The lack of visitors at Tanah Abang Market means a number of traders are faced with a complicated situation. In fact, some of them had to ‘go out of business’ because their buying and selling activities were decreasing. Digital Economics Expert, Faculty of Economics and Business (FEB), Universitas Indonesia (UI), Ibrahim Kholilul Rohman, Ph.D., said that this condition is not only experienced by Tanah Abang Market, but is also experienced in almost all retail trade centers in Jakarta, such as Glodok, Cipulir, Thamrin City, Ratu Plaza and so on. According to him, the factors that influenced the decline in buying and selling activity were caused by the demand aspect and the supply aspect working together.
From the demand side, Ibrahim said that the proportion of household expenditure to Gross Domestic Product (GDP) was tending to weaken. The proportion of household consumption to GDP in mid-2023 is the lowest proportion in the last ten years. “Consumers tend to experience a decline in their purchasing power which can be caused by several aspects, for example the impact of the crisis due to Covid-19 which has not yet fully recovered thus the economy at the grass roots has not really rebounded. People also tend to be more careful (precaution), this is indicated by an increase in savings, especially for savings amounts below IDR 5 billion,” said Ibrahim.
Meanwhile, from the supply side, the influx of imported goods from abroad, especially from China, which are much cheaper to buy and sell via digital platforms, has also caused goods sold directly, such as in markets or offline, to become less competitive in terms of price. Ibrahim said, in general Indonesian society has a price elastic demand pattern. This means that a small change in price will cause a larger change in the quantity of goods demanded.
Online sales platforms are becoming more attractive to consumers because they are easy to obtain and the prices are cheaper. Moreover, this platform is also supported by a financial ecosystem that makes it easier for consumers to make transactions, such as digital wallets, digital banking, fintech, peer-to-peer (P2P) lending, and even paylater which allows people to buy goods even if they don’t have a budget.
Ibrahim further said that digital platforms generally have a very large network effect. Supported by many users, personalized products can be made so that consumers get what they ask for at a price that suits their abilities.
“In economics, this is called 1st degree price discrimination, where each buyer with different purchasing power can have their needs personalized,” said Ibrahim.
On the other hand, Ibrahim revealed that apart from the convenience and low prices obtained in online buying and selling activities, in the long term there are several possible losses that consumers will experience. Like personalized products, it will shift purchases from wants to needs. “So it seems as if all items are important to buy. This will cause unnecessary spending for people with limited income capabilities,” said Ibrahim.
As a consequence, the presence of digital financial platforms can put people in a debt trap with expensive interest if they fail to manage their needs and wants wisely. Digital platforms also have risks related to data security even though Indonesia has implemented Law no. 27 Year 2022 concerning personal data protection (PDP).
With the onslaught of imported products from abroad, especially from China at much cheaper prices, this is certainly a tough challenge. With limited options, Ibrahim suggested that it would be a good idea for traders to explore shifting sales goods to non-mass production which can easily be substituted with goods imported from abroad at much cheaper prices. Apart from that, they also have to learn the benefits of digitalization, especially for their sales.
“However, this problem is actually much more complex than just a digitalization problem. With strong network effects, digital platforms generally have the ability to create lock-in. This condition is characterized by the dependence of both buyers and sellers on the platform where they are unable to leave the platform. Unilaterally, the platform can filter what types of commodities are trending on the platform; this is what is currently happening on the TikTok Shop. Goods from China, such as skincare, will always be upgraded in order to become the best-selling items with high exposure,” said Ibrahim. “Platforms like TikTok can also carry out pseudo bans (banning certain products but not officially) to prevent goods they ‘don’t want’ from becoming goods with high exposure,
In dealing with this problem, Ibrahim said that mitigation must be supported by government policies that have traits of regulatory impact assessments, such as anticompetitive conduct carried out by platforms for local products. Apart from that, platforms can also unilaterally carry out vertical integration with preferred logistics on delivery and practice-payment that is actually prohibited by the Business Competition Supervisory Commission (KPPU). The platform must also carry out net-neutrality where every product is given equal access to up-market. Ibrahim said, one of the win-win solutions for the same product is dividing it into two separate groups, namely local products and imported products so that buyers have a choice.
“Without systematic efforts from the government, digital platforms, instead of being a locomotive for local content empowerment and progress, will actually slowly kill our products,” said Ibrahim, who is also a lecturer at the School of Strategic and Global Studies (SKSG) UI and Senior Economist at Indonesia Financial Group (IFG).
