ByteDance’s TikTok wants to do more business in Indonesia — Southeast Asia’s biggest e-commerce market. So after facing roadblocks from the regulators, it’s now come up with a new route to get there.

TikTok is putting up $1.5 billion in a new joint venture that will bring Tokopedia, the e-commerce unit of the Indonesian tech giant GoTo, together with TikTok Shop Indonesia, the local division of TikTok’s e-commerce business. TikTok will have a controlling stake of 75.01% in the new entity.

The $1.5 billion is not coming in one investment but will be put into the combined business “over time,” the companies said in a statement today. Initially, it will pay $840 million to take its stake, according to Reuters. GoTo’s stake in the JV as a result of todays deal is 24.99% and that will remain fixed, it added.

That joint ownership detail is key: this deal comes on the heels of TikTok coming under the scrutiny of regulators over its wholly-owned effort, TikTok Shop Indonesia, which provided online shopping via TikTok’s wildly popular flagship social media app. About two months ago Jakarta banned direct payments for online purchases on social media platforms to protect smaller local merchants and users’ data. TikTok was forced to suspend its e-commerce service on 4 October to comply with the new rule.

This deal has a couple of parts to it that work in reverse to the final outcome. First, Tokopedia will actually acquire TikTok Shop’s Indonesia business for $340 million in the fourth quarter of this year, according to GoTo’s investor note. Second, TikTok will acquire the majority stake in Tokopedia, via the new entity, for $840 million. Third, there will be further money invested up to $1.5 billion over an unspecified period to build out the JV further.

There are some forecasted valuations here at play as well as valuations that have been impacted by the regulatory issues. GoTo notes, for example, that TikTok Shop Indonesia “was valued based on a backward looking view of the TikTok Shop Indonesia business under the current environment during the fourth quarter of 2023 and does not reflect the forward looking potential of the combined entity.”

The overall transaction is expected to close in the first quarter of 2024.

Today’s deal is a direct result of TikTok getting scuppered from doing business in Indonesia over the small business rules.

Indonesia has an outsized presence in the e-commerce landscape of Southeast Asia. Its value was estimated to between $50 billion and $60 billion in the past year, working out to around around two-thirds of the revenues generated across the region as a whole.

A lot of that e-commerce revenue comes from small and medium businesses selling on marketplaces. TikTok and GoTo are well aware of this fact and now working hard to show respect for it. They noted today that “more than 90 percent of the combined business’s merchants are micro, small and medium enterprises (MSMEs) and the companies will undertake a series of joint initiatives to support them.”

But critically, now TikTok has also conceded that it needs to have an Indonesian partner in the mix when working with them.

The ByteDance-owned short video app launched TikTok Shop Indonesia in 2021 and had around 106 million users in Indonesia as of October, which came in second after the U.S. Indonesia is the third biggest market in Asia, only behind China and India in terms of the number of active social media users at 167 million, with 60.4% of the total population using these platforms.

“Going forward, TikTok, Tokopedia and GoTo will transform Indonesia’s e-commerce sector, creating millions of new job opportunities over the next five years,” the two companies said in a joint statement.

Frequently Asked Questions about TikTok’s Joint Venture in Indonesia

1. What is the new joint venture between TikTok and Tokopedia in Indonesia?

TikTok is forming a joint venture with Tokopedia, the e-commerce unit of Indonesian tech giant GoTo. The joint venture aims to expand TikTok’s e-commerce business in Indonesia, which is Southeast Asia’s biggest e-commerce market.

2. How much is TikTok investing in the joint venture?

TikTok plans to invest $1.5 billion in the joint venture over time. Initially, it will pay $840 million to acquire a controlling stake of 75.01% in the new entity.

3. Why did TikTok pursue this joint venture?

TikTok faced regulatory challenges in Indonesia due to its wholly-owned e-commerce effort, TikTok Shop Indonesia. The Indonesian government banned direct payments for online purchases on social media platforms, prompting TikTok to suspend its e-commerce service. The joint venture allows TikTok to work with an Indonesian partner and comply with local regulations.

4. What are the key details of the deal?

As part of the deal, Tokopedia will acquire TikTok Shop Indonesia’s business for $340 million in the fourth quarter of this year. TikTok, through the new entity, will acquire a majority stake in Tokopedia for $840 million. Additional investments of up to $1.5 billion will be made over an unspecified period to further develop the joint venture.

5. When will the transaction be completed?

The overall transaction is expected to close in the first quarter of 2024.

6. Why is Indonesia an important market for TikTok and GoTo?

Indonesia has a significant presence in the Southeast Asian e-commerce landscape, with a value estimated between $50 billion and $60 billion. The majority of e-commerce revenue in Indonesia comes from small and medium businesses. TikTok and GoTo recognize this and aim to support micro, small, and medium enterprises (MSMEs) through joint initiatives.

7. How many users does TikTok have in Indonesia?

As of October, TikTok had around 106 million users in Indonesia, making it the second-largest market for the app after the U.S. Indonesia also ranks third in Asia in terms of active social media users, with 167 million people using these platforms.

8. What are the goals of the joint venture?

TikTok, Tokopedia, and GoTo aim to transform Indonesia’s e-commerce sector and create millions of new job opportunities over the next five years, according to a joint statement by the companies.

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