The Chinese company ByteDance Ltd.’s TikTok has reached an agreement to spend $1.5 billion in a joint venture that it will manage with Indonesia’s GoTo Group. This move enables the Chinese company to revive its shopping app in its largest online retail market.
The social media behemoth said on Monday that it will merge its TikTok Shop operation in Indonesia with GoTo’s Tokopedia e-commerce division. In that partnership, TikTok will own a 75% share and operate the social media app’s purchasing functions in Indonesia.
For ByteDance, which is essentially assuming control of a well-known local online retailer in a significant international market, the arrangement is unique. ByteDance is able to resume its operations in Indonesia and adhere to the rules put in place to stop its online retail service at the very moment that it was beginning to gain pace against Sea Ltd. and GoTo, thanks to the deal that sees GoTo take on the role of a passive backer of the Tokopedia operation.
GoTo’s stock dropped 5.6% in Jakarta as investors evaluated the effects of TikTok taking over its e-commerce division. Leading Indonesian digital lender PT Bank Jago, a company in which GoTo has equity, saw a 7.9% increase. For platforms run by Jago, a partnership may increase and channel payments and e-commerce activity.
The government of Indonesia, which has worked to defend regional competitors, including tens of millions of its smaller businesses, has indicated that it will accept the new agreement between TikTok and GoTo. Jakarta passed laws in September requiring social media companies like TikTok to keep their payment services and content separate as the platform developed into a significant competitor of Tokopedia and regional e-commerce companies.
Beijing-based, privately held ByteDance is looking for additional revenue streams outside of its well-known social media service, and TikTok Shop is its fastest-growing feature. As a model for a global expansion from the US to Europe, it has set its sights on the 278 million-person nation of Indonesia’s online retail industry.
Due to its immediate success, TikTok decided to expand into additional regions, including the US, for online retailing after launching its shopping feature in Indonesia in 2021. This year, TikTok said that it would make billion-dollar investments in Southeast Asia, including Indonesia.
An agreement with TikTok could be problematic for GoTo, the largest internet business in Indonesia, as it would enable a significant rival in online shopping to continue functioning in the nation. In a deal that may increase both businesses’ volumes of sales and payments, it also provides GoTo with a potent worldwide social media partner.
The company informed investors in a note that GoTo will not be obliged to continue sponsoring Tokopedia and that additional money from TikTok will not dilute its 25% stake in the business.
Since taking over in June, GoTo’s chief executive officer Patrick Walujo has been working to prove the ride-hailing and e-commerce company has long-term earnings potential. He hopes to achieve profitability on an adjusted basis by the end of the year. Northstar Group’s managing partner is carrying on his predecessors’ efforts to cut losses by reducing employment, reducing promotions, and tightening spending controls.
One of the first nations in Southeast Asia to take action against TikTok is Indonesia. Following Indonesia’s restrictions, Malaysia, which is close by, announced that it is looking into the prospect of controlling TikTok and its online sales. Due to national security concerns, the social media behemoth is already under investigation and may face restrictions in countries including the US, Europe, and India.
