Abstract :

The digital transformation process in micro and small enterprises (MSEs) in Indonesia is still a black box, and existing findings regarding digitalization in this business group are still very limited and fragmented. Considering the above background and the important contribution that MSEs can make to the economy and employment opportunities, as well as poverty alleviation in Indonesia, this paper aims to examine the current progress in the transition process from analog/conventional technology to digital technology (DT) in Indonesian MSEs based on the latest secondary data from the Central Statistics Agency (BPS), and primary data collected from online surveys. The finding suggests that although there has been progress in recent years, as demonstrated by the increasing number of MSEs using the internet, Indonesian MSEs still lag in the adoption of digital technology.

---

Keywords :

Digitalization, DT, MSEs., MSMEs

---

References :

1. Ahmada, Syed Zamberi, Abdul Rahim Abu Bakarb, Tengku Mohamed Faziharudeanc and Khairul Anwar Mohamad Zakic (2015). An Empirical Study of Factors Affecting E-commerce Adoption among Small- and Medium-Sized Enterprises in a Developing Country: Evidence from Malaysia. Information Technology for Development, 21(1), 555–572.
2. Alashwal, A.M. and Al-Sabahi, M.H. (2018). Risk factors in construction projects during the unrest period in Yemen. Journal of Construction in Developing Countries, 23(2), 43–62.
3. Arendt, L. (2008). Barriers to ICT adoption in SMEs: how to bridge the digital divide? Journal of Systems and Information Technology, 10(2), 93-108. \
4. Argüelles, A. J., Cortés, H. D., Ramirez, O. E. P., and Bustamante, O. A. (2021). Technological Spotlights of Digital Transformation: Uses and Implications Under COVID-19 Conditions. In Francisco J. García-Peñalvo (ed.). Information Technology Trends for a Global and Interdisciplinary Research Community, IGI Global. DOI: 10.4018/978-1-7998-4156-2.ch002.
5. Ariyani, Luthfina, Wati Hermawati, Rahmi Lestari Helmi, Ishelina Rosaira and Andi Budiansyah (2021). MSME Perceptions towards Internet Use: A Comparison of Before and During the COVID-19 Outbreak in Indonesia. Asian Journal of Business and Accounting, 14(2), 197-230. https://doi.org/10.22452/ajba.vol14no2.7
6. Azam, M.S., and Quadddus, M. (2009a). Adoption of b2b e-commerce by the SMEs in Bangladesh: an empirical analysis. Paper presented at the Asian Business Research Conference,11-12 April, Dhaka.
7. Azam, M.S. and Quaddus, M. (2009b). Adoption of e-commerce by the SMEs in Bangladesh: the effects of innovation characteristics and perceived risk. Paper presented at the Australian and New Zealand Marketing Academy Conference, 30 November – 2 December 2009, Melbourne, Victoria.
8. Bach, P., Zoroja, J., and Vukši?, V. B. (2013). Review of corporate digital divide research: A decadal analysis (2003-2012). International Journal of Information Systems and Project Management, 1(4), 41-55.
9. Barry, H. and Milner, B. (2002). SME’s and Electronic Commerce: A Departure from the Traditional Prioritisation of Training? Journal of European Industrial Training, 25(7), 316–326.
10. Bharadwaj, A., El Sawy, O. A., Pavlou, P. A., and Venkatraman, N. (2013). Digital business strategy: toward the next generation of insights. MIS Quarterly, 37(2), 471-482.
11. BI (2022). Official Kick-Off of Indonesia Digital Economy and Finance Festival (FEKDI) 2022 Towards Digitalisation Policy Strategy. July, Jakarta: Bank Indonesia (https://www.bi.go.id/en/publikasi/ruang-media/news-release/Pages/sp_2417522.aspx).
12. Bin-Obaidellah, S.S.A., Mokhtar, N.F., Awi, N.A. and Mokhlis, S. (2023). The effect of ICT infrastructure on business performance of micro and small enterprises in Yemen: the moderating effect of social media marketing. International Journal of Procurement Management, 18 (1), 44–67.
13. Blackburn, R. and Athayde, R. (2000). Making the connection: the effectiveness of Internet training in small businesses. Education and Training, 42(4/5), 289-299.
14. Boudreau, K. J., and Lakhani, K. R. (2013). Using the crowd as an innovation partner. Harvard Business Review, 91(4), 60-69.
15. Büschgens, T., Bausch, A., and Balkin, D. B. (2013). Organizational Culture and Innovation: A Meta‐Analytic Review. Journal of Product Innovation Management, 30(4), 763-781.
16. BPS (2017a). Analisa Ketenagakerjaan Usaha Mikro Kecil 2017. November, Jakarta: Badan Pusat Statistik Nasional.
17. BPS (2017b), Profil Industri Mikro dan Kecil 2017, Jakarta: Badan Pusat Statitik
18. BPS (2018), Profil Industri Mikro dan Kecil 2018, Jakarta: Badan Pusat Statitik
19. BPS (2019), Profil Industri Mikro dan Kecil 2019, Jakarta: Badan Pusat Statitik
20. BPS (2020), Profil Industri Mikro dan Kecil 2020, Jakarta: Badan Pusat Statitik
21. BPS (2021), Profil Industri Mikro dan Kecil 2021, Jakarta: Badan Pusat Statistik.
22. BPS (2022), Profil Industri Mikro dan Kecil 2022, Jakarta: Badan Pusat Statitik
23. Çakar, N. D., and Ertürk, A. (2010). Comparing innovation capability of small and medium‐sized enterprises: examining the effects of organizational culture and empowerment. Journal of Small Business Management, 48(3), 325-359.
24. Capri, Alex (n.d). Micro and Small Businesses in Indonesia’s Digital Economy. The Asia-Pacific Foundation of Canada. http://www.asiapacific.ca.
25. Chong, S. and Pervan, G. (2007). Factors Influencing the Extent of Deployment of Journal of Electronic Electronic Commerce for Small and Medium-Sized Enterprises. Commerce in Organizations, 5(1), 1-29.
26. Delone, W., and Mclean, E. (2003). The DeLone and McLean model of information systems success: A ten-year update. Journal of Management Information Systems, 19(4), 9–30. https://doi.org/10.1080/074 2003.11045748.
27. DSInnovate (2023). MSME Empowerment Report 2022. March. https://dailysocial.id/research/msme-report-2022,
28. Effendi, M.I., Sugandini, D., and Istanto, Y. (2020). Social media adoption in SMEs impacted by COVID-19: The TOE model. The Journal of Asian Finance, Economics, and Business, 7(11), 915-925. https://doi.org/10.13106/jafeb. vol7.no11.91.
29. Evangeulista, G., Agustin, A., Putra, G. P. E., Pramesti, D. T., and Madiistriyatno, H. (2023). Strategi Umkm Dalam Menghadapi Digitalisasi. Oikos Nomos: Jurnal Kajian Ekonomi Dan Bisnis, 16(1), 33–42.
30. Fallon, M. and Moran, P. (2000), Information Communications Technology (ICT) and manufacturing SMEs. Small Business and Enterprise Development Conference, 10-11 April, University of Manchester, Manchester.
31. Fong, M. W. L. (2009). Digital Divide: The Case of Developing Countries. Issues in Informing Science and Information Technology, 6(2), 471-478.
32. Garg, P., Gupta, B., Dzever, S., Sivarajah, U. and Kumar, V. (2020). Examining the relationship between social media analytics practices and business performance in the Indian retail and IT industries: the mediation role of customer engagement. International Journal of Information Management, 52, 102069. DOI: 10.1016/ ijinfomgt. 2020.102069.
33. Garzoni, A., De Turi, I., Secundo, G., and Del Vecchio, P. (2020). Fostering digital transformation of SMEs: a four levels approach. Management Decision, 58(8), 1543-1562.
34. Ghobakhloo, M., and Iranmanesh, M. (2021). Digital transformation success under Industry 4.0: A strategic guideline for manufacturing SMEs. Journal of Manufacturing Technology Management, 32(8), 1533-1556.
35. Guo, Hai, Zhuen Yang, Ran Huang and Anqi Guo (2020). The digitalization and public crisis responses of small and medium enterprises: Implications from a COVID-19 survey. Frontiers of Business Research in China, 14 (19), 1-25. https://doi.org/10.1186/s11782-020-00087-1
36. Herscovitch, L., and Meyer, J. P. (2002). Commitment to organizational change: extension of a three-component model. Journal of Applied Psychology, 87(3), 474-490.
37. Hoque, M.R., Saif, A.N.M., AlBar, A.M., and Bao, Y. (2016). Adoption of information and communication technology for development: A case study of small and medium enterprises in Bangladesh. Information Development, 32(4), 986–1000. https://doi.org/10.1177/0266666915578202
38. Horrigan, John B. (2019), Analysis: Digital Divide Isn’t Just a Rural Problem, The Daily Yonder, August 14 (https://dailyyonder.com/analysis-digital-divide-isnt-just-a-rural-problem/2019/08/14/).
39. Indef (2024). Survei INDEF: Banyak UMKM Utamakan Jualan Lewat Aplikasi Digital. January. Databoks. https://data boks.katadata.co.id/datapublish/2024/01/29/survei-indef-banyak-umkm-utamakan-jualan-lewat-aplikasi-\
40. Islami, N.N., Wahyuni, S. and Tiara, T. (2020). The effect of digital marketing on organizational performance through intellectual capital and perceived quality in micro, small and medium enterprises. Jurnal Organisasi dan Manajemen, 16(1), 59–70.
41. Jacobs, Evan (2021).Moving from Access to Accessibility: The Deception of the Digital Divide in Development How E-learning can be used to bridge the digital divide. February, UNDP (https://www. undp.org/south-africa/blog/moving-access-accessibility-deception-digital-divide-development?utm_source=EN&utm_medium=GSR&utm_content=US_UNDP._ )
42. Jansen, J. J. P., Van Den Bosch, F. A. J., and Volberda, H. W. (2006). Exploratory Innovation, Exploitative Innovation, and Performance: Effects of Organizational Antecedents and Environmental Moderators. Management Science, 52(11), 1661-1674.
43. Jones, P., Packham, G., Beynon-Davies, P., and Pickernell, D. (2011). False promises: E-business deployment in Wales’ SME community. Journal of Systems and Information Technology, 13(2),163–178.
44. Kohli, R., and Melville, N. P. (2019). Digital innovation: A review and synthesis. Information Systems Journal, 29(1), 200-223.
45. Kraus, S., Jones, P., Kailer, N., Weinmann, A., Chaparro-Banegas, N., and Roig-Tierno, N. (2021). Digital transformation: An overview of the current state of the art of research. SAGE Open, 11(3), 1-15.
46. Lee, M. T., Raschke, R. L., and Louis, R. S. (2016). Exploiting organizational culture: Configurations for value through knowledge worker’s motivation. Journal of business research, 69(11), 5442–5447.
47. Li, L., Su, F., Zhang, W., and Mao, J. Y. (2018). Digital transformation by SME entrepreneurs: A capability perspective. Information Systems Journal, 28(6), 1129-1157.
48. Li, X., He, X., and Zhang, Y. (2020). The impact of social media on the business performance of small firms in China. Information Technology for Development, 26(2), 346–368.
49. Lindblom, P., Nygren, E., Kolog, E. A., and Sutinen, E. (2021). Defining ‘Smart Rural’ in the Framework of Regional Digitalisation. 2021 IST-Africa Conference (IST-Africa), 10-14 May, Dublin.
50. Lokuge, S., and Duan, S. X. (2021). Towards Understanding Enablers of Digital Transformation in Small and Medium-Sized Enterprises Australasian Conference on Information Systems, 6-10 December, Sydney.
51. Lokuge, S., and Sedera, D. (2018). The Role of Enterprise Systems in Fostering Innovation in Contemporary Firms. Journal of Information Technology Theory and Application, 19(2), 7-30.
52. Lokuge, S., and Sedera, D. (2019). Attaining business alignment in information technology innovations led by line-of-business managers Australasian Conference on Information Systems, 9-11 December, Perth, Australia.
53. Lokuge, S., Sedera, D., Grover, V., and Xu, D. (2019). Organizational readiness for digital innovation: Development and empirical calibration of a construct. Information & Management, 56(3), 445- 461.
54. Lokuge, S., Sedera, D., and Palekar, S. (2020). The Clash of the Titans: CIO and LOB Engagement in IT Innovation. In K. Sandhu (Ed.). Leadership, Management, and Adoption Techniques for Digital Service Innovation. IGI Global.
55. Maduwinarti, Ayun, I. G. N. Anom Maruta, and Ananda Rahmatullah (2022). Disruption of Digitalization in MSME from the Three Bottom Line Perspective in the Endemic Era. In Proceedings of the International Conference on Social, Politics, Administration, and Communication Sciences (ICoSPACS 2022). Atlantis Press. https://doi.org/10.2991/978-2-38476-106-7_9.
56. Maryeni, Y.Y., Govindaraju, R., Prihartono, B., and Sudirman, I. (2012. Technological and organizational factors influencing the e-commerce adoption by Indonesian SMEs. 2012 IEEE International Conference on Management of Innovation & Technology (ICMIT), 11-13 June, Bali, Indonesia.
57. Matlay, H. (2000). Training in the Small Business Sector of the British Economy. In Carter S. and Jones D. (eds.). Enterprise and Small Business: Principles, Policy and Practice. London: Addison Wesley Longman.
58. Migiro, S.O. (2006). Diffusion of ICTs and E-commerce adoption in manufacturing SMEs in Kenya. South African Journal of Library and Information Science,72(1), 35-44.
59. Muller, Charlie and João Paulo de Vasconcelos Aguiar (2022, March). What Is the Digital Divide? March, Internet Society (https://www.internetsociety.org/blog/2022/03/what-is-the-digital-divide/).
60. Nair, J., Chellasamy, A., and Singh, B. B. (2019). Readiness factors for information technology adoption in SMEs: testing an exploratory model in an Indian context. Journal of Asia Business Studies, 13(4), 694-718.
61. Nambisan, S., Wright, M., and Feldman, M. (2019). The digital transformation of innovation and entrepreneurship: Progress, challenges and key themes. Research Policy, 48(8), 1–9
62. Neale, J., Murphy, J. and Scharl, A. (2006). Comparing the Diffusion of Online Service Recovery in Small and Large Organizations. Journal of Marketing Communications, 12(3), 165-181.
63. Nylén, D., and Holmström, J. (2015). Digital innovation strategy: A framework for diagnosing and improving digital product and service innovation. Business Horizons, 58(1), 57-67
64. Ocha, Matilda Luoise (2011). Factors that Influence Adoption and Frequency of Use of E=Commerce by Micro and Small Enterprises (MSEs) in Kisumu. A Management Research Project, the Degree of Master of Business Administration, Department of Business Administration, School of Business, University of Nairobi.
65. Ojala, A. (2016). Business models and opportunity creation: How IT entrepreneurs create and develop business models under uncertainty. Information Systems Journal, 26, 451–476.
66. Owoseni, A., Hatsu, S., and Tolani, A. (2022). How do digital technologies influence the dynamic capabilities of micro and small businesses in a pandemic and low‐income country context? The Electronic Journal of Information Systems in Developing Countries, 88(2), e12202.
67. Oliveira, T., and Martins, M. F. (2010). Firms patterns of e-business adoption: evidence for the European Union. The Electronic Journal Information Systems Evaluation, 13(1), 47-56.
68. Patma, T.S., Wardana, L.W., Wibowo, A., Narmaditya, B.S., and Akbarina, F. (2021). The impact of social media marketing for Indonesian SMEsustainability: Lesson from Covid-19 pandemic. Cogent Business & Management, 8(1), 1953679. https://doi.org/10.1080/23311975.2021.19536
69. Philipp, R. (2020). Digital readiness index assessment towards smart port development. Nachhaltigkeits Management Forum, 28, 49-60.
70. Poon, Simpson, and Paula Swatman (2005). Small business use of the Internet: Findings from Australian case studies. International Marketing Review, 14(5), 1-15.
71. Poorangi, Mehdi M and Edward W.S. Khin (2013). Strategic Alliance on Malaysia SMEs to compete globally. Endogenous and exogenous perspective. Actual Problem of Economics, 3(141), 407-415.
72. Poorangi, Mehdi M., Edward W.S. Khin, Shohreh Nikoonejad and Arash Kardevani (2013). E-commerce adoption in Malaysian Small and Medium Enterprises Practitioner Firms: A revisit on Rogers’ model. Anais da Academia Brasileira de Ciências, 85(4), 1593-1604.
73. Priyono, A., Moin, A., and Putri, V.N.A.O. (2020). Identifying digital transformation paths in the business model of SMEs during the COVID-19 pandemic. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 104–126. https://doi.org/10.3390/joitmc6040104
74. Putra, P.O.H., and Santoso, H.B. (2020). Contextual factors and performance impact of e-business use in Indonesian small and medium enterprises (SMEs). Heliyon, 6(3), Article e03568. https://doi.org/10.1016/j.heliyon. e03568
75. Rafiah, Kurnia Khafidhatur and Desty Hapsari Kirana (2019). Analisis Adopsi Media Sosial Sebagai Sarana Pemasaran Digital Bagi UMKM Makanan dan Minuman di Jatinangor. Jurnal Ekonomi & Ekonomi Syariah, 2(1), 188-198
76. Rahayua, Rita and John Daya (2015). Determinant Factors of E-commerce Adoption by SMEs in Developing Country: Evidence from Indonesia. Procedia – Social and Behavioral Sciences,195, 142 – 150.
77. Riquelme, H. (2002). Commercial Internet Adoption in China: Comparing the Experience of Small, Medium and Large Business Internet Research. Electronic Networking Applications and Policy,12(3), 276–286.
78. Riera, C., and Iijima, J. (2019). The role of IT and organizational capabilities on digital business value. Pacific Asia Journal of the Association for Information Systems, 11(2), 67-95.
79. Sambamurthy, V., Bharadwaj, A., and Grover, V. (2003). Shaping agility through digital options: Reconceptualizing the role of information technology in contemporary firms. MIS Quarterly, 27(2), 237–263
80. Sarangi, A.K. and Pradhan, R.P. (2020). ICT infrastructure and economic growth: a critical assessment and some policy implications. Decision, 47(4), 363–383.
81. Sastararuji, D., Hoonsopon, D., Pitchayadol, P., and Chiwamit, P. (2022). Cloud accounting adoption in Thai SMEs amid the COVID-19 pandemic: an explanatory case study. Journal of Innovation and Entrepreneurship, 11(1), 1-25.
82. Sebastian, I., Ross, J., Beath, C., Mocker, M., Moloney, K., and Fonstad, N. (2017). How big old companies navigate digital MIS Quarterly, 16(3), 197–213.
83. Sedera, D. (2006). An empirical investigation of the salient characteristics of IS-Success models. Americas Conference on Information Systems, 4-6 August, Acapulco, Mexico.
84. Sehlin, D., Truedsson, M., and Cronemyr, P. (2019). A conceptual cooperative model designed for processes, digitalization and innovation. International Journal of Quality and Service Sciences,11(4), 504-522.
85. Saffu, K., Walker, J. H., and Hinson, R. (2008). Strategic value and electronic commerce adoption among small and medium-sized enterprises in a transitional economy. Journal of Business & Industrial Marketing, 23(6), 395–404.
86. Setiowati, R., Daryanto, H.K., and Arifin, B. (2008). Understanding ICT adoption determinants among Indonesian SMEs in the fashion subsector. International Research Journal of Business Studies, 8(1), 47–57.
87. Shih, H. (2008). Contagion effects of electronic commerce diffusion: Perspective from network analysis of industrial structure. Technological Forecasting & Social Change, 75(1), 78–90.
88. Srinivasan, A., Venkatraman, N. (2018). Entrepreneurship in digital platforms: a network-centric view. Strategic Entrepreneurship Journal, 12(1), 54–71
89. Srinuan, C., and Bohlin, E. (2011). Understanding the digital divide: a literature survey and ways forward. Proceedings of the 22nd European Regional Conference of the International Telecommunications.Conference Paper. Budapest. (http://econstor.eu/bitstream/10419/52191/1/672623358.pdf)
90. Stiakakis, E., Kariotellis, P., and Vlachopoulou, M. (2009). From the digital divide to digital inequality: A secondary research in the European Union. In Sideridis, A. B., and Patrikakis, C. Z. (eds.) Next Generation Society Technological and Legal Issues, Heidelberg: Springer.
91. Subawa, N.S., and Mimaki, C.A. (2019). An empirical study of e-marketplace acceptance by MSMEs in Bali using the TOE Model. Proceedings of the 2019 2nd International Conference on E-Business, Information Management and Computer Science Kuala Lumpur, Malaysia, August, 1–5. https://doi.org/10.1145/3377817.3377837
92. Szopa, Ł., and Cyplik, P. (2020). The concept of building a digital transformation model for enterprises from the SME sector. LogForum, 16(4), 593-601
93. Taiminen, H. M., and Karjaluoto, H. (2015). The usage of digital marketing channels in SMEs. Journal of Small Business and Enterprise Development, 22(4), 633-651
94. Tan, B., Pan, S. L., Lu, X., and Huang, L. (2015). The Role of IS Capabilities in the Development of Multi-Sided Platforms: The Digital Ecosystem Strategy of Alibaba. com. Journal of the Association for Information Systems, 16(4), 248-280.
95. Tan, F. T. C., Tan, B., Wang, W., and Sedera, D. (2017). Management Innovation for IT-Enabled Operational Agility: AnInterdependencies Perspective. Information & Management, 54(3), 292- 303.
96. Taylor, Kiara (2023), The Digital Divide: What It Is, and What’s Being Done to Close It, Investopedia, August 16 (https://www.investopedia.com/the-digital-divide-5116352).
97. Trinugroho, I., Pamungkas, P., Wiwoho, J., Damayanti, S.M., and Pramono, T. (2021). Adoption of digital technologies for micro and small businesses in Indonesia. Finance Research Letters, 45, 102156. https://doi.org/10.1016/j.frl.2021.102156
98. UN (2023). The Impact of Digital Technologies. https://www.un.org/en/un75/impact-digital-technologies.
99. Usman, S.H. and Oyefolahan, O. (2014). Determinants of knowledge sharing using web technologies among students in higher education. Journal of Knowledge Management, Economics and Information Technology, 4(2), 1–22.
100. Vial, G. (2019). Understanding digital transformation: A review and a research agenda. The Journal of Strategic Information Systems, 28(2), 118–144.
101. Viswanathan, Nanda K. and James B. Pick (2005). Comparison of e-commerce in India and Mexico: an example of technology diffusion in developing nations. International Journal of Technology Management, 31(1/2), 2–19.
102. Wahyono, Tekad (2024). Digital Transformation in MSMEs in Indonesia:The Importance of Commitment to Change. International Journal of Social Service and Research, 4(1), 378-384
103. Walther, S., Sarker, S., Sedera, D., and Eymann, T. (2013). Exploring Subscription Renewal Intention of Operational Cloud Enterprise Systems-A Socio-Technical Approach. European Conference on Information Systems, 5-8 June, Utrecht, The Netherlands.
104. Walther, S., Sedera, D., Urbach, N., Eymann, T., Otto, B., and Sarker, S. (2018). Should We Stay, or Should We Go? Analyzing Continuance of Cloud Enterprise Systems. Journal of Information Technology Theory and Application, 19(2), 57-88.
105. WEF (2020), Accelerating Digital Inclusion in the New Normal, Playbook, July, Geneva: World Economic Forum.
106. Wiradinata, T., Antonio, T., and Tanamal, R. (2015). Antecedent of Internet technology adoption in small medium business. Information and Knowledge Management, 5(10), 9–13.
107. Yi, J., He, J., and Yang, L. (2019). Platform heterogeneity, platform governance and complementary product performance: An empirical study of the mobile application industry. Frontiers of Business Research in China, 13(1), 1–20.
108. Yuniarto, Topan (2022). Masa Depan Internet Terang, tetapi Literasinya Masih Kurang. Kompas Newspaper, Tuesday, 28 June, 6.
109. Zaied, Abdel Nasser H. (2012). Barriers to E-Commerce Adoption in Egyptian SMEs. Information Engineering and Electronic Business, 3, 9-18.