Earlier this month, Indonesia’s trade ministry rejected for the third time an application by Chinese e-commerce app Temu to register a trademark in the country. The rejection reflects concerns about the app’s business model, which allows factories to ship goods directly to consumers, mostly from China. “Factory-to-consumer is not consistent with our policies. Every factory-to-consumer activity must have an intermediary, a distributor,” Isy Karim, director general of domestic trade at the trade ministry, said last month. He promised that the government would “monitor the situation closely.”
Launched in 2022 by Pinduoduo or PDD Holdings, Temu immediately made an impression in the international e-commerce market. By 2023, it had amassed over 123 million downloads in the United States, with its share price surpassing that of Amazon and even displacing Alibaba in China. Temu currently operates in more than 58 countries worldwide.
In Southeast Asia, Temu has expanded into markets such as Thailand, Malaysia and the Philippines, enjoying popularity across a range of age groups, from baby boomers to Generation Z, thanks to its incredibly low prices. The e-commerce platform’s appeal is enhanced by significant discounts and free shipping for customers willing to wait up to 22 days for delivery.
Most of Temu’s products originate from China, often from major manufacturing centers such as Guangzhou and Yiwu. Temu’s extensive supplier network 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 bypasses resellers and dropshippers, unlike platforms like Shopee or Tokopedia.
The lack of middlemen in Temu’s supply chain is a key factor in the company’s 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 Indonesia, however, authorities are concerned about the potential impact of Temu. The app poses two significant threats to the Indonesian domestic market. First, its factory-to-consumer business model could drastically reduce prices of local products, potentially leading to a sharp decline in sales and revenue for local businesses, especially micro, small, and medium-sized enterprises (MSMEs).
Second, Temu’s producers benefit from access to cheap raw materials and a large workforce, allowing them to produce goods on a large scale at low cost. These products are then widely distributed through e-commerce platforms, increasing competition and putting pressure on local businesses. In contrast, local SMEs face higher raw material costs and minimum wage restrictions, making it difficult for them to compete effectively. In addition, Temu’s robust logistics network enhances the company’s 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, subsidiaries and distributors, resulting in lower prices but potentially damaging the number of small and medium-sized enterprises (MSMEs) and jobs in Indonesia.
Fiki Satari, an official at the ministry, shares these concerns and says Temu’s entry into the Indonesian market could be harmful and should be prevented. He also points out that Temu’s business practices are not compatible with current Indonesian regulations.
So far, the Indonesian government has shown little qualms about using its power to protect local businesses and maintain economic stability. In October, it announced a ban on e-commerce transactions on social media platforms, which forced TikTok Shop, a fast-growing e-commerce arm of the popular video-sharing site, to cease operations. TikTok quickly complied, but expressed regret over the Indonesian government’s decision.
In a statement announcing the measure, Trade Minister Zulkifli Hasan said the ban aims to “create a fair, healthy and beneficial e-commerce ecosystem by prohibiting marketplaces and social media sellers from acting as producers and facilitating payment transactions through their electronic systems.”
Recently, the Indonesian government also decided to impose import tariffs of 100 to 200 percent on Chinese textiles to protect the domestic textile industry from unfair competition due to Chinese overcapacity.
This week, the Ministry of Trade and the Indonesian Anti-Dumping Committee also set anti-dumping duties on ceramics. The decision is now awaiting approval by Finance Minister Sri Mulyani. The proposed anti-dumping duties will be between 40 and 50 percent.
With these proactive protectionist measures, Indonesia hopes to protect its local businesses and economy from potential negative impacts – and avoid the political backlash that such economic disruption would likely bring. Despite three attempts to obtain operating licenses, Indonesia has so far not allowed Temu to enter the domestic market. Its past course of action suggests that it is unlikely to do so, despite its likely popularity with the Indonesian public.
