The Phygital Era and the Future of Indonesian SMEs Amid Social Commerce Dominance
Indonesia’s digital industry transformation has entered a new phase moving beyond e-commerce towards a phygital era, which blends physical and digital experiences in economic activity. This model integrates offline shopping experiences with digital platform-based distribution, promotion, and transaction capabilities.
In the Indonesian context, this dynamic is increasingly evident through the growth of marketplaces such as Shopee and the expansion of social commerce through TikTok, with its TikTok Shop feature and creator affiliation programmes that drive significant UMKM sales growth.
Indonesia is one of Southeast Asia’s largest digital economy markets, with a value exceeding US$ 80 billion and continuing double-digit growth. The e-commerce sector is the primary contributor, supported by over 200 million internet users and high social media penetration. Consumer behaviour is becoming increasingly digitalised, from product search to transactions occurring entirely within a single application ecosystem.
For SMEs, this development opens wide expansion opportunities. More than 60 per cent of SMEs have connected to digital platforms. Shopee provides access to national distribution with integrated promotional features that increase traffic and conversion rates.
Meanwhile, TikTok introduces a live shopping model enabling real-time interaction between sellers and buyers, creating an interactive and persuasive shopping experience. Social commerce has transformed marketing patterns from advertisement-based to community-based and creator authenticity-focused approaches.
This phenomenon expands the phygital concept further. Hotel bookings, travel tickets, and service transactions increasingly occur through social media. Consumers can view reviews in short video format, participate in live sessions, then complete payments without switching applications. Social media transforms into a storefront, promotional space, and digital checkout counter within a unified system.
Within this ecosystem, the role of creator agencies becomes significant. Haluan Digital Agency, for example, earned two awards at the Shopee Super Awards 2025 as Top Shopee MCN Partner and Top MCN Award Campaign 12.12. This recognition reflects the performance of creator-based campaigns capable of driving large-scale transactions on marketplaces.
Additionally, Haluan Digital Agency also received the Rising Star MCN Award and currently manages over 7,000 active creators in Indonesia. With reported Gross Merchandise Value reaching hundreds of billions of rupiah monthly, the collaboration model between SMEs, creators, and agencies demonstrates how social commerce has become a new growth engine in Indonesia’s digital economy.
Beyond these opportunities lie structural challenges requiring anticipation. Platform algorithmic dependency can drastically affect product visibility. Intense price competition on marketplaces risks compressing SME profit margins. Global platform dominance also raises questions regarding local ecosystem sustainability and data governance.
The phygital sector demands enhanced human resource capacity. SMEs must not only understand product production but also master digital storytelling, data analytics, advertising management, and omnichannel strategy. Physical stores now serve as experience centres reinforcing consumer trust, whilst transactions and distribution occur digitally through integrated payment and logistics systems.
This transformation shapes new shopping behaviours increasingly influenced by community recommendations and social proof. Trust shifts from traditional advertising towards creators considered authentic. Marketplaces such as Shopee function as needs-based distribution channels, whilst TikTok Shop strengthens the inspiration and interaction dimensions. Both combined create a complementary ecosystem driving Indonesian UMKM transformation.
The phygital era represents a structural evolution in modern economics. With high digital penetration and a large digital-native population, Indonesia possesses strategic opportunity to become a Southeast Asian social commerce growth centre. Long-term success will be determined by SMEs’ adaptation capacity, enhanced digital literacy, and strong brand building amid algorithmic dynamics and global competition.