E-Commerce Adoption by Small and Medium Sized

Enterprises in Indonesia:
An Investigation of Influencing Factors and Benefits
Rita Rahayu 1, John Day 2
1
University of Huddersfield, Queensgate,
Huddersfield, HD1 3DH, United Kingdom
Email: [email protected]
2
University of Huddersfield, Queensgate,
Huddersfield, HD1 3DH, United Kingdom
Email: [email protected]

Abstract— In the past few years, the number of e-commerce customers and suppliers, e-commerce also offers several
users in the world has increased dramatically; however, this benefits for business in term increased revenue; reduced
increase is mostly being driven by large companies. The adoption operation costs; reduced costs of purchasing and procurement;
of e-commerce by SMEs, especially in developing countries, is increased customer loyalty and retention; reduced marketing
relatively slow. This condition raises the question: what factors
affect SMEs in developing countries in their adoption of e-
costs; improved supplier relationship; overall satisfaction;
commerce? Whilst there has been a great deal research it reduced cost of maintaining information; product/service
concerns mainly SMEs in developed countries. Research that differentiation; improved customer relationships; improved
focuses on SMEs in developing countries is scarce. Therefore, in competitive position, extending market reach; improved
order to answer the question and to fill the research gap, this process speed; improved external communication; improved
study investigates the factors that influence the adoption of e- company image and improved internal coummunication [4].
commerce by SMEs but in developing countries. In this study, Therefore, it is not surprising that the number of e-
Indonesian SMEs have been chosen. The research instrument commerce users increase year by year. Based on the IDC
used in this study was a survey, and 75 SMEs participated. Ten report (2011) there were more than 624 million internet users
factors are found to be the most considered factors. Besides
who made online purchases in 2009 totalling nearly $8 trillion
investigating these influence factors, this study also aimed to
identify the benefits gathered by Indonesian SMEs in adopting of in revenue. This number is estimated to increase to more than
e-commerce. This study found ten such benefits that were $16 trillion transactions by year-end 2013. In Asia, the
potentially achievable when the SMEs adopted e-commerce. significant growth of e-commerce can also be seen. The
Internet World Statistics (2011) reported that the number of
Keywords—SME; e-commerce benefits; influencing factors internet users from 2000 to 2011 increased dramatically. In
2011, there were more than one-trillion people in Asia using
Introduction the internet, whilst in 2000 the number of internet users was
It cannot be denied that internet growth brings only 114 million.
tremendous changes in business activities. In the past, trading However, the increase of e-commerce use by business
could only can be done manually, through agreements is mostly being driven by large companies. In comparison
between the seller and the buyer to meet in a specific place, with larger companies, the adoption of e-commerce by SMEs
but now, it can be done electronically, through internet is relatively slow [5]. This condition raises the question: what
technology, without any physical meeting between seller and factors affect the SME in e-commerce adoption? This is
buyer. Electronic trading, which known as e-commerce, is not important, because, as is commonly argued, SMEs play an
only changing the way business conducts selling activities, important part in the global economy, and on average, consist
purchasing or dealing with customers or suppliers, but also of 95% of businesses and provide 65% of employment [5].
can change the strategic business perspective from They are also believed by some as a driver of economic
“production excellence” to “customer intimacy” (Treacy and growth and innovation [5] and they can reduce poverty and
Wiersema, 1997 as cited by [1]), and from being the “agent of unemployment, especially in developing countries. So, their
seller” to being the “agent of buyer” [2]. This condition, of development will have a huge impact on world economic
course, brings major changes in the world economy, as it growth, and vice versa.
becomes characterized by a greater focus and reliance on the Therefore, in order to encourage the SME in e-
knowledge economy in which service, information and commerce adoption, it is important to know those factors that
intelligence become the main focus [3]. influence them in e-commerce adoption. The extant literature
In order to survive in the new economy, business is records that there have been many researches conducted to
forced to adopt this technology. For those who are not investigate those factors; however most of them were focused
adopting e-commerce technology they will be left behind by on large companies and in developed countries. Research that
those who adopted it. This is because, besides e-commerce focuses on SMEs in developing countries is rarely found. For
providing a new way to sell, purchase, and deal with

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this reason, this research investigates the influencing factors commerce adoption by business. However, all of them agree
of e-commerce adoption by SMEs in developing countries. In that the higher level will require more sophisticated
this research, Indonesia is selected as the place in which application and will generated more benefits over previous
research is being conducted because it is one of the biggest stages.
developing countries in Asia and whilst it has a large number According to [8], there are four stages of e-commerce
of SMEs (more than 99% of businesses are SMEs) it is still far use, which are the presence stage, portal stages, transaction
behind in terms of e-commerce adoption. Even though the integration stage and enterprises integration stages. Each stage
Indonesian government makes a great effort to encourage has different characteristic. Figure One below describes the
SMEs to use information technology, the Nielsen Global characteristic of each stage.
online survey in 2008 reports that Indonesia still lies close to
the bottom position in Asia Pacific in terms of on-line Figure One. Stage Model
transactions (number 13 from 14 countries).
In regard to e-commerce adoption in SMEs, there are a
wide range of e-commerce applications that can be used by
them, for instance e-mail; internet; intranet; extranet;
Electronic data interchange (EDI); Electronic Fund Transfer
(EFT); and barcode. The applications that can be used by
SMEs are various starting from a simple task, such as
providing information on products or service, to sophisticated
tasks, such as integrating business activities with other
systems. The scope of e-commerce use in business shows the
level of e-commerce adoption. According to [6], the level of
e-commerce adoption correlates with the investment
requirements and benefits achieved. The higher the level of e-
commerce use, the higher the investment that will be required
Source [8]
and the more benefits that will be gathered [6]. It implies that
at each level of e-commerce adoption, the business will face
Consistent with this, [6] proposed the e-business stages
different problems and different drivers. Therefore, in this
of growth model, linking the investment requirement with the
study, the level of e-commerce adoption is considered in order
level of sophistication and potential benefits. Figure Two
to investigate the influencing factors of e-commerce adoption
below describes the e-business stages of growth model in
by Indonesian SMEs. Moreover, this study also aimed to
more detail.
investigate the benefits gathered by business at each level of
e-commerce use.
Figure Two. E-Business Stages of Growth Model
Literature review
Investment requirement External
There are various definitions of e-commerce given by
integration
researchers. However, in this research the definition given by Internal
[7] is used, which is “the process of buying, selling, integration
Electronic
transferring, or exchanging products, services, and/or commerce
information via computer networks, mostly the Internet and Interactive
intranets”. According to [7], the transition between traditional online
Static online
commerce with electronic commerce is greatly influenced by presence
the degree of digitisation (the transformation from physical to No
presence
digital) of three things, which are the product or service sold,
Low level of sophistication, potential benefits
the process and the delivery method. If there is at least one
High
digital component found on the product or the process or the
Source: (Prananto, McKay and Marshall 2004:11)
delivery method, it signifies partial e-commerce. Whilst if all
three things are digital, it means that pure e-commerce exists.
Both [6] and [8] agree that a higher stage is better than a
This implies that business can adopt e-commerce partially or
previous stage. The business can adopt e-commerce in any
entirely. The breadth of e-commerce use in business presents
stages. According to [8], the business will face different
the level of e-commerce adoption.
drivers and barriers in each level of e-commerce adoption. For
Regarding the level of e-commerce adoption, there are
example, in the presence stage, several variables, such as
several model of e-commerce progression proposed by several
technological resistance, acceptance of growth by managers,
authors, for example, the E-commerce Maturity Model
financial investment and development of telecommunication
(KPMG, 1997); Stages of e-commerce development [8]; E-
infrastructure, are recognized as a barriers, on the other hand,
commerce Adoption Model [9]; and the Stages of Growth for
in the portal stage, the capability of supplier is proposed as
E-Business (SOGe) model ([6]. Each model uses specific
one factor that hinders the development of e-commerce.
terms and characteristics in order to describe the level of e-
Actually, there are many factors that can be identified as

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influence factors in e-commerce adoption. In this study, based provided by e-commerce, in this study, based on review of
on a review of several literatures, there are 33 factors several studies, twenty-one benefits are identified as the
identified that influence the SME in adopting e-commerce. potential benefits of e-commerce, which are: increased
The factors are described in Table One below: revenue, reduced operation cost, reduced cost of purchasing
Table One. Factors Influencing E-commerce Adoption and procurement, increased customer loyalty and retention,
The influence Source The influence Source reduced marketing costs, improved supplier relationship, an
factors factors overall increase in satisfaction, reduced cost of maintaining
Availability of [6];[10];[11] Competitor’s [6];[10];[12];[13]
technical skills e-business information, product/service differentiation, improved
initiatives customer relationships, improved competitive position,
Viable market or [10] Cost to set-up and [14];[12]; extending market reach, improved speed of processing,
customer base for e- maintain improved external communication, improved company image,
commerce
[10]; [10]
improved internal communication [4, 7, 9, 20]
Availability of the Resulting reduction
right partners with [12];[15];[13] in number of Methodology
whom to work employees The survey method, with questionnaires as an
Access to network [10];[11] Understanding of [10];[16];[14] instrument, is chosen for this research. The questionnaire was
services or available developed based on previous researches. The questionnaire is
infrastructure to opportunities and
support web and options with divided into four parts. Part One is asking about general
internet e-commerce information, such as business name, type of industry, total
technologies asset and sales. Part two relates to the condition of e-
Employee [10];[11]; Projected [14];
[10];[13];[17]
commerce adoption. In regard to this, the respondent was
experience with profitability of
making major e-commerce asked about the current condition and also the future condition
changes of e-commerce adoption. Six possible conditions of e-
Experience of top [10];[11];[14] Your company [10] commerce adoption are proposed in this part, which are no
executives with willingness to internet/no email (stage zero); e-mail but no websites (stage
computers and the adopt new
internet technology
1), static website (stage 2), interactive websites but no
Government rules [10];[18];[11]; Access to capital [14] ; [10];[18] transaction (stage 3), websites which allow business
and regulations for start-up transaction (stage 4), and integrated websites (stage 5). Then,
Perceived need for [10];[19] Trust or [10];[17] the factors considered in e-commerce adoption are asked in
change or confidence in web
Part Three. In this part, there are 33 questions asked. Finally,
implementation of and internet
web and internet technologies in Part Four, twenty-one questions relate to the benefits
technologies provided by e-commerce.
Changes in industry [10];[4] Models of [10] The population for this research are SMEs in West
sector successful use in Sumatera. The SME defined as a business which has less than
my industry
The company’s [10] Reliability of web [10] 100 employees, assets less than IDR 10 billion and total sales
prior experience and internet per year below IDR 50 billion. The samples of this research
with new technologies are chosen randomly.
technology There were 300 questionnaires delivered to the potential
implementations
Perceived value or [10];[4] Supplier’s or [18];[11];[19] respondents and 99 questionnaires were returned. Due to
relevance to the partner’s incomplete responses, 24 of questionnaire were rejected,
business e-business leaving 75 completed questionnaires for analysis. A profile of
initiatives respondents is presented in Table Two below,
Pressure from [18];[12]; Security issues [12];[14]
customers [11];[19] Table Two. Descriptive Statistics
[10];[18] [6] Frequency Percent
Technology for Senior
selling products or management Type of industry
services online stewardship of agriculture 3 4%
e-business Manufacture 30 40%
Readiness of [10];[12];[4] New and emerging [13] Construction 1 1.3%
suppliers for technology Trade, hotel and restaurant 35 46.7%
electronic business Transport & communication 1 1.3%
Priority relative to [10] Changes in [6] Finance, rent & service 5 6.7%
other projects that strategic direction Total sales per year
require existing < Rp. 300.000.000 36 48%
resources and time Rp. 300.000.000 < Rp. 2.500.000.000 28 37%
Change in [6] Outsourcing [15] Rp. 2.500.000.000 < Rp. 50.000.000.000 11 15%
marketplace services ≥ Rp. 50.000.000.000 0 0%
External consultant [15] Total Assets
As previously described the level of e-commerce use is 0 ≤ Rp. 50.000.000 31 41.3%
also related to the benefits that will be gathered by business. Rp. 50.000.000 - < Rp. 500.000.000 32 42.7%
The higher level of e-commerce adoption provides more Rp. 500.000.000 - < Rp. 10.000.000.000 12 16%
potential benefits for business. Regarding the benefits ≥ Rp. 10.000.000.000 0 0%

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Analysis and results Stage 1 Stage 2 Stage 3 Stage 4
Perceived need Availability of Availability of Availability of
In terms of the current status of e-commerce adoption, for change or technical staff or technical staff or technical staff
10.7% (8) of the SMEs are not connected with the internet and implementation consultants with consultants with or consultants
have no e-mail; 50.7% (38) have an e-mail but no website, of web and web-skills web-skills with web-skills
22.7% (17) have static website; 9.3% (7) have an interactive internet
technologies
website but without business transactions; 6.7% (5) have a Technology for Projected Projected New and
website which allows them to process business transactions; selling products profitability of e- profitability of e- emerging
and none of the SMEs have integrated e-commerce. or services commerce commerce technology
In the future, most of the respondents plan to move online
Projected Perceived need Availability of Perceived need
forward into the higher level of e-commerce adoption. For profitability of e- for change or the right partners for change or
eight SMEs who currently are not connected with the internet commerce implementation with whom to implementation
and no email (stage zero), in the next several years, one of of web and work of web and
them plans to connect with the internet; four of them will have internet internet
technologies technologies
a static website; and the remainder prefer to stay in their
Access to capital Experience of Perceived need Availability of
current position (no internet and no e-mail). While, for thirty- for start-up top executives for change or the right
eight SMEs who currently have an e-mail but no website with computers implementation partners with
(stage 1), in the future, six of them will have static website; and the internet of web and whom to work
fifteen will move to stage 3; six to stage 4; six to stage 5; and internet
technologies
the rest will be in the same position. Then, for those who are Experience of Viable market or Viable market or Perceived need
currently in stage 2, six of them will be in stage 3; four in top executives customer base customer base for change or
stage 4; and six SMEs in stage 5, in the next several years. with computers for e-commerce for e-commerce implementation
The SMEs in the stage 3 are also having a plan to improve and the internet of web and
internet
their position into the stage 4 (five SMEs) and stage 5 (one technologies
SME). However, for those who currently in stage 4, only one As previously described e-commerce offers many advantages
of them has a plan to move to the next stage, the rest prefer to for business. In term of these advantages, this study also found
stay in the current condition. As a result, for the next several ten benefits that are mostly achieved by SMEs in adopting of
years, only 4% (3) SMEs will not connect with the internet; e-commerce in Indonesia, which are:
8% (6) will have an email; 14.6% (11) will have a static 1. Extending market reach 2. Increased market share
website; 29.3% (22) will have an interactive website but it 3. Increased revenue 4. Reduced marketing costs
will not able to process online transaction; 25.33% (19) will 5. Improved competitive position 6. Improved company image
have a website which allows the processing of business 7. Improved customer 8. Improved external
transaction electronically; and 18.7% (14) will have an relationships communication
integrated website. 9. Reduced operation cost 10. An overall increase in
Regarding the factors that influence SMEs in e- satisfaction of customers
commerce adoption, overall, the following ten factors are The benefits achieved by SMEs are various in each level
found to be the most considered factors by Indonesian SMEs of e-commerce adoption. Table four below presents the top
in the adoption of e-commerce: five benefits perceived by SME in each level of e-commerce
adoption:
1. Perceived need for change 2. Projected profitability of e- Stage 1 Stage 2 Stage 3 Stage 4
or implementation of web commerce Extending Extending Extending Increased
and internet technologies market market reach market reach market share
3. Technology for selling 4. Availability of technical reach
products or services online staff or consultants with Reduced Increased Reduced Extending
web-skills marketing market share marketing market reach
5. Availability of the right 6. Experience of top costs costs
partners with whom to work executives with computers Increased Improved Increased Increased
and the internet market company revenue revenue
7. Employee experience with 8. Viable market or customer share image
making major changes base for e-commerce Increased Increased Improved Improved
9. Access to capital for start-up 10. New and emerging revenue revenue competitive customer
technology position relationships
Improved Reduced Improved Reduced
Those factors influence differently in each level of e- competitive marketing company operation cost
commerce adoption, Table Three below shows the top five position costs image
influencing factors in each level of e-commerce adoption:
Conclusion
The results show that the factors that influence SMEs in
the adoption of e-commerce varies at each level of e-
commerce adoption. However, overall, several factors, which

8
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