TikTok Shop: Helping or Harming MSMEs?

Live Shopping is one way to market products massively to consumers. (Photo: Freepik.com)

TikTok Shop, a platform that was originally only known as a short video sharing social media, has developed into an innovation in the world of e-commerce. One of the keys to its growth is its unique approach to shopping. On TikTok Shop, sellers use short videos to promote products, provide reviews, and even provide tutorials on how to use the product. This approach creates an interactive and entertaining shopping experience, capturing consumers' attention.

TikTok Shop also features creative features such as Live Selling, which allows sellers to interact directly with customers. The entire shopping experience at TikTok Shop is designed to be more personal and close to the product. This makes it attractive to consumers, especially because many celebrities and popular influencers sell on this platform.

It cannot be denied that TikTok Shop has changed the e-commerce landscape in Indonesia. According to a Cube Asia survey reported by Indonesia.id data, 85 percent of TikTok Shop consumers are starting to reduce shopping on other e-commerce platforms. As many as 51 percent of them reduced shopping at Shopee, 45 percent at Lazada, and 38 percent at physical outlets. In fact, TikTok Shop succeeded in reducing consumer spending on Shopee by 51%, on Lazada by 45%, and in offline stores by 38%.

In Indonesia alone, TikTok Shop recorded a Gross Merchandise Value (GMV) of US$ 2.5 billion in the first three months of 2023, according to data from Cube Asia. Even though Shopee's GMV is still much higher, namely US$ 73.5 billion throughout 2022, TikTok Shop is quickly becoming a major competitor in the e-commerce market. The Shop feature in TikTok Shop also appeals to impulse shoppers.

Data.ai as reported by CNBC reports that TikTok has become the social media platform that makes users most addicted. The average duration spent by TikTok users each month rose from 22.8 hours in 2021 to 28.7 hours in 2022. Trade Minister Zulkifli Hasan even claimed that TikTok Shop, along with other e-commerce platforms, had caused the decline visit to Tanah Abang Market, one of the largest sales centers in Indonesia.

However, even though TikTok Shop is in the spotlight in the world of e-commerce, several countries have taken tough action against the platform due to security and privacy concerns. Australia, the UK, Afghanistan, Belgium, Canada, Denmark, India and other countries have banned the use of TikTok to varying degrees.

In Indonesia, although many support the development of TikTok Shop, the government through the Ministry of Communication and Information (Kominfo) is considering banning TikTok Shop buying and selling transaction services. Minister of Communication and Information Budi Arie Setiadi stated three main reasons behind this consideration, namely user data security issues, non-compliance with regulations, and consumer protection. The decision regarding the TikTok Shop permit and its regulations is a topic of debate.

TikTok Shop quickly responded to regulations proposed by the government. Teten Masduki, Minister of SME Cooperatives, even appreciated TikTok Shop's steps in closing its buying and selling transaction services in accordance with regulations.

The government has also regulated types of trading on electronic platforms through Minister of Trade Regulation Number 31 of 2023. This regulation differentiates between social-commerce which sells via social media and e-commerce marketplaces. TikTok Shop is required to obtain a new e-commerce permit if it wants to carry out buying and selling transactions.

Even though TikTok Shop has opened up opportunities for MSMEs, there are several aspects that must be considered. Tough competition on TikTok Shop means sellers have to be more creative in promoting their products. Regulatory changes must be complied with but also create pressure on MSMEs in the TikTok Shop who have to adapt to rapid changes in the e-commerce industry.

TikTok Shop has brought a big change in the social commerce paradigm in Indonesia. Not only is Tanah Abang Market quiet, a number of shopping centers are experiencing the same thing. Three years of the pandemic and online shopping habits have changed consumer behavior. Adaptation and clear regulations are the keys to MSME success in the new era of social commerce. Everyone must take advantage of innovation and technology such as that introduced by TikTok Shop.