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How does e-commerce adoption impact micro, small, and medium enterprises’ performance and financial inclusion? Evidence from Indonesia

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Abstract

We study the adoption of technology by micro, small, and medium enterprises (MSMEs) in Indonesia to enhance their businesses and inclusivity in financial products and services. Using a survey of 338 MSMEs that adopt e-commerce across ten provinces in the country, we use two-stage least squares regression to empirically analyze the impact of e-commerce adoption on business performance and its effect on financial inclusion. We further investigate the effects of e-commerce on marketing by performing ordered logistic regression using indicators in ordinal scale. The results show that brand recognition and customer awareness improve performance significantly. Our findings also reveal that the performance improvements caused by e-commerce adoption will encourage better inclusion of MSMEs in the financial system through access and use of more diverse financial products and services. Furthermore, collaborations between financial institutions and e-commerce platforms will accelerate MSMEs’ financial inclusion in Indonesia.

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Notes

  1. Statistics Indonesia, www.bps.go.id.

  2. Indonesian Law No. 20 of 2008 Article 6 on Micro, Small, and Medium Enterprises (MSMEs) defines micro firms as enterprises with annual sales of at most IDR300 million or net assets (land and building excluded) of less than IDR50 million; small firms as enterprises with annual sales of more than IDR300 million up to a maximum of IDR2.5 billion or net assets (land and building excluded) of IDR50 million to IDR500 million; medium firms as enterprises with annual sales of more than IDR2.5 billion up to a maximum of IDR50 billion or net assets (land and building excluded) amounting to more than IDR500 million to IDR10 billion. MSMEs make up 99.99% of the total business population in Indonesia, with 62.2 million units in 2018 according to the Central Bureau of Statistics in 2019.

  3. Google and Temasek. (2018). E-Conomy SEA 2018: Southeast Asia’s Internet Economy Hits an Inflection Point.

  4. Moey, S. K. S. (2019, September 18). Ecommerce in Indonesia in 2019. DataReportal – Global Digital Insights. https://datareportal.com/reports/digital-2019-ecommerce-in-indonesia

  5. Ministry of Communication and Information of Republic Indonesia. (2018). UMKM Go Online. https://www.theindonesianinstitute.com/wp-content/uploads/2018/10/Paparan-UMKM-versi-1.1.pdf

  6. Setyowati, Dewi. (2019). Lampaui Target, 10 Juta UMKM,Petani, dan Nelayan Go Online. KataData. https://katadata.co.id/berita/2019/01/17/lampaui-target-10-juta-umkm-petani-dan-nelayan-go-online

  7. Burhan, Fahmi (June, 2021). Nilai Transaksi E-commerce RI Melonjak 91%. KataData. https://katadata.co.id/yuliawati/digital/60ba67ba89507/value-transaksi-e-commerce-ri-jump-91-shopee-kuasai-pasar.

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Acknowledgements

We thank Oktofa Yudha Sudrajad, Patricia Marla Setiawati and Faqih Ahmad Muzakky from School of Business and Management Institut Teknologi Bandung (SBM-ITB) for their useful suggestion.

Author information

Authors and Affiliations

  1. Otoritas Jasa Keuangan, Jakarta, Indonesia

    Rosnita Wirdiyanti, Inka Yusgiantoro, Agus Sugiarto & Aprillia Dwi Harjanti

  2. Institut Teknologi Bandung, School of Business and Management, Bandung, Indonesia

    Indra Yudha Mambea, Subiakto Soekarno & Sylviana Maya Damayanti

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  1. Rosnita Wirdiyanti
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Appendix

Appendix

1.1 Appendix 1: Translated survey question and construction of variables used in this research

Questions

Part I: Respondent Data

  1. 1.

    Name

  2. 2.

    Address

  3. 3.

    Phone

  4. 4.

    E-mail

  5. 5.

    Age:

    1. A.

      ≤ 24

    2. B.

      25–38

    3. C.

      39–54

    4. D.

      >54

  6. 6.

    Gender

    1. A.

      Female

    2. B.

      Male

  7. 7.

    Education

    1. A.

      Primary or equivalent

    2. B.

      Secondary or equivalent

    3. C.

      High School or equivalent

    4. D.

      Bachelor/Postgraduate or equivalent

  8. 8.

    Business type (You can answer more than 1)

    1. A.

      Producer

    2. B.

      Reseller

    3. C.

      Drop shipper

  9. 9.

    Product category

    1. A.

      Fashion & Apparel

    2. B.

      Health & Beauty

    3. C.

      Home & Furniture

    4. D.

      Electronic

    5. E.

      Food & Beverages

    6. F.

      Agro business

    7. G.

      Others, …..

  10. 10.

    Duration

    1. A.

      <1 Years

    2. B.

      1–3 Years

    3. C.

      4–6 Years

    4. D.

      7–10 Years

    5. E.

      11–20 Years

    6. F.

      > 20 Years

  11. 11.

    Location of MSMEs

    1. A.

      DKI Jakarta

    2. B.

      Banten

    3. C.

      West Java

    4. D.

      Central Java

    5. E.

      East Java

    6. F.

      Bali & NTB

    7. G.

      North Sumatra

    8. H.

      Kalimantan

    9. I.

      South Sulawesi

    10. J.

      Maluku and Papua

    11. K.

      others

  12. 12.

    The majority location of consumers:

    1. A.

      DKI Jakarta

    2. B.

      Banten

    3. C.

      West Java

    4. D.

      Central Java

    5. E.

      East Java

    6. F.

      Bali & NTB

    7. G.

      North Sumatra

    8. H.

      Kalimantan

    9. I.

      South Sulawesi

    10. J.

      Maluku and Papua

    11. K.

      others

  13. 13.

    Source of venture capital

    1. A.

      Personal funds

    2. B.

      Family/Friends loans

    3. C.

      Bank loans

    4. D.

      Pawnshop

    5. E.

      Peer to peer lending

    6. F.

      Others

  14. 14.

    Average Revenue per month:

    1. A.

      <25 million Rupiah

    2. B.

      25 Million Rupiah—100 Million Rupiah

    3. C.

      More than 100 Million Rupiah—300 Million Rupiah

    4. D.

      More than 300 Million Rupiah—1 billion Rupiah

    5. E.

      More than 1 billion Rupiah—2,5 billion Rupiah

    6. F.

      More than 2,5 billion Rupiah

  15. 15.

    Do you need funding for your business operations? If yes, what is the amount of funding?

    1. A.

      Not yet

    2. B.

      Less than 10 million Rupiah

    3. C.

      10 million—50 million Rupiah

    4. D.

      More than 50 million Rupiah—100 Million Rupiah

    5. E.

      More than 100 Million Rupiah—500 Million Rupiah

    6. F.

      More than 500 Million Rupiah

  16. 16.

    Do you sell products directly or have a physical store (at home, shop, market, or shopping center)?

    1. A.

      Yes

    2. B.

      No

  17. 17.

    If question 16 is yes, please specify the type of physical store you have:

    1. A.

      …

    2. B.

      …

    3. C.

      …

    4. D.

      …

    5. E.

      …

  18. 18.

    Do you sell products through social media (Facebook, Instagram, Twitter, Kaskus, OLX, etc.) or chat applications (WhatsApp, Line, WeChat, BBM)?

    Yes

    No

  19. 19.

    If question 18 is yes, please specify the social media application that you use to sell your product:

    1. A.

      …

    2. B.

      …

    3. C.

      …

    4. D.

      …

    5. E.

      …

  20. 20.

    Do you sell your business products on e-commerce platforms?

    1. A.

      Yes

    2. B.

      No

  21. 21.

    If question 20 is yes, please specify e-commerce platforms that you use to sell you product:

    1. A.

      …

    2. B.

      …

    3. C.

      …

    4. D.

      …

    5. E.

      …

Part II: Data Use of E-commerce

  1. 22.

    How long has your business been using e-commerce?

    1. A.

      <1 Years

    2. B.

      1–2 Years

    3. C.

      3–4 Years

    4. D.

      5–6 Years

    5. E.

      7–8 Years

    6. F.

      9–10 Years

  2. 23.

    Number of employees owned before using e-commerce:

    1. A.

      Do not have employees

    2. B.

      <10 people

    3. C.

      10-30 people

    4. D.

      > 30 people

  3. 24.

    Fluctuation of employees since using e-commerce:

    1. A.

      Increase

    2. B.

      Decrease

    3. C.

      Constant

  4. 25.

    Fluctuation in sales after using e-commerce:

    1. A.

      Decrease

    2. B.

      Constant

    3. C.

      Increase less than 100%

    4. D.

      Increase 100%

    5. E.

      Increase 200%

    6. F.

      Increase 300%

    7. G.

      Increase more than 300%

  5. 26.

    Do you plan to use e-commerce in the future?

    1. A.

      Do not plan to use e-commerce

    2. B.

      Within less than 6 months

    3. C.

      Within 6 months to 1 year

    4. D.

      Within more than 1 year

    5. E.

      Others

If you choose the "Do not plan to use e-commerce" option, skip to question no. 28

  1. 27.

    What factors make it difficult for you to join e-commerce platforms? Answers can be more than one

    1. A.

      The producer does not yet have the technical knowledge to operate e-commerce

    2. B.

      Producers do not have sufficient skills in using the internet

    3. C.

      Requirements as an e-commerce merchant that is considered burdensome for producers

    4. D.

      Others

  2. 28.

    What are the factors that cause you haven't adopted e-commerce? Answers can be more than one

    1. A.

      Products / services sold are not suitable when offered through e-commerce

    2. B.

      Don't know how to use e-commerce

    3. C.

      Not suitable for running a business (already has its customer and supplier base)

    4. D.

      Language barriers (many uses of foreign language terms in platforms that make it difficult for sellers)

    5. E.

      Lack of Human Resources capabilities of the company to operate e-commerce accounts

    6. F.

      Lack of Human Resources owned by the company to be able to manage e-commerce accounts

    7. G.

      Not enough production capacity to sell on e-commerce

    8. H.

      Others

Part III: Performance Indicator

By using the Likert scale 1–5 (Very Decreasing—Very Increasing), please fill in the changes in your business performance before and after using e-commerce for the indicators below:

  1. 29.

    Turnover/sales growth

  2. 30.

    Number of consumers

  3. 31.

    Consumer satisfaction that buys your business products through e-commerce

  4. 32.

    Speed the sales process from ordering your business products to being accepted by consumers

  5. 33.

    The price of your business products being sold after using e-commerce

Part IV: Marketing indicator

By using the Likert scale 1–5 (Very Decreasing—Very Increasing), please fill in the changes in your business performance before and after using e-commerce for the indicators below:

  1. 34.

    Marketing costs after using e-commerce

  2. 35.

    Number of consumers who have seen the product of your business while using e-commerce

  3. 36.

    Reputation / Rating of your business online shop for using e-commerce

  4. 37.

    Returns (returns) of products purchased by consumers to you while using e-commerce

Part V: Financial Inclusion (for MSMEs non-e-commerce)

Using scale 1—5 (Strongly Disagree—Strongly Agree), please fill in your condition after using e-commerce.

  1. 38.

    I can save with my business income after using e-commerce

  2. 39.

    I can invest (for example: bonds / sukuk / ORI, stocks, mutual funds) with my business income after using e-commerce

  3. 40.

    I get a business capital loan facility at a bank or other formal financial institution after using e-commerce

  4. 41.

    I have used a business capital loan facility available on the e-commerce platform that I use

  5. 42.

    I put my money in investment products (mutual funds, insurance, gold savings) available on the e-commerce platform

Part V: Financial Inclusion (for MSMEs e-commerce)

Using scale 1–5 (Strongly Disagree—Strongly Agree), please fill in your condition after using e-commerce.

  1. 43.

    I can save with my business income

  2. 44.

    I can invest (for example: bonds / sukuk / ORI, stocks, mutual funds) with my operating income

  3. 45.

    I get a business capital loan facility at a bank or other formal financial institution

Part VI: E-commerce supporting factors

Using a scale of 1–5 (Very Unsupportive–Very Supporting), please fill in whether the factors below support the use of e-commerce.

  1. 46.

    Employee knowledge about e-commerce (Employees know e-commerce)

  2. 47.

    Business strategy (The business has a strategy related to e-commerce)

  3. 48.

    Competition between businesses (A large number of competitors have used e-commerce)

  4. 49.

    Government support (Government support in the form of activity and financial programs for e-commerce implementation)

  5. 50.

    Availability of supporting technology (Availability of adequate infrastructure and technology in the area of business)

  6. 51.

    Changing market behavior (Increased consumer purchases through e-commerce)

Part VII: Product and Service in financial services

  1. 52.

    Choose the type of financial product / service below that you've used

    1. i.

      Savings

    2. ii.

      Deposit

    3. iii.

      House/Apartment Ownership Loans

    4. iv.

      Micro Credit/Financing

    5. v.

      Vehicle Credit/Financing

    6. vi.

      People's Business Credit (KUR)

    7. vii.

      Unsecured Credit/Financing

    8. viii.

      Life insurance

    9. ix.

      Health Insurance

    10. x.

      Vehicle Insurance

    11. i.

      Property Insurance

    12. ii.

      Other insurance, please specify ...

    13. iii.

      Consumer financing (leasing vehicles, machinery, electronic devices

    14. iv.

      Lease Financing

    15. v.

      Pension fund

    16. vi.

      Pawnshop

    17. vii.

      Mutual funds

    18. viii.

      Bonds/Sukuk/ORI

    19. ix.

      Stock

    20. x.

      Peer-to-peer lending

      Others: …

  2. 53.

    Do you have a People's Business Credit (KUR) loan facility?

    1. A.

      Yes

    2. B.

      No

  3. 54.

    Where did you get KUR from the bank?

    1. A.

      …

    2. B.

      …

  4. 55.

    Mention the month and year you got the KUR facility for the first time?

    1. A.

      Month:

    2. B.

      Year:

  5. 56.

    What is the KUR loan ceiling? …

  6. 57.

    Did you submit a guarantee to borrow KUR?

    1. A.

      Yes

    2. B.

      No

1.2 Appendix 2: Demographics data of respondents

 

MSME (%)

Province

 

Jakarta

20 (6%)

West Java

61 (18%)

Central Java

77 (23%)

East Java

59 (17%)

North Sumatera

31 (9%)

Other 5 provinces

90 (27%)

Business size

 

Micro

295 (87%)

Small

39 (12%)

Medium

4 (1%)

Social media usage

 

Yes

278 (82%)

No

60 (17%)

Additional capital needed by MSMEs

 

Have not needed additional funds

180 (53%)

 < 10 Million Rupiahs

19 (6%)

 > 10 Million Rupiahs—50 Million Rupiahs

51 (15%)

 > 50 Million Rupiahs—100 Million Rupiahs

46 (14%)

 > 100 Million Rupiahs—500 Million Rupiahs

36 (11%)

 > 100 Million Rupiahs—500 Million Rupiahs

6 (2%)

Length of e-commerce adoption

 

 < 1 year

85 (25%)

1–2 years

170 (50%)

3–4 years

53 (16%)

 > 4 years

30 (9%)

Having physical stores

 

Yes

271 (80%)

No

67 (20%)

Total

338 (100%)

Demographics variables

E-commerce user

%

Gender

  

Male

176

52%

Female

162

48%

Age

  

 < 24

25

7.40%

25–38

174

51.48%

39–54

123

36.39%

 > 55

16

4.73%

Education

  

Elementary/Sederajat

7

2.07%

Junior High School/Sederajat

19

5.62%

Senior High School/Sederajat

158

46.75%

D3/S1/S2/S3

154

45.56%

Category product

  

Fashion and apparel

120

33.43%

Health and beauty

9

2.51%

Home and furniture

47

13.09%

Electronics

3

0.84%

Food and beverages

139

38.72%

Agrobusiness

9

2.51%

Others

32

8.91%

Duration (Length of Business)

  

 < 1 year

17

5.03%

1–3 years

118

34.91%

4–6 years

84

24.85%

7–10 years

55

16.27%

11–20 years

34

10.06%

 > 20 years

30

8.88%

Location

  

Bali

12

3.66%

DKI Jakarta

20

6.10%

Jawa Barat

61

18.60%

Jawa Tengah

77

23.48%

Jawa Timur

59

17.99%

Sulawesi Selatan

29

8.58%

Sulawesi Utara

31

9.45%

Sumatera Barat

14

4.27%

NTB

16

4.88%

Lampung

18

5.49%

Others

1

0.30%

Monthly sales (IDR)

  

0–25.000.000

107

31.66%

25.000.000–100.000.000

133

39.35%

100.000.000–300.000.000

55

16.27%

300.000.000–1 Billion

32

9.47%

1 Billion–2,5 Billion

7

2.07%

2,5 Billion

4

1.18%

Demographics variables

N

%

E-commerce users

  

 > 1 E-commerce platform

147

43.50%

1 E-commerce platform

191

56.50%

Length of using e-commerce

  

Less than 1 year

85

25.15%

1–2 years

170

50.30%

3–4 years

53

15.68%

5–6 years

15

4.44%

7–8 years

9

2.66%

9–10 years

6

1.78%

Location based on majority consumer

  

Bali

48

5.65%

Banten

36

4.24%

DKI Jakarta

127

14.96%

Jawa Barat

133

15.67%

Jawa Tengah

129

15.19%

Jawa Timur

121

14.25%

Sulawesi Selatan

55

6.48%

Sumatera Utara

67

7.89%

Kalimantan

47

5.54%

Maluku dan Papua

23

2.71%

Others

63

7.42%

Number of employees

  

Increase

 

25.44%

Constant

 

71.90%

Decrease

 

2.66%

Increase in sales after using e-commerce

  

Decrease

4

1.18%

Constant

79

23.37%

Increase less than 100%

113

33.43%

Increase 100%

82

24.26%

Increase 200%

47

13.91%

Increase 300%

7

2.07%

Increase more than 300%

6

1.78%

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Wirdiyanti, R., Yusgiantoro, I., Sugiarto, A. et al. How does e-commerce adoption impact micro, small, and medium enterprises’ performance and financial inclusion? Evidence from Indonesia. Electron Commer Res 23, 2485–2515 (2023). https://doi.org/10.1007/s10660-022-09547-7

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