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A Study on Competitiveness of ICT Adoption and Entrepreneurship

Orientation on SMEs in Indonesia

Conference Paper · August 2019

DOI: 10.1109/ICIMTech.2019.8843738

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 A Study on Competitiveness of ICT Adoption and
Entrepreneurship Orientation on SMEs in Indonesia
Hendry Hartono Robertus Tang Herman
Management Department Management Department
BINUS Business School BINUS Business School
Bina Nusantara University Bina Nusantara University
Jakarta, Indonesia 11480 Jakarta, Indonesia 11480
hhartono@binus.edu robertth@binus.edu
Abstract— The increasing number of SMEs in Indonesia has
become the government’s attention that determines the effect of
ICT Adoption and Entrepreneurial Orientation on SMEs
Competitiveness. The purpose of this research is to examine the
relationship between ICT Adoption, Entrepreneurial
Orientation and SME’s Competitiveness in Indonesia. The
method used is the quantitative method by data collection using
questionnaire distribution to several SMEs from various
business sectors. Data processes using multiple regression
analysis performed using SPSS version 2. Data collected using
questionnaires distributed to SME’s owners that have adopted
ICT and size of samples determined by the Slovin technique.
The result of the research stated that SMEs facing difficulties in
adopting ICT and more concerned about the sales quantities
instead of product quality or market penetration and also
require capital loan assistance to develop their businesses.
Keywords— ICT Adoption, entrepreneurship orientation,
SME competitiveness
I. INTRODUCTION
Small and Medium Enterprises (SMEs), which is the most
significant contribution to Indonesia's economic activity
(99.9%), others are the big enterprises that only contribute
about 0.01%. The big enterprises can contribute 38.59% to
Gross Domestic Product (GDP); meanwhile, SMEs, which are
almost 99.99%, only contribute to Gross Domestic Product
about 61.41%. This shows that MSMEs themselves still have
potential to increase their business so that the contribution
more to the GDP. During 2014 to 2016 there was a production
growth of SMEs and big enterprises. In 2014, the SMEs
production index reached 122.91, the next two years rose to
137.43, or up by 11.81%. Compared to production growth
over the past 3 years that consistently increases by 5% per
year. Meanwhile on the other hand, the large enterprises
production index in 2014 reached 120.36 and the next 2 years
rose to 131.15, thereby increasing by 8.96%, but the growth
of big enterprises production does not always increase
consistently as SMEs. The development of SMEs in Indonesia
is relatively low at current prices ranging from 8.4% to 14.8%
while inflation is between 9.2% to 12.6%. Similarly, turnover
growth is only between 11.3% to 18.2% and profit growth is
only between 10.9% to 15.3% [1].
Capital and market access is one of the causes of the low
level of competitiveness of SMEs in Indonesia. Indonesia has
the lowest level compared to other countries in the Asia-
Pacific region. The problem of the low competitiveness of
SMEs in Indonesia requires entrepreneurs to face various
challenges to improve his position in the competitive global
market. The challenges are caused by continuous
technological developments which certainly creates changes
XXX-X-XXXX-XXXX-X/XX/$XX.00 ©20XX IEEE
Lasmy
Management Department
BINUS Business School
Bina Nusantara University
Jakarta, Indonesia 11480
lasmy@binus.edu
in consumer purchasing power [2], [3]. The purchasing power
of the baby boomer generation has helped the economy move,
but this generation is getting older even though it is still the
dominant market segment, there are other even larger
segments that consume significant amounts of consumer
goods.
The impact of rapid changes in consumer attitudes has
encouraged every SME in Indonesia to continue to innovate
in accordance with the current development and technology.
However, it is unfortunate that SMEs in Indonesia still cannot
maximise their sales using internet technology. Data obtained
from IBM Research said that in 2013 there were 55.2 million
SMEs in Indonesia, but only 75 thousand SMEs had used the
internet for their business activities. The solution to the
problem of SMEs is to make the latest innovations that utilise
information technology in business processes by adopting ICT
[4]. The adoption of ICT enables SMEs to improve the
efficiency and competitiveness of companies [4][5][6]. In
today's business situation, the adoption of communication
information technology and its impact on competitiveness
from the results of investigations conducted in developed
countries do not always apply in developing countries because
of very different economic behaviour, and usually have an
unstable and chaotic environment, the education system and
bad politics, and the low level of industrialization, including
development.
Reports from the Indonesian Employers' Association
(APINDO) in 2012 stated that first, the entrepreneurial
capabilities of SME entrepreneurs were still low in product
innovation. Second, the level of expertise is still inadequate in
solving organisational and business management issues so
that they are unable to carry out business activities efficiently,
effectively and flexibly. Third, networking is still limited, thus
hampering access to information, markets and inputs
compared to SMEs in other countries. Fourth, connectivity is
still minimal so it cannot exploit both national and regional
markets. Finally, lack of financial access cause business
development limitation to a larger scale. This weakness not
only inhibits the growth of SME performance but also
weakens the competitiveness of SMEs [7], [8]. Entrepreneurs
need entrepreneurial capabilities while running a business.
One of the things that were assessed is the Entrepreneurship
Orientation. Entrepreneurship orientation is the willingness of
organizations to find and accept new opportunities and take
responsibility for influencing change [9].
Indonesian government assisted SME so they can well
compete in the future market. Increasing the competitiveness
of SMEs is reflected in the policy decision of the Minister of
Cooperatives and SMEs No. 71 year 2000, concerning
Institutional Guidelines for SMEs with the aim of producing
cooperatives and SMEs that have competitiveness and
enhance the ability of Cooperatives and SMEs through the
development of superior commodities. With the collaboration,
SMEs have ability to access market, able to keep up with
technology development and use it to improve high
competitiveness.
The objectives of this study were: (1) to find out the
conditions of adopting ICT, entrepreneurship orientation and
SME competitiveness, (2) to find out the influence of ICT
adoption on SME competitiveness, (3) to determine the effect
of entrepreneurial orientation on power competitiveness of
SMEs, (4) Knowing the effect of Adoption of ICT and
Entrepreneurship Orientation on SME Competitiveness.
II. BACKGROUND THEORY
ICT in business helps management to optimize enterprise
business processes, ensuring full or partial automation of the
activity of the staff, the proper management of resources,
improving the quality of the company's activities and ensure
the management information for decision-making [10]. The
adoption of ICT in SMEs includes applications for
technology, hardware or software used to improve efficiency,
effectiveness, or growth of businesses such as the internet ,
electronic data integration, e-commerce, word processing
applications, information systems, decision support systems,
computers networks, mobile phones and accounting software
applications. SME Adopts communication information
technology in order to achieve business goals and obtain net
profits. However, adopting communication information
technology into the structure of an organization, with a lack of
business processes is a complex and risky thing [11], [12].
Benefits of ICT adoption to SME are: Reducing business
costs; Fast and reliable communication; Close relationships
with business partner; Better communication with customers;
New business opportunities; Add access to market
information and knowledge; and Better management and
business facilities. This research designed to explore
investments in various types of information and
communications technology (Common Use, Use of
Communication and Market), its use by human resource
complementarity between information technology innovation
communication and organization, as well as SMEs develop a
set of communication of information technology resources
that create value for the business [13], [14].
People that doing business if they have a dynamic
behavior, dare to bear the business risk, have creative ideas
and growth-oriented, and also development oriented, have
entrepreneurial orientation (EO). EO as a potential instrument
for organizations that can be achieved by innovating, being
proactive, and taking risks, and also used as the basis and
resources to find opportunities for success [9], [15], [16] . EO
has capabilities to collaborate with innovation in creating
unique opportunities for the survival and growth of the
company, also enhances the competitive advantage of SMEs.
Innovation is needed to build competitiveness by making
innovative products.
Competitiveness is the ability of companies, industries,
regions, countries, or regions to generate income factors and
relatively high and sustainable employment factors to face
international competition. Because industrial competitiveness
is a phenomenon at the micro level of the company, the
national industrial development policy is preceded by
reviewing the industrial sector as a whole as a basis for its
measurement [17], [18].
The adoption of communication information technology
enables SME to improve the efficiency and competitiveness
of companies [19]. With the use of information
communication technology, it will be able to help manage and
optimize the company's business processes, manage
appropriate resources, improve the quality of company
activities and ensure management of important information
for decision making [20]. Entrepreneurship orientation is an
important factor in a company to look for opportunities to
compete with other companies, involves desire to innovate,
seek risk, make independent decisions, and be more proactive
and aggressive than competitors against new market
opportunities [21]. The entrepreneurial orientation changes
the level of the company's strategic position to achieve new
opportunities for organizational growth and renewal. Thus,
entrepreneurial orientation will create a competitive
advantage which will increase the company's competitiveness.
III. RESEARCH METHODOLOGY
This research used primary data collected using
questionnaire distributed to SME’s owners in Indonesia that
under guidance of Indonesian Ministry of Cooperative and
SME. The sampling technique will use probability sampling
techniques - simple random sampling. The population of
SMEs who have adopted of ICT and Entrepreneurship
Orientation, which is only 135 SMEs, then determining the
size and number of samples using Slovin technique sampling,
so that the number of samples to be examined is as much as
100.934579 rounded up to 101 samples. The analytical
method used in this study is validity test, reliability test,
normality test, classic assumption test, and multiple
regression.
Research’s Model
According to previous studies about competitiveness, this
research measures the conditions of SME competitiveness,
ICT Adoption, and entrepreneurship orientation, that conclude
in research’s model below:
Fig.1 SME Competitiveness Model
From the model of research above, was tested 3
hypotheses:
H1: ICT adoption positively influence SME competitiveness
H2: Entrepreneurship orientation positively influence SME Smartphones provide the necessary information,
competitiveness communication with those who influence the business and
technology needed to compete with other competitors.
H3: ICT adoption and entrepreneurship orientation positively
influence SME competitiveness Eentrepreneurial orientation (X2), have 3 dimensions used
in this study, namely Innovation, Proactivity, Courage to Take
Risks. These three dimensions are divided into 7 indicators.
The following is Table IV which describes the indicators of
IV. RESULT AND DISCUSSION Entrepreneurship Orientation (X2):

A. Data Analysis
TABLE III. DESCRIPTIVE ANALYSIS OF ENTREPRENEURSHIP
Test results indicates that all the 24 indicators are valid ORIENTATION
(above Rtable 0.16) and reliable (above 0.6 of Cronbach’s
Alpha), thus can be proceed to the next step of analysis. Std. Mean per
Indicator Mean
Dimension Deviation Dimension
Creativity 0,805 4,35
TABLE I. RELIABILITY TEST Innovation 4,27
Packaging
Variable Cronbach’s Alpha Remark Ideas 0,856 4,19

ICT Adoption 0,808 Reliabel Expanding the

market 0,876 3,97
Entrepreneurship 0,741 Reliabel Proactive 3,91
Product
Orientation
sample 1,010 3,86
Competitiveness 0,867 Reliabel
The product is
not in demand 0,892 3,94
B. Descriptive Analysis
Majority of 101 respondents in this study were male Take risks Selling new 4,03
products 0,958 3,96
(52%), respondents aged from 18-37 years (39%), had
Product
education as a graduate (74%), 40% of respondents currently expired 0,937 4,11
have a business from 1-3 years, 48% of respondents have a
Average Value of Mean Variable X 2
micro scale business, 63% of respondents have less than 10 4,07
workers, 67% of respondents have small business coverage.
All the respondent at least a year, have adopted ICT to their
Based on respondent’s opinion the mean of the proactive
business.
dimension is in the lowest position of the mean value of the
ICT Adoption (X1) have 3 dimensions that used in this Entrepreneurship Orientation variable (X2) because for the
study, namely the general use of ICT, use of communication, implementation of the Proactive dimension, the SME’s
ICT market orientation. These three dimensions are divided owners must always take the initiative to develop product
into 8 indicators. The following is Table III which describes quality and open new markets, while most SMEs are still more
the indicators for Adoption of ICT (X1): concerned with increasing the quantity of products sold rather
than trying to take proactive actions. For the indicator with the
lowest mean, the product sample indicator in the Proactive
TABLE II. DESCRIPTIVE ANALYSIS OF ICT ADOPTION
dimension is because in its implementation it requires capital
Mean per and additional costs. Capital is crucial for SME who still in the
Std. Dimensio micro scale of businesses.
Dimension Indicator Deviation Mean n
Production 0,908 4,21 Competitiveness (Y) have 2 dimensions that used in this
General Use 4,21
of ICT Inventory 0,871 4,00
study, namely finance and marketing. These two dimensions
divided into 9 indicators used in this study, namely liquidity,
E-mail 0,879 4,19
venture capital, sales level, profit increase, customer service,
Instant
Use of messaging 0,826 4,28
4,28 product quality, innovation, competitive prices, and cost
Communica control. The following is Table V which describes the
tion Smartphone 0,757 4,37
indicators for Competitiveness (Y):
Website 0,841 4,05
E-Commerce 0,920 4,05 4,04
ICT Market TABLE IV. DESCRIPTIVE ANALYSIS OF COMPETITIVENESS
Orientation Social media 0,953 4,03
Mean per
Average Value of Mean Variable ICT Adoption 4,12 Dimension Indicator Std. Mean
Dimension
Deviation
Liquidity 0,835 3,96
Based on the respondent’s opinion, using websites or e- Venture
commerce is still difficult to do, because of technical matters capital 0,835 4,11
Finance 3,99
and need an effort to study. The respondents using ICT for Sales Level 0,854 3,99
Increased
inventory management is less needed, because can still be profits 0,917 3,91
done conventionally before adopting it. The indicators with Customer
the highest mean are smartphone indicators in the dimensions service 0,869 4,06
use of Communication indicate that most of all business Marketing Product 4,05
activities require smartphones. Smartphones cannot be denied quality 0,866 4,10
Innovation 0,910 3,99
as a source of information and communication tools for SME.
 Competitive concluded that the higher the Entrepreneurship Orientation is
price 0,818 3,90
given, the more Competitiveness for the SME.
Cost control 0,792 4,18
Average Value of Mean Variable Y H3: ICT Adoption and Entrepreneurship Orientation
4,02
positively influences the Competitiveness of SMEs.

Based on the respondent’s opinion, the lowest position of TABLE VII. REGRESSION TEST RESULT (MODEL 3)
the mean of Competitiveness (Y) variable is financial
Coefficientsa
dimension requires assistance from external parties such as
Unstandardized Standardized
capital loan assistance to develop business. For indicators with Coefficients Coefficients
Model t Sig.
the lowest mean, namely Competitive Price indicators in the
B Std. Error Beta
Marketing dimension because for some SMEs, it is important
(Constant) 1.766 .448 3.939 .000
to increase the profit by higher price. SME believe that who
3 ICT Adoption .150 .107 .143 1.407 .163
set lower prices than their competitors can cover the capital
Entrep. Orientation .403 .107 .384 3.773 .000
issued. For the indicator with the highest mean is the indicator
a. Dependent Variable: Competitiveness
of Cost Control in the Marketing dimension, some SME
believe that are able to control costs by using marketing media The statement of the third hypothesis that the Adoption of
that require less cost. ICT and Entrepreneurship Orientation on the Competitiveness
of SMEs proved to be influential. Competitiveness is
C. Regression Analysis influenced by the Adoption of Information Technology
Communication and Entrepreneurial Orientation (Ftest 13.898
> Ftable 3.09), means that the Adoption of ICT and
Initial testing was conducted by using SPSS version 22 to Entrepreneurship Orientation influences the Competitiveness
test the hypothesis, as follows: of SMEs.

H1: ICT Adoption positively influence the Competitiveness of V. CONCLUSION

SMEs
SMEs in Indonesia still difficult to using website or e-
TABLE V. REGRESSION TEST RESULT (MODEL 1) commerce as tools to market their product. SME wants to
improve the quality of its products but is constrained by
Coefficientsa
limited funds. Because of these limitations, SME switched
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
focus to product quantity. SME must be more proactive in
B Std. Error Beta
expanding the market and issuing product samples. Proactive
(Constant) 2.598 .415 6.253 .000
can be done with the help of website or e-commerce, so SME
1 can increase the sales that contribute their profit.
ICT Adoption .344 .099 .328 3.459 .001
a. Dependent Variable: Competitiveness In this study the effect of adoption of information and
communication technology is smaller compared to previous
The statement of the first hypothesis that the adoption of studies, this can be caused by the adoption of information and
ICT had a positive influence ( = 0.344) on the communication technology and its impact on competitiveness
competitiveness of SMEs in proved to be influential (Ttest may be affected by economic behavior, environment,
3.459 > Ttable 1.660), means that the Adoption of Information education system, politics, the level of industrialization and
Technology Communication affects the Competitiveness of development program[12] and in previous research,
SMEs. It can be concluded that the higher the Adoption of technological tools or software, allowing financial
Communication Information Technology is given, the more transactions or loans to be monitored and evaluated effectively
Competitiveness for the SME. could be influence by these [19][22].
H2: Entrepreneurship Orientation positively influences the In this study the influence of entrepreneurial orientation
Competitiveness of SMEs. was greater when compared to previous studies because the
SME had received entrepreneurship orientation training from
TABLE VI. REGRESSION TEST RESULT (MODEL 2) Indonesian Ministry of Cooperative and SME. Whereas, in
previous studies, SME tended to create a type of business that
Coefficientsa
followed market trends, but when the trend was no longer
Unstandardized Standardized
Coefficients Coefficients
booming, they would stop and change their business types
Model t Sig.
B Std. Error Beta
[23]. Business people must also be able to continue to innovate
to be able to keep competing and survive in a competitive
(Constant) 2.093 .385 5.432 .000
2 market [24], [25].
Entrep. Orientation .476 .094 .453 5.056 .000
a. Dependent Variable: Competitiveness This study has its limitation which is only study ICT
Adoption, Entrepreneurship Orientation and SME’s
The statement of the second hypothesis that the competitiveness; there would be more aspects which could be
Entrepreneurship Orientation had a positive influences ( = influence SME’s competitiveness. For future research can
0.476) the competitiveness of SMEs proved to be influential take different variables of psychological factors of ICT
(Ttest 5.056 > Ttable 1.660), means that the Entrepreneurship adoption. Due to time constraint and limited availability of
Orientation influences the Competitiveness of. It can be resources, this study only covers small population so that the
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