ByteDance's TikTok wants to do more business in Indonesia, Southeast Asia's largest e-commerce market. So after facing hurdles from regulators, the company is now coming up with a new route to get there.
TikTok is investing $1.5 billion in a new joint venture that will partner Tokopedia, the e-commerce arm of Indonesian tech giant GoTo, and TikTok Shop Indonesia, the local arm of TikTok's e-commerce business. TikTok will own a 75.01% controlling interest in the new company.
The $1.5 billion will not be a one-time investment but will be invested in the combined business “over time,” the companies said in a statement today. The company initially plans to pay $840 million for the stake, Reuters reported. As a result of today's agreement, GoTo's stake in the joint venture will be 24.99%, which will remain fixed going forward, it added.
The details of this joint ownership are key. The deal comes after TikTok came under regulatory scrutiny over TikTokShopIndonesia, TikTok's wholly-owned business that offered online shopping through its hugely popular flagship social media app. About two months ago, Jakarta banned direct payments for online purchases on social media platforms to protect the data of local small businesses and users. TikTok was forced to suspend its e-commerce services on October 4 to comply with the new rules.
There are several parts of this trade that work against the end result. First, according to GoTo's investor note, Tokopedia actually plans to acquire TikTok Shop's Indonesia operations in the fourth quarter of this year for $340 million. Second, TikTok will acquire a majority stake in Tokopedia through a new company for $840 million. Third, up to $1.5 billion of additional funds will be invested over an unspecified period of time to further strengthen the joint venture.
There are some expected valuations as well as valuations affected by regulatory issues. For example, GoTo said that TikTok Shop Indonesia has been evaluated based on a “backward-looking view of the TikTok Shop Indonesia business under the current environment in the fourth quarter of 2023, and the future potential of the combined entity.” It does not reflect the current situation.”
The overall transaction is expected to close in the first quarter of 2024.
Today's transaction is a direct result of TikTok being banned from doing business in Indonesia due to small business regulations.
Indonesia has a prominent presence in Southeast Asia's e-commerce landscape. Its value last year was estimated at $50 billion to $60 billion, representing about two-thirds of the revenue generated across the region.
Much of e-commerce revenue comes from small and medium-sized businesses selling on marketplaces. TikTok and GoTo are well aware of this fact and are working hard to respect it. “More than 90% of the combined businesses will be micro, small and medium enterprises (MSMEs) and the two companies will implement a series of joint initiatives to support them,” the companies said today.
But importantly, TikTok is currently Also He acknowledged that when working with Indonesia, it is necessary to include Indonesians as partners.
The short video app, owned by ByteDance, launched TikTok Shop Indonesia in 2021 and had about 106 million users in Indonesia as of October, making it second only to the United States. Indonesia is third in Asia. It is the largest market in the world, second only to China and India. The number of active social media users is 167 million, with 60.4% of the total population using these platforms.
“Going forward, TikTok, Tokopedia and GoTo will transform Indonesia's e-commerce sector and create millions of new job opportunities over the next five years,” the companies said in a joint statement.
