Maybank Investment Bank sees Indonesian e-commerce firm Bukalapak as a potential candidate for TEMU, an online marketplace operated by the Chinese e-commerce company PDD Holdings, due to its leaner business model.

The research house said in a note on Tuesday TEMU is struggling to secure an operational permit in Indonesia, due to refusal by the regulators, and the main reasons are TEMU’s business model (direct-manufacturing-to-customers model, mainly from China) and the lack of fairness in competition for local small and medium-sized enterprises (SMEs).

According to Maybank, this situation is similar to TikTok’s expansion in Indonesia in 2023, as the government did not allow the integration of social media and e-commerce.

“TikTok’s solution was to acquire Tokopedia. Market participants are speculating a similar scenario if regulators continue to reject TEMU’s application for a permit,” it said.

Based on Maybank analysis, there are two listed e-commerce platforms in Indonesia, Bukalapak and Global Digital Niaga.

Bukalapak is targeting low-middle class and non-tier one cities, while Global Digital Niaga is aiming medium-upper class and tier-one cities.

In terms of groceries, Bukalapak’s has online groceries Allo Fresh, while Global Digital Niaga has premium supermarket chain Ranch Market.

Global Digital Niaga also owned online travel platform Tiket.com, online and offline furniture and home improvement store Dekoruma.com.

In terms of physical distribution network, Global Digital Niaga adopted hub and spoke model, last mile delivery (BES), logistic and warehouse models.

As for e-commerce, Global Digital Niaga adopts business to consumer (B2C) and customer to customer (C2C) model under Blibli.com.

Meanwhile, Bukalapak adopts C2C model under its marketplace Bukalapak.com.

“Should TEMU need to acquire a listed local e-commerce company due to regulatory hurdles, we believe Bukalapak would be a more suitable partner due to its leaner business model,” Maybank said.

According to the research house, Temu has demonstrated remarkable growth.

Starting from zero in September 2022, the firm’s monthly gross merchandise value (GMV) reached $4 billion in the second quarter of 2024, as it is operating globally (Europe: 38 countries, Africa: 4 countries, North America, South America: 7 countries, and Asia: 17 countries).

In Southeast Asia, TEMU operates in Brunei, Malaysia and Thailand.

“TEMU’s product positioning focuses on unbranded and low-cost products, targeting mass-market customers who prioritize affordability,

“In our view, this has similar characteristics to the Indonesian market,” said Maybank.

It believes Indonesia is too big to ignore in the Southeast Asia region.

“However, TEMU is facing regulatory challenges in Indonesia as it has been unable to obtain an operating permit so far,” it added.

According to the research house, TEMU’s business model is direct manufacturing to consumers, embracing the full consignment model where the platform (TEMU) handles the product selection, pricing, sales and marketing, logistics, and after-sales service.

It opined that this business model relies heavily on strong relationships with manufacturers, mostly unbranded one.

It noted TEMU targets large potential buyers as it operates globally, has fast delivery, stringent quality control (to ensure customer satisfaction), and is cheaper than other platforms.

Basically, TEMU is aiming to achieve the impossible trinity: better, faster and cheaper, it added.

Maybank sees regulations and logistics to be challenges for TEMU in Indonesia.

Firstly, TEMU must obtain an operating permit in Indonesia.

The government, especially the Ministry of Trade, is openly reluctant to grant TEMU a permit, as the administration believes it will affect manufacturers in Indonesia.

“We believe local SMEs have lower economies of scale. Hence, their price will not be as competitive compared to China’s manufacturers,” Maybank said.

According to the research house, regulatory changes pose a business risk in Indonesia, especially with the new government set to be inaugurated on Oct 20, 2024.

“We think SMEs are a sensitive political topic, hence we think TEMU is likely to need to acquire an existing permit from a company,” it noted.

Even if TEMU somehow manages to obtain an e-commerce license, Maybank believes it will still need to address Indonesia’s local content requirements to secure an operating permit.

“We think a similar approach to that of electric vehicles (EVs) is possible, as the government mandates a minimum of 40 percent local content for EVs, and the requirement could be even higher for fashion items),” it said.

Maybank also highlighted that logistics will be the next challenge for TEMU after the permit.

“If TEMU obtains an operating permit, the second challenge would be logistics,

“TEMU currently partners with logistics providers and prefers companies that have competitive costs, large capacity, and rapid pace of execution,” it explained.

Bukalapak rallied 25 percent on Oct 7, possibly due to speculation Bukalapak is a suitable partner for TEMU, which is facing regulatory hurdles in establishing operations in Indonesia.

In a stock market filing, Bukalapak said it has no additional information or material event to disclose.

However, the market speculates TEMU may acquire a local e commerce platform and BUKA can be a strong partner of TEMU, as TEMU is looking for an operational permit, but the government is rejecting it.

This situation is similar to TikTok’s in 2023, prior to its acquisition of Tokopedia.

While the market thinks Bukalapak can replicate Tokopedia and TikTok’s story in 2023, Maybank said it has no strong conviction it can replicate the story of Tokopedia.

It believes the situation might differ, as TEMU is likely to need to adjust its business model to operate in Indonesia.

“We are less confident about this acquisition than we were about TikTok’s purchase of Tokopedia in 2023,” it concluded.

Indonesia government bans Chinese e-commerce app TEMU – report