Indonesia is one of the countries with significant digital potencies. The government issues strategic programs to accelerate digital infrastructure, human resource development, and technological adoption in strategic sectors. As the most critical contributor to the Indonesian national economy, MSMEs are one of the priority sectors. The government aims to increase the number of MSMEs to be 'onboard go digital'. Yet, digital adoption in this industry is sluggish. Digital transformation in MSMEs is not just as simple as introducing an e-commerce platform to expand their business. But it means altering and developing the whole business process digitally. This chapter is dedicated to illustrating Indonesian MSMEs' perspectives toward digital transformation in three main discussions: 1) responding to digital transformation (organizational inertia and knowledge), 2) the need for leveraging digital skills, and 3) technology beyond e-commerce platforms.
TopIntroduction
Indonesia has great potential for the digital economy. Based on the DataReportal (2022) report, the number of Indonesians who use the internet (with daily time spent at least 8 hours 36 minutes) attains at least 204.7 million, or 73.7 percent of the population. Out of that number, at least 191.4 million are social media savvy. The Indonesian digital ecosystem has grown significantly over the last decade, mainly in e-commerce, sharing economy, and financial services. Digital transformation is one of the Indonesian government development priorities and strategic issues for both national and global levels, and it is part of the national middle-term 2020-2024 development goals. As the G20 presidency in 2022, the Indonesian government proposes strengthening digital transformation through global cooperation as one of the priority issues in the forum(G20 website, 2021).
E-commerce remains the starlight of the Indonesian digital economy. According to Google Temasek & Bain & Company's (2021) report, the value of the digital economy in the South East Asia region will potentially reach 1 trillion USD by 2030. The contribution of the Indonesian digital economy in the region will be up to 40 percent. Furtherly, the report also notes that e-commerce growth – by gross merchandise value (GMV) – is the highest (with a value up to 234 billion USD in 2025) compare to transport and food (42 billion USD), online travel (43 billion USD), and online media (43 billion USD). Overall, the value of the Indonesian internet economy will reach 146 billion USD by GMV.
The amazing growth of Indonesian e-commerce was primarily driven by the high penetration of social media and instant messaging platforms. The domination of consumer-to-consumer (C2C) e-commerce businesses is inevitable (Worldbank, 2021) The National Statistics Bureau (BPS) 2021 reports that non-formal seller with a high school educational background dominates the e-commerce industry, use social media and instant messaging to offer the product, and with less than 300 million IDR (20,000 USD) transaction value (BPS, 2021)
The need for massive and robust digital transformation is necessary to gain the utmost digital technology benefits for national development and the economy. The Indonesian government has issued five steps to accelerate digital transformation, and one is establishing a digital transformation roadmap for strategic sectors, including the Micro, Small, and Medium Enterprises (MSMEs). MSMEs are the most significant contributor to the Indonesian national economy, and it contributes more than 60 percent of the Indonesian national Gross Domestic Product (GDP), or around 590 billion USD. The number of MSMEs in Indonesia reached 64.2 million in March 2021. It absorbs at least 97 percent of the workers and contributes at least 60.2 percent of the total investment in the country (Kemenkeu, 2021)
Yet, the penetration of digital technology in this sector remains limited, although there has been growing during the covid-19 pandemic. The number of MSMEs that use e-commerce platforms to expand their business increases twofold in 2021, which is 15.9 million compared to the previous year, with only eight million MSMEs entrepreneurs (Setyowati, 2021a) It means the e-commerce penetration in MSMEs is slightly less than 25 percent nationally.
The positive impact of digital technologies on business value chain improvement from production to distribution is indisputable. It helps expand the business and cut obsolete and exhaustive analog business processes. However, it also poses challenges, and it will consume organizational resources to implement a particular digital system. For MSMEs, digital technology adoption and transformation is 'the grill far from the fire' due to a lack of resources such as finance, skill, and even ambition.