Transformation and Competitiveness at Universitas Gadjah Mada, Yogyakarta.