In recent times, the bustling Tanah Abang Market in Jakarta has grappled with a stark decline in foot traffic, leaving numerous traders teetering on the brink. Some have been forced to shutter their shops due to the shrinking sales activities. Yet, this predicament isn’t confined solely to Tanah Abang Market; it has cast a pall over nearly every retail hub in Jakarta that once thrived as vibrant economic centers. Places like Glodok, Cipulir, Thamrin City, Ratu Plaza, and Taman Puring, among others, have long been synonymous with their distinct retail offerings.
From an economic point of view, a confluence of demand and supply-side factors has contributed to this quandary. In the realm of household economics, the proportion of household spending in relation to Gross Domestic Product (GDP) has seen a concerning downtrend. As of mid-2023, household consumption as a percentage of GDP hit its lowest ebb in a decade, settling at 52%, a figure notably below the decade-long average of approximately 56.9%, as per data from the World Bank database.
Furthermore, when viewed from the perspective of consumer demand, we are witnessing a noticeable decline in purchasing power. This decline can be attributed to a combination of factors, including the lingering repercussions of the Covid-19 crisis, which have not yet fully abated, and an economy at the grassroots level that has not fully regained its footing. Moreover, there is a growing trend of cautiousness among individuals, as evidenced by an uptick in savings, particularly among those with savings totaling less than IDR 5 billion. Notably, the Gross Domestic Saving rate currently stands at over 37%, marking one of the highest rates observed in the past decade.
Gross Domestics Savings Rate Quarterly Indonesia
This heightened consumer awareness may influence their preferences towards more budget-friendly products, opening up opportunities for online retail platforms to offer them convenient transaction options. Indonesian consumers exhibit a heightened degree of price elasticity in their consumption habits, meaning even slight price fluctuations can lead to significant shifts in the quantity of goods demanded. This phenomenon is especially evident in the consumption of items such as fish, beef, and chicken meat, as highlighted in a study by Devi in 2009.
Consequently, online sales platforms have become increasingly appealing due to their seamless and cost-effective access to a wide array of products. These platforms are further enhanced by an integrated financial ecosystem that streamlines transactions. This ecosystem includes digital wallets, peer-to-peer (P2P) lending, and pay-later options, enabling individuals to make purchases even when their immediate budgetary flexibility is limited. With a substantial user base, these platforms can offer personalized product selections tailored to meet individual demands while aligning with consumers’ purchasing power. This economic phenomenon is often referred to as ‘1st-degree price discrimination,’ permitting buyers with varying purchasing power to access tailored product offerings at different price points and quality levels.
Moreover, due to the influential size of users digital platforms can create situations of lock-in, where both buyers and sellers become dependent on the platform, making it challenging for them to disengage. Unilaterally, these platforms can curate trending products within their ecosystems. A noteworthy illustration of this practice can be observed with TikTok Shop, where certain Chinese products, like skincare items, receive continuous promotion, resulting in substantial exposure. This can also extend to the implementation of shadow-bans to deter undesirable products from gaining extensive visibility.
Structurally, platforms, including but not limited to TikTok, have been utilized as venues for transactions, primarily involving very affordable Chinese products. As per Keynes’ famous law, “demand creates its own supply.” When the demand for goods exceeds the available supply in the market, it typically attracts more suppliers. Indonesian government has decided to ban TikTok shop as part to protect the local SME. But banning a single platform proves insufficient as products and transactions will inevitably shift to other platforms. Furthermore, restricting the value of imported products poses challenges. Strategies exist to import white-label products and sell them locally while misleading consumers by presenting them as domestic products. Secondly, there are consumers who genuinely require these products at affordable prices due to their limited willingness to pay.
Preventing the influx of imported goods necessitates a significant policy overhaul and the establishment of a more efficient value chain from industrial policy perspective. In the short term, achieving higher productivity is a formidable challenge especially in the case of Indonesia-China bilateral trade, as China’s exports to Indonesia encompass almost every product category. For instance, the entire export of toys from China to Indonesia in 2021-2022 equaled the value of Indonesia’s entire copper export to China, both amounting to nearly 1 billion USD.
From a digital policy perspective, the policy might be more suitable in the short run. It should encompass the fundamental concept of the internet known as Net Neutrality introduced by Columbia University media law professor Tim Wu in 2003. This concept ensures an open and equal internet for all. It mandates that internet data and users should be treated equally, without any restrictions on access or content blocking to serve specific interests.
Platforms may be required to distinctly display all products, categorizing them as either local or imported across all segments, including food, clothing, handicrafts, etc. The algorithm should refrain from favoring specific products over others. This approach accommodates customers who prioritize quality products over price, as well as those who prioritize supporting local products regardless of the price. This action would help level the playing field for Indonesia’s SMEs, granting them exposure and leveraging the extensive networks that platforms like TikTok offer.
In conclusion, technology should not be perceived as an adversary to the empowerment of Indonesia’s MSMEs. According to 2022 ADB data, these MSMEs contribute to 99% of economic activities, yet they encounter challenges in terms of value-added creation, which currently stands at only 61%, and their share in exports, which is a mere 14.4%. Implementing more robust digital policy measures can facilitate the growth of MSMEs, enabling them not only to access local markets but also to expand globally.
Source: Tempo News