Earlier this month, Indonesia’s Ministry of Trade rejected for the third time an application by the Chinese e-commerce app Temu to register a trademark in the country. The rejection reflects a concern about the app’s business model, which allows factories to ship goods directly to consumers, mostly from China. “Factory-to-consumer is not compatible with our policies. Every activity 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 pledged that the government would “monitor the situation closely.”
Launched in 2022 by Pinduoduo, or PDD Holdings, Temu made an immediate impression on the international e-commerce market. It had amassed over 123 million downloads in the United States as of 2023, with its stock surging past Amazon’s and even displacing Alibaba in China. Temu currently operates in more than 58 countries across the world.
In Southeast Asia, Temu has expanded into markets like Thailand, Malaysia, and the Philippines and has garnered widespread popularity across various age groups, from baby boomers to Gen-Z, thanks to its incredibly low prices. The e-commerce platform’s appeal is amplified by its significant discounts and free shipping for customers willing to wait up to 22 days for delivery.
The majority of products on Temu are sourced from China, often from major production hubs like Guangzhou and Yiwu. Temu’s extensive network of suppliers across different regions in China enables consumers to explore a broad array of product categories from diverse manufacturers.
Temu’s success is largely attributed to its Factory-to-Consumer business model, which bypasses resellers and dropshippers, unlike platforms such as Shopee or Tokopedia.
The absence of intermediaries in Temu’s supply chain is a key factor in its ability to offer such competitive prices, making it a highly attractive option for budget-conscious shoppers. This direct approach to e-commerce has undoubtedly contributed to Temu’s growing popularity.
In the Indonesian context, however, the authorities have been concerned about the possible impact of Temu. The app presents two significant threats to the Indonesian domestic market. First, its Factory-to-Consumer business model could drastically lower prices for local products, potentially leading to a sharp decline in sales and revenue for local businesses, especially Micro, Small, and Medium Enterprises (MSMEs).
Second, Temu’s producers benefit from access to cheap raw materials and a large workforce, which enables them to produce goods on a massive scale at low costs. These products are then distributed widely through e-commerce platforms, intensifying competition and putting pressure on local businesses. In contrast, local MSMEs face higher raw material costs and minimum wage constraints, making it challenging for them to compete effectively. Additionally, Temu’s robust logistics network enhances its ability to reach customers quickly and efficiently.
Teten Masduki, Indonesia’s minister of cooperatives and small and medium enterprises, has expressed concern that Temu’s model bypasses traditional resellers, affiliates, and distributors, resulting in lower prices but potentially undermining MSMEs and job opportunities in Indonesia.
Fiki Satari, an official in the ministry, has echoed these concerns, suggesting that Temu’s entry into the Indonesian market could be detrimental and should be prevented. He also notes that Temu’s business practices do not align with current Indonesian regulations.
So far, Indonesia’s government has shown little compunction in wielding the power of the state to protect local business and maintain economic stability. In October, it announced a ban on e-commerce transactions on social media platforms, causing TikTok Shop, a fast-growing e-commerce arm of the popular video-sharing site, to cease its operations. TikTok quickly complied, despite expressing regret for the Indonesian government’s decision.
In a statement announcing the policy, Trade Minister Zulkifli Hasan said that the ban aims to “create a fair, healthy, and beneficial electronic commerce ecosystem by prohibiting marketplaces and social media sellers from acting as producers and facilitating payment transactions on its electronic systems.”
Recently, the Indonesian government has also decided to impose import duties of 100 percent to 200 percent on Chinese textiles, in a bid to protect the domestic textile industry from unfair competition due to China’s overcapacity.
This week, the Ministry of Trade and the Indonesian Anti-Dumping Committee also finalized the anti-dumping duties for ceramics, and the decision now awaits approval from Finance Minister Sri Mulyani. The proposed anti-dumping duties will range from 40-50 percent.
By taking these proactive protectionist measures, Indonesia hopes to protect its local businesses and economy from potential adverse effects – and to avoid the political backlash that such economic disruption would likely entail. Despite three attempts to secure operating licenses, Indonesia has yet to permit Temu’s entry into the domestic market. Its past practice suggests that for all its likely popularity with the Indonesian public, it is unlikely to do so.