The role of information and communication technology services within small and medium enterprise as a growth factor affecting Indonesia's economy
Creators: name: Rachman, Susanti
Publisher: name: RMIT University
Year: 2024
Subjects: classificationCode: 380201
subject: Cross-sectional analysis
classificationCode: 380204
subject: Panel data analysis
classificationCode: 440407
subject: Socio-economic development

description: The relationship between Information and Communication Technology (ICT) services adoption by Small to Medium Enterprise (SME) and national economic growth is a key to understanding the potential for future ICT investment. In the literature, there is a gap in the body of knowledge relating to ICT investment by SMEs and productivity. Historical data sources relating to investment in technology as a generator of increased SME output are limited. The effects of the evolution, over the past decade, from in-house ICT delivery to outsourced ICT services should be studied to fully understand the changes that are taking place. Therefore, this study investigates the role of ICT services in accelerating SME output and how this impacts on the growth of the Indonesian economy. The research objectives include: 1) to understand how ICT services contribute to economic growth; 2) to investigate the impact of the ICT services used by SMEs on the Indonesian economy; 3) to identify ICT service contribution to SME gross output; and 4) to examine the significant factors influencing ICT services, specifically cloud computing, adoption by Indonesia’s SMEs.<br><br>The existing literature on the implications of ICT for economic growth focuses on the use of in-house ICT to represent organisations technology level and as a general-purpose technology factor. Studies into ICT services use investment in telecommunications infrastructure or telecommunications density to be a proxy for ICT services capital. This research adopts ICT services usage, which includes fixed telephones, mobile telephones, the Internet and cloud computing, as a novel explanatory variable. Further, this research examines the role of ICT services using the Cobb-Douglass production function approach and the panel econometric technique. Primary data was gathered to provide the foundation for an analysis of ICT services on Indonesian SMEs. This analysis was complemented with a comparative study, using secondary data, of the role of ICT in developed and developing countries, to capture the global ICT services trend. The secondary data covers 28 developed countries and 15 developing countries, over the period 1970 to 2013.<br><br>A field survey was carried out to collect the primary data from 399 SMEs in four cities in Indonesia from March to November 2015. A unique and comprehensive database was developed, based on the survey results, that covers SME respondents, demographics, ICT and ICT services used, cloud computing adoption, understanding of economic outlook, historical financial performance, and historical employee data, covering the period from 1998 to 2014.<br><br>Applying secondary and primary data analysis methods, this research obtained four key findings which address the research objectives. First, the secondary data analysis indicates that ICT services capital itself has a significant impact on output in the developed nations, but not in the developing countries. However, capital augmenting ICT services significantly increase a nation’s economy both in developed and developing countries, as well as ICT infrastructure augmenting ICT services. For the Indonesian context, the empirical findings show similar results with the one found for the developed countries panel. Meanwhile, from the SME perspective the results show that SME total capital and labour contribute significantly to Indonesia’s economic growth.<br><br>Second, the primary data analysis shows that the effect of capital, as the endogenous factor, and ICT services, as the exogenous factor, both make a significant and positive contribution to the output of Indonesian SMEs. The findings reveal that ICT services directly contribute to SME growth in the first year after implementation, with fixed and mobile telephones as the main contributor. Moreover, ICT services also work together either with total capital or labour capital to accelerate SME output. The findings also indicate that SMEs that are using landline Internet might be more productive. Taken together with the findings for the Indonesia context this research suggests that ICT services significantly influence SME output improvements and that this has a positive effect on the growth of the Indonesian economy.<br><br>Third, primary data was used to examine the ICT services adoption factors. This study combined two technology adoption frameworks, Technology Acceptance Model (TAM) and Technology, Organisation and Environment (TOE). An econometric technique, the probit choice model, was applied in this analysis. The results identify that management age, employee ICT skills, and organisational maturity and size were found to be a significant factor in influencing fixed telephone and Internet adoption by SMEs. Firms with middle-aged and younger management were found to be more likely to adopt fixed telephone and Internet, respectively. This research finding highlights contrasting employee ICT skills, organisational maturity and size when adopting fixed telephone and Internet. The adoption of broadband Internet connectivity was influenced by higher employee ICT skills, especially in new and small SMEs. For SMEs with employees that have lower ICT skills it was found that mature and large SMEs were more likely to adopt fixed telephone. Additionally, SMEs with the following attributes were more likely to utilise fixed telephone. SMEs with higher education levels, assembly based SMEs, SMEs located in Denpasar (the medium growth city), and SMEs who are aware of their competitors. On the other hand, SMEs located in Jakarta (the high growth city) were found to be less likely to adopt fixed telephone. The utilisation of other ICT services influenced the adoption of fixed telephone, mobile telephone and Internet services. Fixed telephone and mobile telephone were found to be opposing factors. SMEs that use fixed telephone were less likely to adopt mobile telephone, and vice versa. Nonetheless, the adoption of broadband Internet connectivity was affected by the utilisation of computers and cloud computing.<br><br>Fourth, employee characteristics determined the adoption of Cloud Computing by Indonesian SMEs more so than the management characteristics. SMEs with young employees were found to be more likely to adopt Cloud Computing than the SMEs with older employees. Employee ICT skills were a factor in this case due to the need for employees with ICT skills to utilise Cloud Computing. In terms of employee education, high school was found to be the most significant employee education level that affects whether a SME adopts Cloud Computing. The more mature SMEs are more likely to adopt Cloud Computing. This finding indicates that new SMEs are entering the market in a traditional way, they have not employed the benefits of Cloud Computing to help them grow faster. Cloud Computing is an important factor for SME innovation and R&amp;D activity. Other ICT factors that support the adoption of Cloud Computing by SMEs are access to computers and the Internet. Therefore, it can be argued that SMEs still prefer to access Cloud Computing through personal computers and Internet connections rather than through mobile telephones.<br><br>To conclude, this research has contributed to the body of knowledge by introducing ICT services as a novel variable to investigate the contribution of ICT services as a growth enhancing factor for SME and the national economy. Additionally, the unique and comprehensive primary dataset about ICT services utilisation by SMEs provides an opportunity for further research. The research findings confirm that ICT services adoption by SMEs positively contributes to the growth of Indonesia’s economy. This research outcomes provide information that might be used by governments, industry groups and the SMEs to gain a better understanding of how ICT services adoption by SMEs is a national productivity improvement factor. Finally, the research outcomes are expected to encourage the ICT service providers to target SME needs, to help the SMEs to better utilise ICT services, and to assist with policy and regulation development. The study has implications for other growing economies as well.<br>