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Abstract
Digital transformation is a crucial part of modern-day enterprises. This article seeks to establish the extent of digital technology use in small and medium enterprises and further assess how it boosts productivity. Additional objectives include defining the Indonesian labor market, small and medium enterprises (SMEs) employment percentage, and appropriate technological tools. Researchers will collect data through interviews, questionnaires, and a literature review of published peer-reviewed papers. 90% of all businesses in the region are SMEs, utilizing the Internet of Things and automation technology using artificial intelligence. These digital platforms have enhanced productivity by clearly identifying customer needs and delivering products according to their specifications. Therefore, digital technology has a significant positive impact on production, operation costs, and customer service delivery.
Introduction
Growth and change are critical parts of conducting business globally. Indonesia has experienced growth in the small and medium enterprise (SME) industry as more citizens endeavor to execute their financial vision profitably. These changes, however, must include and reflect significant developments in society and technology. Before the COVID-19 pandemic, Indonesia’s SMEs constituted a substantial portion of its economic stability and accounted for most of the nation’s gross domestic product. Nonetheless, the pandemic has evolved ways of interacting with customers and delivering products and services due to the instituted anti-socialization measures. Using technology such as the Internet of Things and artificial intelligence in Indonesian small and medium enterprises will boost productivity and enhance service delivery.
Previous Research Review and Manuscript Aims
According to previous research, Indonesian SMEs play a critical role in social and economic development. These enterprises comprise 60% of the nation’s economy and employ approximately 99% of the population (Budiman, 2021). The presence of these ventures is critical and influential primarily due to the government’s importance. Furthermore, SMEs are an equating force that engenders ‘pribumi’ or the indigenous Indonesians to gain business expertise while excluding division along ethnic lines (Rizki, 2022). However, integrating technology into these enterprises has only succeeded in urban sectors and provinces with high digital adoption rates.
The current financial conditions in Indonesia require a focused, goal-oriented research approach that operates from clearly defined aims. This manuscript seeks to identify the extent of digital technology use in Indonesia and assess its impact on productivity. Furthermore, it assesses the steps required to ensure a fruitful digital transformation in the sector in urban and rural environments. The research is significant because it impacts social, political, and economic life avenues. Better productivity increases country revenue, thereby improving living conditions and establishing Indonesia as a global trade partner through products secured by SMEs.
This article introduces a new perspective on digital transformation, specifically regarding small and medium enterprises in Indonesia. Previous research on Indonesia’s digital transformation has focused on large corporations or the facilitation of SMEs through conventional means of boosting productivity. Moreover, combining observable data, questionnaires, and literature review is an inventive new research methodology that allows the researcher to contextualize the Indonesian digital market in the digital age adequately.
Research Methods
Population Sample and Sampling Techniques
Collecting data from a vast geographical site such as the Indonesian archipelagic country will present problems with population size management. The spread and integration of most SMEs into every critical aspect of contemporary life make it especially difficult to conduct and collect research. Nonetheless, since SME policy in the country is structured on equity, it is necessary to devise a sampling technique that reasonably represents the nation’s demographic (Budiman, 2021). Whereas the cost and burden of handling a large-scale population are negated by sampling techniques, a large enough population must be analyzed to provide researchers with clear data patterns.
Probability sampling offers the most diverse and robust method to assess SMEs currently using digital technology in their ventures. A random sampling technique that selects everyone by chance ensures fairness by reducing researcher bias. The distribution of SMEs in Indonesia requires a straightforward technique that analyzes a characteristic common to all interest groups. Since these enterprises comprise 99% of all businesses in the country, the population sampling method will have minimal errors (Hidayat, Lee, Mason, & Khaerudin, 2022). Their presence critically influences Indonesia’s economic structure and necessitates a comprehensive scope technique considering small or medium-sized businesses.
Sources and Methods of Data Collection
The research plan defies the sources and data collection methods likely to be most helpful. Primary data is obtained first-hand from business owners and is reliable due to its originality. Extensive interviews will be conducted with Indonesian SMEs at various levels of growth. Through in-depth engagements with SME owners in Indonesian provinces, it is crucial to establish the influence of digital companies such as Shopee and Evermore. Additionally, questionnaires are a proper data collection method because they narrow the study scope and identify vital issues pertinent to the current research. These questionnaires will contain a list of printed queries to determine how business owners utilize technology in their day-to-day operations. These questionnaires will be mailed along with instructions on effectively completing them.
Conducting a literature review of current papers on the extent and influence of digital technology in SMEs will present an accurate portrait of the business climate in the nation. It is a secondary data collection since it deals mainly with second-hand information. Establishing Indonesia’s SME numbers, distribution patterns, preferred technology type, and government influence will depend on previously collected research. Technology has changed significantly in the last ten years, and businesses have adapted accordingly. Determining this trend and its impact on Indonesian economics is not possible through primary research techniques due to the time displacement. Therefore, conducting a detailed literature review using academic peer-reviewed articles will substitute a dependable and accurate data source.
Therefore, observational and derived data encompass the main types of research data that will be utilized in the research. Whereas the former is captured through human observation, surveys, and instrumentation, the latter is primarily sourced from existing data. The research method dictates the management method utilized to maintain its safety. For instance, observational data is challenging to replace or re-create, whereas derived or compiled information can be replicated if time is not a priority. First-hand experimentation with digital software and its implementation in customer service and productivity is vital to understanding the country’s economy.
Operationalization of Variables
Creating exact definitions of the research’s hypothesis will enable other researchers to replicate the study. Defining the variables in this research into struct measurable aspects is vital, thus negating fuzzy concepts. The World Bank and Bappenas (2020) define small businesses as those with approximately 5 to 19 workers, whereas medium enterprises rise above 20 and terminate at 99 employees. The labor-intensive nature of these enterprises is what separates their organizational structure. Furthermore, technology is offering businesses more innovative techniques for reaching their target customer base. This paper defines business technology as artificial intelligence, the Internet of Things, or mobile banking platforms (Wilburn & Wilburn, 2018). These technologies have critically impacted Indonesian SME owners’ economy and business culture.
Additionally, transformation defines a change either in behavior or practice. Indonesia’s technological influence and use necessitate a 10-year assessment to determine if it has boosted productivity in the country accurately. The literature review will focus on collecting data on the impact of technology on business, especially in Indonesia. Since the government has made SMEs a key focus of their country’s GDP, it is imperative to study government policies and economic initiatives regarding the utilization of technology (Viollaz, Darko, & Mason, 2019). Behavioral and legal observation of the business environment in the country will determine if technology is improving productivity and its specific impact on profit marginalization.
Indonesian small and medium enterprises include newcomers, artisans, and emerging businesses. Some relevant industries in this scope are agriculture, forestry, fishing, construction, medical centers, dental practices, and beauty salons (Hidayat et al., 2022). With approximately 64 million SMEs, technology is necessary to boost productivity. However, business owners need to utilize effective strategies and methods when scaling up to avoid stagnation and contribute to Indonesia’s growth and development.
Results and Discussion
This section elaborates on how the research results were obtained and the statistical description of digital technology’s impact on business productivity. Indonesia currently has a population of 275,591,549, distributed over 34 administrative provinces (Shinozaki, 2022). 97% of the population is absorbed into small and medium enterprises operating informally due to legal restrictions surrounding licensing (Shinozaki, 2022). A literature review of the country’s governmental support towards the SME industry reveals sustainable and nuanced financial and legal policies (Shinozaki, 2022). The Ministry of Cooperatives and SMEs oversees the sector and has prioritized the formalization of unregistered SMEs (Shinozaki, 2022). Through the launch of the online single submission platform, the organization has shown a dedication to using digital technology to aid productivity.
Digitization is dependent on population literacy and technology penetration. There are 202 million internet users in Indonesia, contributing roughly $70 billion to the country’s digital economy (Kurniawati, Idris, Handayati, & Osman, 2021). Whereas globally, SMEs account for 50% of the employment rate, in Indonesia, the statistic is closer to 90% (Kurniawati et al., 2021). Many of the industry’s workers are in small enterprises that, before the COVID-19 pandemic, relied primarily on offline selling (Kurniawati et al., 2021). Approximately 25% of the population switched to e-commerce and digital technology due to necessity primarily brought about by the minimal income in the past two years (Rizki, 2022). Compared to the beginning of 2020, the number of SMEs that experienced a decline in productivity is demonstrated in the figure below;
Moreover, youth, mainly female students, and part-time employees around 15 to 24 years of age were likely to start an e-commerce-based business. Small and medium enterprises pivoting on online commerce are rapidly becoming a source of income for the demographic. According to interview data, 80% of SME owners utilizing digital technology were able to keep their businesses open despite the pandemic (Kurniawati et al., 2021). In contrast, the offline business primarily shut down, wherein less than four out of ten are currently in operation. Furthermore, whereas offline businesses experienced a 20% drop in sales, e-commerce sites’ productivity rose to pre-pandemic heights and maintained success throughout the period (Hasan, Amrusi, Musfiana, Maradhani, 2021). Therefore, digital technology improves business practices by minimizing operation and production costs.
Furthermore, mailed questionnaires focused on the digital business elements in small and medium-sized enterprises. Specifically, identifying the aspects of customer service, sales, manufacturing, or employee management that digital technology impacts will transform the firm. According to insight from the World Bank & Bappenas (2020), SMEs have adjusted work hours to minimize labor costs and subsequently boost productivity in their ventures. From observational data of the Indonesian market, many small enterprises struggle to establish a sustainable profit margin. This behavioral pattern arises from balancing loan repayments, rent, and utilities while simultaneously, only 7% of these firms received government support in the last two years (World Bank & Bappenas, 2020). The need for government interventions is imperative to offset the damage created by the pandemic.
In 2021, Indonesia’s e-commerce revenue showed noticeable growth, contributing to the world’s growth rate. Online commercial transactions and buying or selling goods resulted in $43.4 billion in revenue, establishing Indonesia as the ninth-largest global market (Hasan et al., 2021). According to Hasan et al. (2021), companies such as Jd.id, Shopee, Orami, and Klikindomaret boosted revenue income from digital market stores and set a clear example of how to boost productivity through digital technology.
Table 1: Top e-commerce Indonesia stores Revenue in US $
Digital transformation through integrating technology into Indonesia’s human capital and operating capability has significantly helped online markets such as JD.id (Du & Jiang, 2022). The successful revenue income despite the pandemic is evidence of the robust nature of digital technology and its resilience despite adverse social and legal environments.
Discussion
From the results obtained through primary and secondary sources, it is evident that Indonesia’s business sector has undergone rapid change because of the use of technology. Artificial intelligence and the Internet of Things are vital components of contemporary business practices that help minimize cost and increase manufacturing speed. Automation has become a significant part of SMEs in fishing and restaurant businesses as owners seek to optimize operations and effectively minimize labor costs. The approach has been successful despite the fear of job losses upon integrating such disruptive technology into small firms. Nonetheless, it is the government’s responsibility to ensure digital skills are taught to the population to allow humans to learn to work with new and emerging technologies.
Indonesia is a thriving hub for technology use in business, as demonstrated by its global revenue income from e-commerce enterprises. The government aims to provide 4G network connectivity to roughly 83,000 villages, giving SME owners access to mobile banking platforms. Furthermore, the Digital Literacy Movement is vitally working with the country’s leaders to improve the digital skill set among its citizens and educate them on how to use it to boost productivity fruitfully. Notably, the country is ripe for digital transformation because they have an internet penetration of 70%. However, digital savviness vastly outdoes the technology’s commercial uses within Indonesia. Companies such as Traveloka and Ovo are recent startups worth more than $25 billion. The country’s economic change must be centered on digitally transforming business practices.
Conclusions and Implications
Adopting technology in Indonesian SMEs is necessary for the country’s social, economic, and political growth. Digital business solutions such as online messaging improve customer engagement and feedback, thus solidifying the company’s reputation. Whereas SMEs have large corporations’ resources, they can effectively use emailing and business websites to gain a consistent and accurate perception of their customers’ needs (Valentina, Resosudarmo, Darmawan, & Sulistyaningrum, 2021). Communicating over the Internet has helped SMEs in the region to reduce communication costs while simultaneously broadening customer-oriented service. The result, as presented in Table 1, has allowed e-commerce stores to be the biggest revenue earners in the country.
Furthermore, Indonesian small and medium industries such as fashion, construction, and fishing depend on digitization to assess the best product type to sell. It is essential to tailor the business to respond to the business environment, as demonstrated in the recent pandemic. Whereas social norms of interactions and business practices seriously suffered, online digital businesses in the country’s 34 provinces displayed consistent profit returns compared to their offline counterparts (Nurcahyo & Putra, 2021). Websites allow buyers to carefully and leisurely choose their preferred product without time or environmental constraints which further improves customer relations and corporate social responsibility by encouraging ethical behavior.
In addition to product identification, it is evident that SMEs in the region are using technology to identify demand for their goods. Failure to adopt technology will seriously affect labor costs, resource finding, and keeping up with competitors in the contemporary age. Therefore, avenues such as artificial intelligence and the Internet of Things that help automation are vital aspects the Indonesian government needs to sensitize its citizens. The possibility of transforming business fundamentals is possible, especially with the ease of connectivity that 4G and 5G networks provide. Moreover, since the youth are primarily the starters of emerging businesses in the country, their digital skills are transferrable to business and productivity enhancement.
Implications
Nonetheless, with the institution of digital technology in business, the Indonesian government is responsible for training its workforce in the required skill sets. Whereas all sectors benefit from digital aspects such as broadband connectivity, manufacturing, and service industries are the most positively impacted. Significant firm-level productivity growth exists in these two sectors, thus establishing the need for mass training programs to digitize human labor. Furthermore, younger firms created by youth, specifically women, have shown substantial gains from ICT skills and software specialist training. Ingraining these skills and abilities in creators of emerging industry creators will increase revenue.
The world has experienced a global contraction of productivity, and Indonesia has optimized service delivery and thus maintained its productivity levels at par with pre-COVID-19 levels. The labor displacement that technology causes needs to be negated through social and economic policies encouraging the integration of automation with human labor (Cusolito, Lederman, & Pena, 2020). Thus, there is minimal disruption to the Indonesian economy, which primarily depends on artisan and newcomer ventures. Additionally, licensing and registration ventures constrict SMEs’ ability in their respective markets. The legal complications that restrict the use of technology in crucial industries, such as fishing and farming, require an overhaul to enable wholesome digital transformation.
Future Research Areas
Whereas the internal structure of Indonesia’s SMEs is evident, it is essential to assess digital transformation’s effect on the global platform. Indonesia is a competent technological hub whose e-commerce sites rival nations such as Canada. With the global contraction of productivity due to the pandemic, technology integration is likely to influence Indonesia’s neighbors (Viollaz et al., 2019). Future insight into SMEs’ dynamic composition and interaction with intel businesses and corporations is critical to fully understand the country’s economy.
Automation is proving to be more hazardous than beneficial due to its impact on labor and skill training costs. Further research into the extent of automation, especially in small enterprises, is vital. Small enterprises only have a capacity of roughly 20 employees, and the use of robots and artificial intelligence is likely to change inter-office interactions and job hiring adversely. Since most small and medium enterprises operate unofficially due to licensing costs, using might damage rather than boost productivity (Nurcahyo & Putra, 2021). An in-depth look into sustainable technology to digitally transform small businesses will enhance daily operations and ensure profit maximization.
In conclusion, Indonesia’s small and medium enterprises constitute 60% of the nation’s economic revenue and 99% of all internal businesses. Most of these ventures are in fishing, agriculture, and forestry, wherein digital technology can positively impact productivity. Emerging and artisan business owners have utilized platforms such as email and the Internet of Things to gain easier access to their customers, thus identifying their needs. Furthermore, support from the government regarding digital literacy and training has contributed to the success of Indonesia as a global and regional industrial behemoth. Despite the pandemic, Indonesia has sustained its economic and business sectors by adopting digital technology in market identification, customer relations, and profit maximization.
References
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