ByteDance’s TikTok aims to expand its commercial operations in Indonesia, Southeast Asia’s most essential e-commerce market. Because it was confronted with obstacles from the authorities, it devised a different path to reach its destination.
TikTok is investing $1.5 billion in a joint venture that will bring together Tokopedia, the e-commerce section of the Indonesian IT giant GoTo, and TikTok Shop Indonesia, the local subsidiary of TikTok’s e-commerce company. This new venture will bring a new partnership between the two companies. TikTok will have a 75.01% controlling interest in the new corporation, which will be under its control.
The merged company will receive the $1.5 billion investment “over time,” according to a statement released by the corporations today. The investment will not be made in a single transaction. According to Reuters, the initial payment the company will make to acquire its interest is 840 million dollars. According to the statement, GoTo’s part in the joint venture would stay unchanged at 24.99% due to the arrangement reached today.
This transaction comes on the heels of TikTok falling under the attention of authorities for its wholly-owned endeavor, TikTok Shop Indonesia, which enabled online shopping via TikTok’s enormously successful main social media app. The joint ownership detail is the most critical aspect of this transaction. To safeguard the privacy of users and the smaller local merchants, Jakarta implemented a prohibition on direct payments for online transactions made through social networking platforms around two months ago. TikTok was compelled to put its e-commerce operations on hold on October 4 to show compliance with the new regulation.
This transaction comprises a few components that play a role in the opposite direction of the ultimate result. To begin, according to the investor note that GoTo recently released, Tokopedia will buy the Indonesian business of TikTok Shop for $340 million during the fourth quarter of this year. Second, TikTok will pay $840 million to purchase the majority share of Tokopedia through the new organization when it has been established. In the third place, more funds, up to $1.5 billion, will be spent over an indeterminate period to develop the joint venture further.
Furthermore, specific valuations have been influenced by regulatory concerns in addition to those that have been anticipated for this situation. As an illustration, GoTo observes that the valuation of TikTok Shop Indonesia “was based on a backward-looking view of the TikTok Shop Indonesia business under the current environment during the fourth quarter of 2023 and does not reflect the forward-looking potential of the combined entity.”
The entire deal is anticipated to be finalized within the first quarter of 2024. The transaction that took place today is a direct consequence of TikTok’s inability to conduct business in Indonesia due to the regulations that govern small businesses.
Indonesia, which has a sizable presence in the region, dominates the e-commerce scene in Southeast Asia. Over the previous year, its worth was projected to be between fifty and sixty billion dollars, equivalent to almost two-thirds of the total revenues generated throughout the region.
Small and medium-sized businesses make most of the money e-commerce generates from sales on various marketplaces. TikTok and GoTo are making a concerted effort to demonstrate their appreciation for this reality, which they are fully aware of. They announced today that “more than ninety percent of the combined business’s merchants are micro, small, and medium enterprises (MSMEs), and the companies will undertake a series of joint initiatives to support them.”
However, it is essential to note that TikTok has recently admitted that to collaborate with Indonesian partners, it is necessary to have an Indonesian partner involved.
In 2021, ByteDance released the brief video app TikTok Shop Indonesia. As of October, the country had around 106 million users, making it the second most popular country in the world behind the United States. With 167 million active social media users, Indonesia is the third-largest market in Asia, just behind China and India. At the same time, 60.4% of the entire population uses these platforms, making Indonesia the third-largest market in Asia.
“Going forward, TikTok, Tokopedia, and GoTo will transform Indonesia’s e-commerce sector, creating millions of new job opportunities over the next five years,” the two businesses stated in a joint statement. According to the statement, “GoTo will create millions of new job opportunities.”