Indonesia’s Temu e-commerce app gets a lukewarm reception – The Diplomat

Earlier this month, Indonesia’s Trade Ministry rejected a trademark application by Chinese e-commerce app Temu for a third time in the country. The rejection reflected concerns about the app’s business model, which allows factories to ship goods directly to consumers, mostly from China. “Factory-to-consumer is not in line with our policy. Every business from factory to consumer must have an intermediary, a distributor,” Isy Karim, the Trade Ministry’s director general for domestic trade, said last month. He promised the government would “monitor the situation closely.”

Launched in 2022 by Pinduoduo, or PDD Holdings, Temu immediately made an impression on the international e-commerce market. By 2023, it had amassed over 123 million downloads in the United States, and its stock had rapidly outstripped Amazon and even displaced Alibaba in China. Temu now operates in over 58 countries around the world.

In Southeast Asia, Temu has expanded to markets such as Thailand, Malaysia and the Philippines, and has gained widespread popularity among various age groups, from baby boomers to Gen Z, thanks to its incredibly low prices. The e-commerce platform’s appeal is reinforced by significant discounts and free shipping for customers who are willing to wait up to 22 days for delivery.

Most of the products on Temu come from China, often from major manufacturing centers like Guangzhou and Yiwu. Temu’s extensive network of suppliers in different regions of China allows consumers to explore a wide range of product categories from different manufacturers.

Temu’s success is largely due to its Factory-to-Consumer business model, which, unlike platforms like Shopee or Tokopedia, bypasses resellers and dropshippers.

The lack of middlemen in Temu’s supply chain is a key factor in its ability to offer such competitive prices, making it a very attractive option for budget shoppers. This direct approach to e-commerce has undoubtedly contributed to Temu’s growing popularity.

In the Indonesian context, however, authorities are concerned about the possible impact of Temu. The app poses two major threats to the Indonesian domestic market. First, its factory-to-consumer business model could drastically reduce the prices of local products, potentially leading to a sharp decline in sales and revenues for local businesses, especially micro, small and medium-sized enterprises (MSMEs).

Second, Temu manufacturers benefit from access to cheap raw materials and a large labor force, which allows them to mass-produce goods at low costs. These products are then widely distributed through e-commerce platforms, which increases competition and puts pressure on local companies. Local SMEs, on the other hand, face higher raw material costs and minimum wage constraints, which make it difficult for them to compete effectively. In addition, Temu’s robust logistics network enhances its ability to reach customers quickly and efficiently.

Teten Masduki, Indonesian Minister of Cooperatives and Small and Medium Enterprises, expressed concern that Temu’s model bypasses traditional retailers, affiliates and distributors, resulting in lower prices but potentially undermining SMEs and employment opportunities in Indonesia.

Fiki Satari, a ministry official, echoed those concerns, suggesting that Temu’s entry into the Indonesian market could be harmful and should be prevented. He also noted that Temu’s business practices do not comply with current Indonesian regulations.

So far, the Indonesian government has shown no qualms about using state power to protect local businesses and maintain economic stability. In October, it announced a ban on e-commerce transactions on social media platforms, prompting TikTok Shop, the popular video-sharing site’s fast-growing e-commerce arm, to cease operations. TikTok quickly complied, despite expressing regret over the Indonesian government’s decision.

In a statement announcing the policy, Trade Minister Zulkifli Hasan said the ban aims to “create a fair, healthy and beneficial e-commerce ecosystem by prohibiting sellers on marketplaces and social media from acting as producers and facilitating payment transactions on their electronic systems.”

Recently, the Indonesian government decided to impose import tariffs on Chinese textiles ranging from 100 to 200 percent in order to protect the domestic textile industry from unfair competition resulting from overcapacity in China.

This week, the Ministry of Trade and the Indonesian Anti-Dumping Committee also finalized anti-dumping duties on ceramics, a decision that is now awaiting approval from Finance Minister Sri Mulyani. The proposed anti-dumping duties will range from 40 to 50 percent.

By taking these proactive protectionist measures, Indonesia hopes to protect local businesses and the economy from potential negative impacts—and avoid the political backlash that such economic disruption is likely to bring. Despite three attempts to obtain operating licenses, Indonesia has not yet allowed Temu to enter the domestic market. Its past practices suggest that, despite its likely popularity with the Indonesian public, it is unlikely to do so.