TikTok’s messy merger in Indonesia could be a preview of what’s to come in the U.S.

As TikTok looks to change course to comply with U.S. laws, a similar experiment in its second-largest market is unraveling.

Last year, TikTok’s parent company, ByteDanceiByteDanceByteDance is a Chinese internet technology company that owns TikTok and Douyin, a Chinese version of TikTok with a successful e-commerce arm.READ MORE, acquired a majority stake in its Indonesian online retail rival, Tokopedia, to abide by local laws that restrict social media companies from running e-commerce businesses. Following the acquisition, TikTok tucked its app interface into Tokopedia, and rebranded the platform as TikTok Shop by Tokopedia.

The merger has disrupted Indonesia’s $65 billion e-commerce market, Simon Torring, co-founder of market research firm Cube Asia told Rest of World. Since the acquisition, TikTok has laid off at least 2,500 employees across the merged entity, while sellers say they have lost agency over the platform.

“Tokopedia’s sales volume has continued to decline steadily after ByteDance’s acquisition,” Torring told Rest of World. “For the first couple of quarters, we gave them the benefit of the doubt of being a new owner carrying out messy integration work. At this point, it’s clear that they are not investing strategically in Tokopedia.”

TikTok entered Indonesia in 2021, gaining 106 million users within three years. In October 2023, however, the Indonesian government banned the platform, saying the measure was necessary to protect the country’s small and medium-sized businesses. ByteDance could sidestep the ban by partnering with a local company — it paid $840 million to acquire a majority stake in Tokopedia, an Indonesian unicorn that had long fended off Chinese rivals.

Sellers told Rest of World that TikTok’s representatives have asked them to create videos and adopt influencer-style marketing practices to gain visibility. Previously, on Tokopedia, the sellers only had to list their products with photos and descriptions.

“I’m not planning to make videos or to do livestream [to promote my products],” Helmin, a seller from Jakarta, told Rest of World. Helmin, who asked to be identified by her first name only, said she directed buyers to her Shopee store instead, where she continues to sell snacks and beverages imported from Korea, Vietnam, and Turkey.

So messy has TikTok’s merger been that it’s driven thousands of sellers to Toco, a little-known platform promising zero fees for life. Shopee and TikTok take a 2.5% cut from each sale. 

Responding to seller claims, a TikTok spokesperson told Rest of World the integration is “aimed at strengthening the value both brands provide to sellers, partners, and users across Indonesia.” The spokesperson said the company recognizes the transition process “brings both changes and questions” and is working to improve systems and support. 

Market shake-ups and regulatory tussles are part of Chinese e-commerce’s meteoric rise worldwide. In the U.S., TikTok is fighting a potential ban and grappling with the likelihood of cutting ties with ByteDance over the government’s fears of data handling violations, exploitation of “trade loopholes,” and surveillance. In India, the app has been banned since 2020 after a deadly border clash with China.

In May, Indonesia’s antitrust watchdog raised concerns that the TikTok-Tokopedia merger could potentially lead to predatory pricing, as well as “tying” and “bundling” practices that force sellers to use TikTok’s payment and delivery services. 

Indonesia averages three hours on social media daily. It’s among the highest in global rankings, where Kenya leads with an average of 4 hours and 13 minutes per day, according to DataReportal, a Singapore-based data analysis platform. Indonesia’s high social media engagement rate is where Chinese e-commerce platforms thrive, since their data collection practices are “deeply embedded into end-to-end automation,” Wenkai Zhou, associate professor of marketing at Rollins College in Florida, told Rest of World.

 “Every customer interaction immediately improves the system, and is constantly optimized in real time,” Zhou said.

Several merchants told Rest of World they’re being pressured to integrate their Tokopedia dashboards with TikTok’s — despite the integration being marketed as voluntary. Sellers who made the switch have lower site visits, and higher fees and ad costs, regional news website Tech in Asia reported in early June. There is also less control over shipping: Sellers are unable to choose reliable couriers or opt out of free shipping and cash-on-delivery options. 

“My revenue dropped by more than 50% as soon as I integrated the seller dashboard into TikTok’s,” Dedy, a Jakarta-based online retailer who also requested to be identified by his first name, told Rest of World. He has been selling toys, bags, and accessories on Tokopedia since 2017. He suspects TikTok’s algorithm is slowing down his sales. 

Torring said TikTok did not factor in capitalizing on low-impulse shopping habits, which involve consumers planning a purchase in advance. 

At least 30% of Tokopedia’s sales came from low-impulse shopping, unlike high-impulse purchases that are made spontaneously after seeing a video or influencer promotion, Torring said.

Combined with multichannel networks that coach sellers, script their videos, and tailor content to platform algorithms, shopping apps like TikTok, Shein, and Temu become addictive.

“In contrast, Western platforms like Amazon tend to separate customer experience, fulfillment, and marketing into more modular systems, partly because they face stricter privacy regulations and more fragmented data sources,” Zhou said.

In late June, TikTok responded to yet another government move: a 0.5% sales tax collection rule that makes all e-commerce platforms directly responsible for collecting and transferring taxes from millions of Indonesian sellers to the government. The company agreed to comply, seeking more time to prepare internal systems for tax collection. 

According to Zhou, Chinese firms are now adjusting their data management model to keep their offshore businesses in line with regulatory norms.

“Chinese companies are more aware of the difficulties that they face in the current geopolitical climate. And they’re much more open to any type of collaboration that allows them to survive in that context,” Zhou said.  He pointed to TikTok’s potential partnership with the American software firm Oracle and its 2020 decision to move its regional headquarters from China to Singapore — part of an effort, he said, to present the platform as operating from a more politically neutral location.

“In Southeast Asia, Chinese companies usually invest [in other companies], instead of managing [them] directly, like how Shopee is backed by Tencent and Lazada by Alibaba,” Ming Yii Lai, research manager at Shanghai-based Daxue Consulting, told Rest of World. “[Now], they localize their operations, with independent CEOs making very fast decisions.”

That strategy isn’t paying off in Indonesia, where many sellers say Tokopedia has “lost its soul” and been “reduced to just another generic Chinese marketplace,” a Jakarta-based seller wrote in a LinkedIn post. “There’s nothing wrong with that on paper, but the truth is, Indonesians shop differently. We look for connection, for trust, for the sense that we’re part of something local and meaningful.”