MSMEs Need to Survive from Marketplace Cross-border Onslaught

TEMPO.CO, Jakarta - Foreign sellers on cross-border marketplace pose a threat to local MSME business sustainability.

The adoption of digitalization is growing at warp speed. Digital transformation is happening across sectors, including the way Micro, Small and Medium Enterprises (MSMEs)/Usaha Mikro, Kecil dan Menengah (UMKM) conduct their businesses through digital platforms like marketplaces.

There are 2 types of marketplace business models; local and cross-border. The local or domestic marketplace is a marketplace platform that only facilitates transactions within one country.  Whereas, the cross-border marketplace allows foreign merchants to transact directly with buyers on the platform by sending the goods from the merchant's home country.

According to Esa Soeryaningrum, the Program Director of the Institute for Development of Economics and Finance (INDEF) and a Lecturer in the Faculty of Economics and Business, Diponegoro University, currently the cross-border marketplaces are quite developed in Indonesia due to the rapid growth of the digital ecosystem. “Cross-border marketplaces have the opportunity to get more customers because they market globally,” she said.

However, the cross-border marketplace benefits turned out to bring pros and cons in Indonesia. “The problem now is many imported product prices are lower than local products which actually have better quality. As a result, local goods are less attractive to Indonesian customers,” said Esa.

Even though the competition with the foreign products on one hand can indeed motivate local MSMEs to continue innovating, the exemption of goods purchase and price which reported undervaluation could make local MSMEs less competitive.

Joko Widodo, the President some time ago even started the movement to love domestic products and "hate" imported products. This statement is based on the potential trading in foreign products of the cross-border marketplace that could kill the local MSMEs. In fact, unfortunately, local MSMEs have some difficulties in penetrating the export market, due to the needs of large capital, connections, large stocks and also marketing difficulties.

In addition to the competition from imported products, foreign sellers who sell goods below the local market prices also pose a serious threat to the local businesses. They do illegal cross-border practice on e-commerce platforms in which the products do not officially go through the custom and excise, hence sold at very cheap prices.

Regarding this, Esa said that the Indonesian government needs to regulate the digital marketplace, either local or cross-border. Now, the government is currently working on the regulations related to digital taxes, especially to reinforce various cross-border marketplaces that do not comply with applicable regulations related to taxes and selling price provisions.

“To create ideal conditions for all parties, it is necessary to start with the government as a regulator. Regulations can help create ideal market conditions as well as regulating the market fairly for all parties involved,” said Esa.

The Indonesian government has actually strengthened the supervision and regulations related to the existence of cross-border marketplaces through an electronic data integration system created by the Directorate General of Customs and Excise, the Ministry of Finance. This regulates the circulation of imported goods through e-commerce so that they are running in an equal playing field of this business competition, between local and imported goods.

Meanwhile, marketplace platforms that are already in operation can later adjust to these regulations. Support for government efforts in securing MSMEs is needed from various parties, especially marketplace platform providers.

“The marketplace platform providers need to improve its features by providing information on the origin of goods, both direct import and imported goods sold by local sellers. So far, there are only features of the origin of the seller,” said Esa.

Esa exemplifies several cross-border marketplaces in Indonesia, such as Alibaba, Shopee or Amazon. Meanwhile, e-commerce platforms such as Tokopedia, Bukalapak, and Sayurbox are categorized as domestic marketplaces.

“The existence of online media makes it easier for cross-border marketplaces to operate in Indonesia. Unfortunately, if it is not properly regulated, local entrepreneurs have the potential to suffer losses because their products will be unable to compete with illegal cross-border products which are much cheaper,” Esa added.(*)

INFO TEMPO