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Introduciton

On October 4, Indonesia’s TikTok Shop officially closed at 17:00 Western Time, giving many sellers a “surprise”.

For the development of Indonesia’s TikTok Shop, both TikTok officials and users have been optimistic.

In June of this year, TikTok CEO Zhou Shouzi, also said at a forum held in Jakarta, “will invest billions of dollars in Indonesia and Southeast Asia.”

And since its launch in 2021, TikTok Shop has risen rapidly in Indonesia to become the second largest market after the United States. According to Momentum Works, TikTok Shop generated $4.4 billion in volume in Southeast Asia last year, while Indonesia accounted for 42 percent of total GMV. Sales in Southeast Asia will jump to $15 billion this year, according to Momentum Works’ forecast.

(Source: Momentum Works)

Why was TikTok SHOP Indonesia shut down?

In response to the closure of TikTok Shop Indonesia, TikTok officials said that “this will affect the livelihoods of 6 million sellers and 7 million creators, but Our priority is to remain compliant with local laws and regulations“.

Among the “current laws and regulations in Indonesia” that TikTok officials refer to is Indonesia’s newly revised Trade Minister Regulation No. 50 of 2020. The regulation restricts the sale of goods on social media by stating that “social commerce can only facilitate the promotion of goods or services, and cannot be traded directly, and direct payment is no longer allowed, but can only be used for promotion.“

According to Indonesian President Joko Widodo, the purpose of amending this regulation to standardize the rules of e-commerce in Indonesia is to protect local small and medium-sized enterprises (SMEs) in Indonesia.

The official shutdown of Indonesia’s TikTok Shop comes a week after Tanah Abang, Southeast Asia’s largest wholesale market, was inspected. According to Teten Masduki, Jakarta’s Minister of Cooperatives and Small and Medium-sized Enterprises, sellers at the market in the capital city of Jakarta have lost more than 50 percent of their profits due to their inability to compete with imported products sold at low prices online.

(Source: Unsplash)

In contrast, according to Indonesia’s official report for 2022, there are a total of 64.2 million MSMEs in Indonesia, accounting for 61% of Indonesia’s GDP. However, only about 17.5 million MSMEs have entered the digital ecosystem and utilized e-commerce.

This is why President Widodo emphasized, “What is expected is that technological advances will create new economic potential, not stifle the existing economy.”

At the same time, the closure of Indonesia’s TikTok Shop has gone some way to safeguard Indonesia’s local labor force. In Indonesia, micro, small and medium-sized enterprises (MSMEs) absorb 97 percent of the country’s total labor force, or about 119.6 million people.

“remain compliant with local laws and regulations”

1.Company Employment Ratio

Indonesia’s protection of the local labor force is also reflected in its staffing ratios for hiring employees.

• The Indonesian government only allows companies to hire foreign employees if the Indonesian employee is not qualified for the position. The employer must also hire an Indonesian employee as a “partner” of the foreign employee;
• Employers who hire foreign workers must also hire an Indonesian employee as a “partner” of the foreign employee. The purpose is to force the hired foreign employee to transfer his or her skills to local employees.
• While there is no specific ratio of Indonesian to foreign employees when a foreign company opens a business in Indonesia, in practice the “unwritten” rule is 3:1.

At the same time, there are certain positions in Indonesia that can not be filled by foreign employees:

• Personnel Director;
• Industrial Relations Manager;
• Human Resources Manager;
• Head of personnel development;
• Head of personnel recruitment;
• Head of personnel resettlement;
• Head of Career development at Employe;
• Personnel declaration manager;
• Personnel and career experts;
• Personnel Officer;
• Career counselor;
• Work consultant;
• Employment consultants and counselling;
• Employee mediator;
• Vocational training administrators;
• Job interviewers;
• Working analyst;

(Source: Unsplash)

In the early stage of overseas development, many companies will choose to lead some of their domestic employees to build the initial team in order to quickly develop their business. This will have to face the overseas local requirements for the employment ratio of foreign companies, and this requirement is not only limited to the country of Indonesia.

For example, in order to reduce the local unemployment rate in Saudi Arabia, the Saudi government implemented the “Saudization Policy”, which in 2003 stipulated that Saudis should account for at least 30% of the employees in companies with 20 or more employees, and the proportion of Saudis in the workforce must be increased by 5% per year. The first phase of Saudization came into effect in September 2018, in which car dealerships and sellers of clothing, furniture and household goods will hire locals for about 70 percent of their sales.

In Brazil, companies with three or more employees are required to follow a certain hiring “ratio”, in which companies with foreign workers must ensure that at least two-thirds of their workforce is Brazilian.

The ratio is even higher in Mexico. Mexico’s Federal Labor Law requires that at least 90% of the workforce be Mexican nationals, and only 10% foreigners are allowed.

2.Ratio of board members

When companies expand globally and establish local entities, they also face the problem that some countries will specify the requirement that their directors must be joined by residents of local nationality.

In Malaysia, according to the DTS Guidelines, all distribution trading companies with foreign participation (e.g. local entities with more than 50% foreign ownership) must comply with the following requirements:
(a) Appointment of Malaysian aborigines or Malays as directors;
(b) Employing local personnel (Malaysians) at all levels of positions, especially management positions and above;
(c) not exceeding 15% of the total labor force of low-skilled foreign workers;
(d) provide transparent and standardized operational processes for local suppliers to sell their products.

In Vietnam, for all foreign companies registered in the country, it is required to employ a resident legal representative who is also the general director or chairman of the membership council or management board. The legal representative can be a foreigner but must reside in Vietnam.

For any company incorporated in India by a foreigner, at least one director must be a resident of India.

New Zealand requires at least one director to be a New Zealand resident or an Australian resident who is also a director of an Australian incorporated company. Australia requires at least one director who is ordinarily resident in Australia for proprietary companies.

In the Netherlands, there is no law that strictly requires that the board of directors must include employees of Dutch nationality. However, under the Dutch tax law system, it is required that at least 50% of the board of directors be made up of Dutch tax resident directors.

In contrast, in some countries in the European Union, the restriction on the nationality of board members is often lenient to the entire EU membership or the European Economic Area (EEA).

In Norway, for example, if a company director or shareholder is not an EU citizen, 50% of the board members must be Norwegian residents. In Finland, at least one ordinary member of the board of directors should reside in the EEA.

How to Ensure Employment Compliance?

Companies expanding and doing business globally face not only compliance constraints with local industry regulations, but also employment compliance issues. The strict requirements on employment ratios and director allocation are not limited to the countries mentioned above. As the laws and regulations of different countries are updated rapidly, how to grasp the local regulations to ensure a series of compliance issues such as employee onboarding and accurate payroll?

As a one-stop global employment and payroll management platform, PayInOne’s products and systems cover the employment guidelines of various countries, including laws and regulations, policy changes, labor protection, investment policies, entry thresholds, etc., to ensure that enterprises use employees in compliance with employment standards and legal processes.

As for those overseas enterprises that have difficulties in establishing entities overseas, PayInOne provides EOR services to help enterprises share the high cost and time of establishing entities in overseas local countries or regions by providing local compliant entities. At the same time, the nominal employer is responsible for the employee’s social security and welfare payment, salary payment, vacation approval, etc., and all these employment obligations are assumed by the nominal employer, which can help the enterprise to quickly launch the relevant business overseas.

* The contents of this article all refer to the existing local labor-related laws and regulations, such as local policy changes should be implemented in accordance with the actual policy.