SME's Powering Indonesia's Success

2015
SMEs powering Indonesia’s success
The Connected Archipelago’s Growth Engine

General use restriction
This report is prepared solely for Google. This report is not intended to and should not be
used or relied upon by anyone else and we accept no duty of care to any other person or
entity. The report has been prepared for the purpose of analysing how digital technology
is transforming the Indonesian economy. You should not refer to or use our name or the
advice for any other purpose.

Contents
Executive summary
Introduction
Indonesia’s economic potential
Indonesia’s digital economy
Importance of the small business sector
The value of digital technologies to Indonesian SMEs
Digital trends
Adoption levels
Digital engagement levels
The value propostition and growth opportunity
ASEAN Economic Community
What is the ASEAN Economic Community?
Indonesia’s competitiveness and digital policies
Broadband and social media
Public policy
Policy directions
Increasing broadband access
Help all SMEs to be digital businesses
Expand e-payments
Expand access to finance
Expand e-government services
Appendix A: Data
Appendix B: Interpretation
Appendix C: Econometrics
References
Our people
1
7
9
11
12
13
15
17
19
21
25
27
28
29
33
35
36
37
39
40
41
43
44
45
47
49

1 SMEs powering Indonesia’s success
Executive summary
Indonesia has great economic potential, with
abundant resources, a large young workforce and
rapid urbanisation. Indonesia recorded an impressive
economic growth rate over the past decade, averaging
5% per year. The country has made tremendous strides
in social progress and economic management and is
looking to its next target of becoming a middle-income
country by 2025.
Strengthening the digital economy will play a pivotal
role in reaching Indonesia’s full potential. With more
small and medium-sized enterprises (SMEs) engaged in
the digital economy through broadband, e-commerce,
social media, the cloud, and mobile platforms, they
can have faster growth in revenue and employment, be
more innovative and more competitive in the ASEAN
Economic Community.
Based on economic modelling for this report and
previous World Bank research, we find that doubling
broadband penetration rates and lifting digital
engagement by SMEs could increase Indonesia’s
annual economic growth by 2% – the additional
growth it needs to achieve the 7% target required
to be a middle-income country by 2025.
SMEs in Indonesia are well placed to reap the benefits of
digital transformation. They are already using basic forms
of technology to achieve similar goals. Government policy
can play a significant role in accelerating the benefits
of the digital economy – primarily through increasing
broadband access and by improving coordination of
existing government programs, payments facilities, access
to investment and facilitating access to new inexpensive
digital tools.
Boosting SME digital engagement could increase Indonesia’s annual
economic growth by 2% - the jump Indonesia needs to become a middle-
income country by 2025.
GDP growth rate necessary to reach
2025 middle-income goal
Current growth rate
Additional growth required
Figure: Achieving Indonesia’s economic ambitions will require a serious effort
Source: Deloitte Access Economics
7%
5%
2%

2The Connected Archipelago’s Growth Engine
Benefit of digital technology for SMEs
In this report, we identify four levels of digital
engagement for SMEs based on technology adoption,
online presence, social media use and e-commerce
capabilities. This is based on the experiences in the
Indonesian economy and a new survey of 437 SMEs in
Indonesia.
SME digital engagement levels
1. Offline business: No access to broadband, no
computer or smartphone and did not have a website
2. Basic online business: Broadband access, digital
device such as a computer or smartphone and static
online presence1
3. Intermediate online business: Immersed in the
social media through a combination of integrating
websites with social media, live chat or customer
threads on websites
4. Advanced online business: Sophisticated
connectivity, social media integration and
e-commerce capabilities.
SMEs that get online, engage in social media and
develop e-commerce capabilities enjoy significant
business benefits in terms of revenue, employment,
innovation and competitiveness. Each step up the digital
engagement ladder brings benefits.
1. Basic online presence includes standard website with limited information, listings on online directories and other forms of non-
interactive information portals online.
It is also important to note that while our engagement
ladder focuses on digital technology usage in retail
and customer interactions, the benefits of digital
technologies extend far beyond that. Digital tools such
as cloud computing and data analytics can greatly
improve supply chain management and internal
communication efficiency.
These platforms provide cost effective ways in which
businesses can access state of the art technology
tools including sales and account management, a
way to reach people (workers) or HR management
tools and human resources. Cloud technologies also
allow businesses make better and faster decisions by
streamlining business reporting and displaying real time
information.
The digital economy is not just about driving business
success. It is also a key ingredient to new and innovative
business models, which are critical building blocks of the
broader economy and the digital ecosystem in the long
term. New digital businesses such as software studios,
app developers and content creators are not only
creating tremendous economic value, they also play an
important role in creating Indonesian solutions to solve
Indonesian problems.
Figure: Distribution of businesses by digital engagement levels
37% Basic online
18% Intermediate online
36% Offline
9% Advanced online
Source: Stancombe Research and Planning,
Deloitte Access Economics

4
Despite the benefits of engaging with digital
technologies, we show that over a third of Indonesian
SMEs (36%) remain offline, another third (37%)
only have very basic online capabilities, 18% have
intermediate online capabilities, and less than one in ten
(9%) are advanced online businesses.
Digital technologies are helping Indonesian SMEs grow
faster and become more competitive internationally.
In particular, our econometric modellings show that
higher digital engagement levels are strongly associated
with higher revenue growth, increase in employment,
innovation and export.
Advanced online businesses grew their revenue
80% faster than offline business.
Applied to the average sized small business in our
survey (IDR 1.4 billion revenue p.a.), a business that is
currently offline could grow its revenue by as much as
IDR 140 million a year if they acquire advanced online
capabilities.
This is perhaps not surprising – digital technologies such
as websites and search engine marketing offer SMEs a
cost effective way to reach more customers and quickly
scale their operations.
Advanced online businesses are also one and half times
more likely to increase the number of people they
employ when compared to offline businesses, further
improving their capacity for growth in the future.
Digital technologies are driving business success in different ways in Indonesia. They are helping Indonesian
businesses improve communications, operate more efficiently, overcome barriers to access education and
financial services, and reach more customers. Some examples are outlined below, with full case studies in the
body of the report.
Benefit of digital technologies for Indonesian SMEs
1. Up to 80% higher growth in revenue
2. One and half times more likely to increase employment
3. 17 times more likely to be innovative
4. SMEs with higher digital engagement are more competitive internationally.
SMEs with digital technologies are more likely to
innovate. When asked whether SMEs have reacted to
market forces by changing part of their business model,
we found that advanced online business are 17 times
more likely to make a considerable change in the way
they did business than offline businesses.
Digitally engaged SMEs are also more competitive
internationally. In this research, we show that SMEs with
basic online capabilities had 6% more of their revenue
derived from international customers than those SMEs
offline.
There is clear evidence that SMEs can benefit greatly
from engaging with digital technologies, in many
ways, Indonesian SMEs are already using basic forms of
technology to achieve similar goals. For example, many
SMEs in rural areas are already using SMS to distribute
information, advertise, and socialise, much like social
media platforms.
Adopting more advanced digital technologies can help
improve these interactions, making them more efficient,
providing greater coverage and richer content formats.
Improved access and affordability to these technologies
will likely see their rapid adoption and growth in SMEs’
digital capabilities.
Different ways digital technologies are driving business success in Indonesia

Brodo Footwear: using the digital technologies to drive
business growth
Brodo Footwear is an Indonesian men’s fashion company founded in 2010 that in just
over four years, has grown to employ around 100 people, produces more than 4,000
pairs of shoes a month and generates around US$120,000 in revenue a year. The
company expanded from an online-only start up to a retailer across multiple platforms.
Brodo is using data analytics to focus its marketing effort and cloud tools to increase
business productivity. The company uses Google Analytics and its own sales data to
better understand its inventory, customers and online traffic. This helps the business
to target specific customers for promotion and build relationships with its customers.
More than 80% of Brodo’s sales come from its online store. Brodo’s ambition for the
future is to expand internationally into other ASEAN countries.
HijUp: growing international through online channels
HijUp.com is Indonesia’s first Islamic fashion e-commerce business. It has grown from
having two employees managing 14 brands of women’s fashion when it launched in
2011 to having 48 employees and carrying over 140 brands today. Suppliers include
a small number of large manufacturers, but most are small businesses themselves.
Back in 2011, HijUp launched with a series of ‘how-to’ videos on YouTube teaching
women how to get creative with their hijab fashion. Not only was the video series
a tremendous success in featuring HijUp’s products, it also generated significant
following online and growth in sales. Over the next four years, HijUp worked with
other content creators like bloggers, video bloggers and make-up artists to add
more tutorials and fashion-related content. The use of online technology allows
the business to expand seamlessly overseas. Today, 30% of HijUp’s YouTube traffic
is from outside Indonesia and exports to other ASEAN economies account for more
than 20% of its revenue.
8Villages: helping rural SMEs overcome barriers to growth
8Villages is an Indonesian business that provides underserved rural communities
with LISA, a valuable subscription service that provides quality and localised
information about agriculture, finance, advocacy for women and general
education. Users typically receive daily SMS tips from 8Villages and trending
local user-generated content. They can also ask questions and get answers from
8Villages’ partners and other users. The business boasts over 75,000 subscribers in
Indonesia, primarily farmers in remote communities.
8Villages has impacted other SMEs, particular those in rural areas, where businesses
are often disadvantaged due to lack of financing and access to reliable information.
8Villages’s LISA platform provides an easy and affordable way for these businesses
to communicate and obtain useful information that could help them growth and
bridge their knowledge gaps. 8Villages financial literacy programs have helped
many rural SMEs to secure the much needed capital to expand their operations and
improve their productivity. 8Villages platforms on smartphones and the web provide
significantly improved and richer content compared to its SMS services, however
these platforms have limited reach due to the lack of broadband access among
remote communities.

Holycow Steakhouse: innovation enabled by digital
technologies
Holycow Steakhouse is a chain of restaurants offering a range of premium food
such as Wagyu beef. The business started in 2010 as a small street vendor and
quickly grew to a large chain with 12 locations throughout Indonesia. It is a story
of a business that has used the internet to build its profile, attract new customers,
and communicate across locations and its supply chain.
In July 2012, Holycow launched its logo campaign on social media and in its
stores – a short laptop video inviting customers to vote and submit their design of
the Holycow logo went viral on social media. The campaign received more than
58 million impressions, nearly 10,000 related tweets and 700 ballots submitted
in its store. The innovative online campaign delivered massive gains in sales and
brand recognition for the business and yet its costs are minimal when compared to
traditional advertising channels with similar impact.

Government needs to help lift GDP growth
through digital SMEs
To reach middle income country status by 2025 Indonesia
needs to boost its economic growth by an additional
2%. This could be achieved by accelerating the growth of
Indonesia’s digital economy, particularly among the SMEs.
Indonesian SMEs are well placed to reap the benefits of
the digital economy. Government policy, particularly in
areas such as infrastructure provision, digital regulation,
investment restrictions, could play a huge role in further
expanding and accelerating this growth by reducing
barriers to access and regulatory restrictions on use. In
this research, we identified five key areas of policy focus
for government to improve SME digital engagement:
Increasing broadband access is essential. Existing
internet access in Indonesia remains relatively expensive
and slow. Increasing broadband access and the quality
of service will encourage digital technology adoption
by SMEs and will improve performance of existing
technologies.
Broadband infrastructure developments need to be
balanced and open to innovative alternative technologies.
For example, while fixed infrastructure deployment can be
used to relieve network congestion and increase access
speed, mobile networks can help improve mobility and
coverage. Innovative technologies such as Wi-Fi access
points could be employed to offload existing traffic
from mobile networks to help increase capacity. The
government should ensure that regulatory frameworks
are flexible and open to these innovative technologies,
and, at same time, facilitate an efficient and competitive
environment.
Help all SMEs to be digital businesses. Many
government agencies provide SME support programs,
including those targeted at increasing SME digital
engagement. They are often overlapping and limited in
scale. Government needs to improve the coordination
of these SME programs between various agencies. A
strong partnership with the private sector will help.
Innovative online businesses such as HijUp and 8Villages,
and Google’s support for Gapura, which brings
digitally engaged SMEs together to share information
and solutions, are a good example of private sector
engagement.
Expand e-payments. Improving trust in e-commerce
payment platforms, increasing bankability of Indonesian
consumers and businesses and expanding alternative
payment systems will increase the volume of digital
transactions in Indonesia. The focus for government
should be to ensure that e-payment systems are
accessible, reliable and secure. This will build greater
consumer confidence and increase use.
Expand access to finance. Digital SMEs need a mix of
domestic and international sources of finance, barriers
to that will reduce their potential for growth. Investment
policies need to be open to all sources and types of
capital. Indonesian SMEs will benefit from greater access
to online micro-financing tools.
Expand e-government services. Government services
delivered through online platforms are more cost effective
and efficient. More online government services would
build consumer confidence in online activities and services
over time.
If the government builds on its existing efforts to help lift
the number of SMEs that are online, engaged with social
media and participating in e-commerce, more SMEs will
move up the engagement ladder, from offline to online
businesses and from basic to intermediate and advanced
businesses. These transformative changes will deliver the
improved business performance needed for Indonesia
to fully utilise its economic potential and reach middle-
income status by 2025.

Google commissioned Deloitte Access Economics
to prepare a report on the value of internet-savvy
entrepreneurs to Indonesia. It builds on previous report
commissioned by Google on the value of the internet to
the Indonesian economy.
The aim of this report is to go beyond the national
statistics and trends and understand the day-to-day
impact of the internet and digital technologies on
business, with a focus on micro, small and medium
enterprises (SME). What are the current trends in the
use of the internet and digital technologies? If SMEs
do successfully use the latest tools, what is the value
proposition in terms of increased revenue, sustainability
and employment creation?
This report also explores the changing economy within
which Indonesian SMEs operate. How do such businesses
compare with their counterparts across the ASEAN
region? How will the advent of the ASEAN economic
community affect the competitive landscape for
Indonesian SMEs – how can they compete and grow?
The primary audience for this report is the Indonesian
business community – SMEs, industry representatives,
and larger businesses that work with this important
sector of the economy. By increasing engagement with
the digital economy, SMEs can be better businesses.
1
Introduction
This report also recognises that the economic and
technology policy landscape is also important for the future
success of the Indonesian economy. The report describes
digital policies in Indonesia and compares them to other
countries in the region. It discusses ways in which the
government and departments can more effectively play a
role in Indonesia’s emerging digital economy.
Framework for analysis
This report is based on a review of existing literature, a new
survey of over 400 business owners and managers across
Indonesia, targeted consultations with business leaders and
government officials, and an analysis of publicly available
data from across the ASEAN region. We synthesised the
results of these findings to analyse the role and value of
the internet and digital technologies to SMEs in Indonesia,
how this compares in the region and the role of policy
settings for economic and technology development. The
framework for analysis is summarised in Figure 1.1.

Chapter 2 outlines the economic challenges facing Indonesia and the importance of SMEs in the Indonesian
economy. It looks at recent changes in the competitive landscape.
Chapter 3 examines digital trends in Indonesia and provides an assessment of levels of digital engagement across
SMEs. This chapter quantifies the value proposition and growth opportunity from digital technologies.
Chapter 4 discusses the ASEAN economic community – how do Indonesian SMEs compare with their regional
counterparts? It examines the possible impact of the ASEAN economic community in Indonesia and the role of digital
technologies in providing opportunities for growth.
Chapter 5 shifts the focus to a broader industry and government policy lens. It describes the social web policy
landscape in Indonesia and across ASEAN, identifying the issues and barriers in this area. It concludes with directions
for the future – specific actions government can take to lift digital engagement.
The report concludes with appendices that annotate methodology used in this report.
Figure 1.1: SME’s powering Indonesia’s success
SME’s powering Indonesia’s success Indonesia’s economic potential
The value of digital technologies to Indonesian SMEs
Public policy

2
Indonesia’s economic potential
Indonesia is a country with great economic potential. It has abundant
resources, a large young workforce and is undergoing rapid urbanisation.
Indonesia recorded one of the most impressive economic growth rates in
the world over the past decade, averaging 5% per year. The country has
made tremendous strides in social progress and economic management,
and is looking to its next target of becoming a middle-income country
by 2025. To meet this ambitious target, Indonesia must lift its economic
growth to 7% per year. Improving the use of digital technologies,
particularly among SMEs, can give Indonesia the needed 2% boost.

CURRENT
GROWTH RATE
GDP GROWTH
TARGET
5%
7%ADDITIONAL GROWTH
HELPED POWERED BY
DIGITAL SMEs
2%

Indonesia, along with other emerging Asian economies,
has a fast growing middle-class consumer base in the
world. It is estimated that the Asian middle-class will
double in size, from two billion today to 4.9 billion in
2030, representing 66% of the global middle-class
and accounting for over 40% of global middle-class
consumption (Kharas & Gertz, 2010). The transition of
millions of Indonesians out of poverty into the consuming
classs will be a big part of Indonesia’s growth.
The Indonesian government has committed to
transforming Indonesia into a middle income country by
2025 in its policy whitepaper – The Master Plan for the
Acceleration and Expansion of Economic Development
of Indonesia (MP3EI). This will require a real economic
growth at least 7% per year, 2% above the average
historical growth rate.
While achievable, there are significant economic
challenges to realising Indonesia’s full growth potential.
For example, stagnant productivity growth; low
participation in the labour force, particularly among
women; lack of a skilled workforce; uneven distribution
of economic prosperity across regions; and inadequate
infrastructure continues to constrain Indonesia’s
economic development.
Strengthening the digital economy will play a pivotal
role in overcoming these barriers. With more SMEs
using broadband and smartphones to reach customers
and operate more efficiently resulting in faster revenue
growth, higher employment as well as greater
innovation and a better competitive position in the ASEA
Economic Community.
Indonesia’s digital economy
Indonesia’s future prosperity will be significantly
determined by the success of its digital economy.
Development of the digital economy will improve
connectivity between businesses and consumers, lift
efficiency and productivity, and create new markets for
businesses.
In 2011, Deloitte Access Economics forecasted the
value of the internet to the Indonesian economy at
IDR 115 trillion or 1.6% of GDP (Deloitte, 2011). In
addition to the direct economic contribution of digital
technologies, the study also highlighted the importance
of these technologies in overcoming unique challenges
for Indonesia, including topology, congestion, education
and communication.
Since then, the digital economy in Indonesia has
grown rapidly. New and innovative digital technologies
such as mobile apps, cloud and data analytics have
grown rapidly in Indonesia’s digital landscape.
Improved affordability of digital technologies, such
as smartphones and broadband, has seen significant
increases in the number of consumers and businesses
engaging in digital activities.
Building on this platform, digital technologies are going
beyond basic communication and social networks; they
are starting to transform the archipelago economy.
Beginning with how consumers are interacting with
businesses, digital technologies are changing Indonesia’s
workplaces, how supply chains are organised and how
businesses are managed.
This growth trajectory is likely to continue in Indonesia.
Ongoing infrastructure investments in broadband
networks and an expected rise in national income
are likely to further drive improvements in Indonesia’s
internet speed, breadth of broadband coverage and
affordability of digital technologies over time.
2 Indonesia’s economic potential
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
GDP growth rate
needed to meet middle
income goal
Current growth rate Additional growth required
Figure: Achieving Indonesia’s goals will require a serious effort
7.0%
5.0%
2.0%Growth
gap
Source: MP3EI, Deloitte Access Economics.

While access to digital technologies remain difficult for some, many already using other basic forms of technology
to achieve similar goal. This means that Indonesia is well placed to take advantage of improvements in digital access
and availability of new digital tools.
Based on economic modelling for this report and previous World Bank research, we find that doubling
broadband penetration rates and lifting digital engagement by SMEs could increase Indonesia’s annual
economic growth by 2% – the additional growth it needs to achieve the 7% target required to be a middle-
income country by 2025.
Importance of the small business sector
SMEs are the dominant form of business organisation
in Indonesia and play a significant role in its economy.
Collectively SMEs represent more than 99% of the total
number of firms in Indonesia, 97% of employment and
57% of Indonesia’s annual GDP (OECD, 2012).
SMEs have an important role to play in accelerating
Indonesia’s economic growth, especially in absorbing
the rapidly growing labour force and driving productivity
improvements. There are 55 million SMEs in Indonesia,
employing 108 million people and contributing 57%
of Indonesia’s annual GDP. Yet SMEs suffer productivity
levels less than 4% that of their large business
counterparts (OECD, 2012).
The productivity gap between SMEs and larger
enterprises has widened since then (OECD, 2012),
mainly due to the manual production processes often
employed in smaller businesses and the lack of access
to skilled workers, machines, IT infrastructure and the
propensity to improve methods of production.
While these economic attributes are common among
developing countries, it remains one of the largest
economic growth gap for Indonesia. The ability to boost
productivity performance in the SME sector will be essential
to Indonesia in reaching its growth targets in the future.
The economic significance of broadband
Broadband can fundamentally restructure how an economy organises and have a significant positive impact
on economic growth, particularly in lifting productivity, job creation, and fostering innovation. In developing
countries, adoption of broadband was responsible for significant improvements in existing markets by reducing
information gaps and creating a range of economic opportunities across communities.
The World Bank (2009) estimated that for every 10 percentage point increase in fixed broadband penetration
leads to a 1.38 percentage point acceleration in economic growth for developing countries. It is worth noting
that the figure is estimated for fixed broadband in 2009, we expect the impact of broadband to be much higher
now given the rapid growth of mobile broadband since then.
For Indonesia, this means that increasing access to broadband infrastructure could be key to reach its real GDP
growth target of 7% from the historical growth rate of 5%, and would see Indonesia become a middle income
country by 2025.
What are SMEs?
According to the Ministry of SMEs and Cooperatives
and Bank Indonesia:
• Micro business is defined as businesses with
net assets less than IDR 50 million and less than
IDR 300 million in total annual sales
• Small businesses are businesses with net assets
between IDR 50 million to IDR 500 million, or
with total annual sales from IDR 300 million to
2.5 billion
• Medium businesses are those with net assets
from IDR $500 million to 10 billion or total
annual sales from IDR 2.5 to 50 billion.
Furthermore, Indonesian SME performance is becoming
increasingly important as the country integrate with
other ASEAN economies beyond 2015. This new
regional economic paradigm will likely see a shift in the
competitive landscape for Indonesian SMEs. They will
be likely to face intensified competition in the domestic
market, but also increased opportunities overseas.

3
The value of digital technologies
to Indonesian SMEs
9%
36%
ADVANCED ONLINE BUSINESS
OFFLINE BUSINESS

Distribution of businesses
according to digital engagement levels
37%
18%
BASIC ONLINE BUSINESS
INTERMEDIATE
ONLINE BUSINESS

In this chapter, we explore the value of digital technologies
to Indonesian SMEs. We begin by outlining overall digital
trends and then quantify trends based on data from a
specially designed survey of over 400 SMEs conducted
in 2015. We define a ladder of digital engagement and
present economic modellings that show how higher levels
of engagement are associated with a range of improved
business performance metrics including revenue growth,
employment, innovation and more.
Technology has been an important driver of business
productivity for decades – computers in the 1980s, user-
friendly software in the 1990s and the internet in the
2000s. Today, emerging digital technologies including
the cloud, smartphones, apps and data analytics are
having huge impacts on consumers and businesses
around the world.
For consumers, emerging technologies such as social
apps provide platforms that facilitate the exchange of
knowledge and content. For businesses, these applications
extend the traditional business capabilities allowing them
to tap into new markets, increase efficiency of sales and
marketing and improve business operations.
Bernoff and Li (2008) noted, ‘... with the increase in
social participation among consumers and the growing
sophistication of the underlying technologies, it’s now
possible to put social applications on an equal footing
with other business projects…’ Indeed, empowered
consumers are spending more time online, and making
decisions based on digital content, including user
reviews and product descriptions on websites. The
ability to capture this opportunity for businesses will be
an important factor for growth of the digital economy.
Digital trends
Indonesia is at the centre of this digital trend. In 2012,
Jakarta was ranked as the most active city in the world
on Twitter (Semiocast, 2012). Twitter users in Jakarta
accounted for 2.4% of the 10.6 billion tweets posted
daily around the world. Today, Indonesia has the fourth
largest active Facebook user base and the fifth largest
Twitter user base. Indonesia also has heavy usage
of online messaging platforms including WhatsApp,
LINE and BBM, with some 97% of mobile phone users
accessing messaging platforms multiple times daily, most
Indonesian have multiple messaging application installed
on their devices (Inmobi, 2014).
Businesses in Indonesia are also becoming increasingly
aware of the power of the internet and digital tools.
In our survey, 38% of owners and managers identified
having a website as critical to the success of their
business when engaging with customers, while 32%
and 23% said the same about social media and mobile
messaging platforms.
In comparison to social media, email is an even more
improtant tool, over 67% of respondents said email was
critical. This result is not surprising, as email is likely to
be the most accessible form of digital communication in
Indonesia.

Brodo Footwear: using the social web to drive business
growth
Brodo Footwear is an Indonesian men’s fashion company founded in 2010 that
in just four years, has grown to employ around 100 people, produces more than
4,000 pairs of shoes a month and generates around US$120,000 in revenue a
year. The company expanded from an online-only start up to a retailer across
multiple platforms.
‘The business started as something less serious, as a lifestyle side-project when we
were at university,’ according to Brodo co-founder Yukka Harlanda. ‘We started the
business to make custom shoes for friends and family. The business evolved when we
took it online, especially on social media. We started seeing a large demand for our
product, and it was a huge opportunity for us.’ The cost-effective marketing power
offered by large social media networks allowed the company to quickly build its brand
and customer base with very little cost.
‘Different social media platforms offer different advantages. For example, we
are using Facebook to promote sales, while Twitter allows us to gather product
feedback. We are also using Tumblr and Instagram to help build the brand, while
using Google+ to provide information and adwords to market our products. We
are also starting to use LinkedIn to help recruit talent,’ said Yukka.
Brodo is increasingly using data analytics and other cloud tools to focus its marketing
effort and increase business productivity. The company uses platforms such as
Google Analytics and its own sales data to better understand its inventory, customers
and online traffic. This helps the business to target specific customers for promotion
and build relationships. ‘It seems our customers are likely to be young males who
like politics and travel sites,’ Yukka jokingly said. ‘The more we know about our
customers, the more effective we can be in reaching them and satisfying their needs.’
Knowing who the customers are and what they like has significantly influenced
how Brodo designs its products and builds its brand, much of this knowledge is only
available online.
Although Brodo has been successful as an online-only business in Indonesia, its
ambition for the future is to expand internationally and strengthening its physical
retail stores. ‘Something we haven’t realised before is that some of our customers
like to physically interact with our product before their first purchase.’ The two
Brodo shopfronts that started as extra storage now represent more than 20% of
sales, with the other 80% coming from its online store.

There are many indicators of engagement with digital technologies, including purchasing devices, connecting to
services, and use of the web and apps. Below we present some of the key findings.
Technology adoption
Technology adoption among Indonesia SMEs is substantial. More than 96% of those surveyed had access to a computer,
84% said they had a smartphone and 73% had access to the internet through fixed or mobile broadband connection.
Adoption levels
Survey data
Our findings are primarily based on the data from a survey of over 400 SMEs in Indonesia conducted in 2015. The
survey had approximately 40 questions fielded using a combination of panel (internet) questions and face-to-face
interviews. The face-to-face interviews were conducted in six cities across Indonesia: Jakarta, Bandung, Semarang,
Surabaya, Medan and Makassar. Further background to the survey methodology is provided in the appendix.
The results are broadly representative of the broader SME sector in the Indonesian economy. However, the survey
sample focused on industry and services businesses and under-represents the agriculture sector that comprises
around 49% of the Indonesian SME sector. Second, we sampled a mix of micro, small and medium-sized
businesses and where appropriate we present the results separately. A strictly representative sample of SMEs
would involve only a handful of medium-sized businesses and reduce the quality of the results. Of course, this
means care needs to be taken when interpreting the aggregate results.
50%
58%
77%
58%
79%
86%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Rural area Regional town Major city Micro Small Medium
Figure 3.1: Broadband access by location and size, 2015
Source: Stancombe Research & Planning, Deloitte Access Economics
96% computer 84% smartphone 73% fixed/mobile broadband
While there are no major differences in adoption of smartphone and computer across business size and type,
broadband take-up clearly remains limited for some businesses. Figure 3.1 shows, businesses in rural or regional
locations, and smaller businesses are likely to have a much lower adoption rate for broadband.

18The Connected Archipelago’s Growth Engine 18How digital technologies are transforming the Australian economy
Figure 3.2: SMEs e-commerce capabilities, 2015
Figure 3.3: Digital marketing spend growth in the
next three years, 2015
Source: Stancombe Research & Planning,
2. Assumed exchange rate of IDR12,535 to USD$1 as of 29 January 2015.
22%
10%
12%
56%
Online orders and payments
Online orders
Basic information
% of total marketing spend
No online presence
In three yearsNow
35%
37%
39%
41%
43%
45%
47%
49%
51%
53%
55%
Micro Small Medium
47%
52%
51%
41%
46%
45%
We also found that technology take-up among
businesses in the agriculture; livestock, forestry and fishery
was generally below average. For example, with only
59% using broadband compared to an average of 73%.
We note that the figures reported in our survey on
broadband access are comparatively higher than other
sources. We note that in addition to being a self-reported
figure (with some possibility of overestimation), it does
refer to access to broadband, instead of subscriptions,
and hence includes Wi-Fi, smartphones and communal
internet. This is less restrictive than data that measures
subscription rate of fixed internet access.
Websites, social media and e-commerce
Despite substantial adoption rates in broadband
among SMEs, e-commerce capabilities and social web
integrations remain low. In our survey, 12% businesses
described themselves as having basic e-commerce
capabilities (customers can order goods and services),
another 10% said they also had online payment systems.
SMEs had higher social integration, with 41% reporting
their website as having functionalities that could interact
with users through social platforms. Remaining SMEs
either did not have an online presence, but had very basic
information on their website such as contact details,
address or opening hours.
Digital marketing expenditure
Indonesian SMEs in our survey are spending a substantial
proportion of their marketing budget on digital
advertising channels such as websites, search engine
marketing and online directory listings. On average, SMEs
spend around IDR15 million (USD$1,2002
) on marketing
annually, of which 45% is spent on digital advertising.
We did not find any major differences in digital marketing
expenditure across different business groups, with
the average digital proportion of marketing budget
ranging from 42% to 47% between micro and medium
businesses.
According to our results, marketing through digital
channels is expected to grow over the next three years.
Figure 3.3 shows that digital marketing spend across all
business sizes is expected to increase by at least 4% of
the total marketing budget.
18How the internet is powering small businesses in Indonesia

We identify four levels of digital engagement for SMEs
based on technology adoption, online presence, social
media use and e-commerce capabilities. This is based on
the experiences in the Indonesian economy and a new
survey of 437 SMEs in Indonesia.
Digital technology and internet access in Indonesia
are generally limited for SMEs, especially for smaller
businesses operating in rural areas. For the purposes
of this report, we surveyed a mixture of businesses
including some advanced online businesses to provide
greater insights into the benefits of higher digital
engagement.
It is also important to note that while our engagement
ladder focuses on digital technology usage in retail
and customer interactions, the benefits of digital
technologies extend far beyond that. Digital tools such
as cloud computing and data analytics can greatly
improve supply chain management and internal
communication efficiency.
Offline
businesses
Based on analysis of the data, offline businesses
are defined as those who do not have access
to broadband, do not have a computer or
smartphone and do not have a website.
Basic online
businesses
Basic online businesses have broadband access
and a digital device such as a computer or
smartphone and have a website. However, the
businesses are not involved in social media (only
email) and do not have e-commerce capabilities
for ordering or payment.
Intermediate online
businesses
Intermediate online businesses have digital
connectivity and were also immersed in social
media by integrating websites with social media,
live chat or customer threads. These businesses
do not have full e-commerce capabilities.
Advanced online
businesses
Advanced online businesses have connectivity,
social web integration and e-commerce
capabilities. We note that beyond this level of
digital engagement, there are many other ways in
which businesses can embrace digital technology
but these are not a focus of this research.
Digital engagement levels
Figure 3.5: Distribution of businesses according to
digital engagement levels
Intermediate online business
Basic online business
Offline business
Advanced online business
18% 36%
37%
9%

The trajectory of digital engagement
The vast majority of SMEs are not fully engaged with
digital technologies, with many SMEs remain offline.
Figure 3.5 shows that over a third of Indonesian
SMEs are offline, not using broadband, digital devices
or having an online presence. They are using the
most basic forms of technology to do business and
communicate with their customers, including landlines
and feature phones.
The lion’s share of SMEs in the lowest digital
engagement levels are micro businesses (58%) earning
less than IDR 300 million (US$24,000), with some small
(27%) and medium businesses (14%).
In comparison, advanced online businesses are those
that are connected to the internet, have a strong
online presence through social media integration and
e-commerce capabilities. By definition, all advanced online
businesses have online ordering and payment facilities.
Between these two extremes of digital engagement
are basic online businesses that are connected at an
elementary level, with some online presence, but not using
e-commerce capabilities of the internet.
Figure 3.6: Digital engagement by business size, % of businesses
Source: Stancombe Research & Planning, Deloitte Access Economics
Small
Micro
Medium
Intermediate online businesses have very similar
levels of social media integration to advanced online
businesses (interacting through two or more social
media functions). However, these businesses do not
have e-commerce capabilities, including ordering and
payment through their website.
Digital leaders and laggards
In general, we found that smaller businesses and those
in rural areas are less likely to be digitally engaged. Figure
3.6 shows less than 15% of those with advanced online
capabilities are micro businesses. By contrast, close to
58% of those offline are micro businesses. Over half of
businesses in rural areas are offline, compared to only a
third in major cities.
Furthermore, our analysis also shows that primary
industries including agriculture, livestock, forestry and
fishery remain the least digitally engaged in Indonesia,
with more than two thirds of the sector offline and less
than 6% with advanced online capabilities. In contrast,
construction, transport and communication, and
manufacturing sectors have the highest level of digital
engagement, with more than a third of respondent
identifying that their business has social web integration
or e-commerce capabilities.
58%
28%
21%
15%
27%
43%
42%
44%
14%
30%
37%
41%
0% 20% 40% 60% 80% 100%
Ofﬂine business
Basic online business
Intermediate online
business
Advanced online
business

Intuitively, the adoption of digital technologies will
improve business performance. SME owners and
managers have purchased devices, connected to the
internet, built websites and developed strategies for a
range of reasons – to improve efficiency, reduce costs
and reach new customers. However, it is unlikely that
most businesses, especially in the SME sector, will have
prepared a business case for technology adoption. Most
will probably have followed business trends with the
general belief that they need to adopt new technologies
to keep up with competitors.
In this section, we take a closer look at just how digital
engagement is adding value to SMEs in Indonesia.
Business expectations
Businesses know digital technologies will improve access
to new customers, mainly in Indonesia. Over 50%
ranked access to new customers within Indonesia as
the primary benefit of digital technologies, followed by
increasing sales and access to overseas market. Figure
3.7 shows the top five benefits identified by businesses
in our survey.
Higher revenue growth
Our results show higher digital engagement is
associated with higher revenue growth. We undertook
econometric analysis involving a linear regression of
reported revenue growth against digital engagement
and a number of control variables including business
size, industry, location and number of employees.
Figure 3.8 shows average annual growth for the past
year for offline businesses was 13% while for advanced
online businesses it is 80% higher (23% p.a). The
regression results suggest that basic online connectivity
contributed 31% to this higher growth. While
intermediate online connectivity and advanced online
capabilities contributed 15% and 31% respectively.
For to the average-sized small business in our survey
(IDR 1.4 billion revenue p.a.), offline business can expect
IDR 140 million additional revenue if they became a
advanced online business (US$4,500 to US$11,200).
The value proposition and
growth opportunity
Figure 3.7: Perceived benefit of digital technologies
by SMEs
Figure 3.8: Expected revenue growth by digital
engagement, % increase in growth rate
Basic online
business
Intermediate
online business
Advanced
online business+31%
+15%
+31%
80%
11.2%
27.7%
33.7%
35.5%
50.2%
0% 10% 20% 30% 40% 50% 60%
Cheaper advertising/
marketing cost per sale
Allows for easier transactions
with customers and suppliers
Access to new
markets Overseas
Increases sales
and revenue
Access to new
customers in Indonesia

Holycow Steakhouse
Holycow Steakhouse is a chain of restaurants in Indonesia offering a range of
premium food such as Wagyu beef. The business started in 2010 as a small street
vendor and quickly grew to a large chain with 12 locations throughout Indonesia.
It’s a story of a business that has used the internet to build its profile, attract new
customers, and communicate across locations and its supply chain.
‘We started very small, with only about 7 million Rupiah start-up funding. We had
no permanent location and very limited inventory,’ according to co-founder and
chief marketing officer Lucy Wiryono.
Like many small businesses, the initial task was to build customer awareness.
Holycow turned to social media. ‘Social media platforms came naturally to us. It
was an affordable and flexible solution to get our message out, which allowed
us to update our location and stock very quickly for our customers.’ Social media
quickly became an important tool for Holycow to connect with its customers and
manage their expectations. As the business established itself in more permanent
locations, being present on Google Search and Maps became essential for
customers to be able to find their business location and information online.
As the company grew, its digital strategy has also transformed. Instead of simply
promoting its products, Holycow analysed customer demographics and their online
behaviours and tailored its online content to deliver much more contextualised
messages to its customers. For example, its tweets about how to make a good
coffee and what’s a good way to start Monday are geared towards regular
day-time workers. It is a great way to keep customers engaged and tuned in to
Holycow’s online activities.
In July 2012, Holycow launched its logo campaign on social media and in its
stores – a short video created by Lucy on her laptop inviting customers to vote and
submit their design of the Holycow logo went viral on social media. The campaign
received more than 58 million impressions, nearly 10,000 related tweets and 700
ballots submitted in its store. The innovative online campaign delivered massive
gains in sales and brand recognition for the business and yet its costs were minimal
when compared to traditional advertising channels with similar impact.
Messaging platforms are also very important for Holycow. Holycow uses the
Whatsapp to communicate between its various stores, minimising unnecessary travel
through heavy traffic. The fast and social nature of the platform allows managers
to share real time information about what’s happening in their stores and if there
are any issues relating to customers and inventory. ‘I get constant updates of all
the stores. ‘All I have to do is check my phone to know what was happening’
according to Wiryono. Digital technologies and social apps are deeply entrenched in
nearly all aspects of Holycow’s operation, it has significantly increased its businesss
efficieincy, and connectivity with its customers and suppliers. 8Villages platforms
on smartphones and the web provide significantly improved and richer content
compared to its SMS services, however these platforms have limited reach due to the
lack of broadband access among remote communities.

Greater employment opportunities
We asked businesses how the number of employees
had changed in their business in the past 12 months.
We then examined the relationship between digital
engagement levels and businesses that reported they
had either employed more, less or the same number of
employees over the past 12 month.
We undertook econometric analysis involving a multi-
nominal logistic regression of employment changes in
the past 12 months against digital engagement and
a number of control variables including business size,
industry, location and number of employees.
Offline businesses had a baseline 20% chance of
increasing the number workers they employed. Basic
online connectivity would see at least a 9% increase
in the likelihood to increase employment, while
intermediate and advanced online businesses are 23%
and 150% more likely to have increased employment
compared to offline businesses.
More innovation and exports
Businesses with advanced online capabilities are nearly
17 times more likely to be innovative (i.e. experienced a
considerable change in the way they did business in the
last year) than offline businesses. Businesses with basic
connectivity and Intermediate connectivity are around 7
and 12 times more innovative respectively.
SMEs often lack the skills to expand into international
markets due to limited scale and resources; they have
limited knowledge about the foreign language, culture
and business environment, as well as the bureaucratic
process involved in participating in export markets
and production networks (OECD, 2014). We learned
that digitally engaged SMEs tend to have greater
diversification of their revenue across different markets.
Businesses that have basic online capabilities had a
6% more of their revenue will come from international
customers than those who were offline (4% higher in
ASEAN, 2% higher in other international markets).
Figure 3.9: Customer base breakdown comparison
Offline businesses
Basic online businesses
16.1%
38.5%
0.9%
0.4%
25.8% 26.8%
44%
38.4%
5.9%
2.5%
Rest of Indonesia
International marketOwn city
Neighbourhood ASEAN markets
SMEs that get online, engage in social media and
develop e-commerce capabilities enjoy significant
business benefits in terms of revenue, employment,
innovation and competitiveness. Each step up the
digital engagement ladder brings benefits.
Benefit of digital technologies for
Indonesian SMEs
1. Up to 80% higher growth in revenue
2. One and half times more likely to increase
employment
3. 17 times more likely to be innovative
4. SMEs with higher digital engagement are more
competitive internationally.

8Villages: helping SMEs overcome barriers to digital
engagement
8Villages is an Indonesian business that provides underserved rural communities
with LISA, a valuable subscription service which provides quality localised
information about agriculture, finance, advocacy for women and general
education. Users typically receive daily SMS tips from 8Villages and trending
local user-generated content. They can also ask questions and get answers from
8Villages’ partners and other users. The business boasts over 75,000 subscribers in
Indonesia, primarily farmers in remote communities.
‘We started the business because we realised that rural communities,
especially farmers, were disadvantaged by lack of access to information, the lack
of knowledge regarding potential markets, pricing and distribution channels.
It was preventing these communities from reaching their full potential. We see
8Villages as an opportunity to address these issues,’ said chief technology officer
Sanny Gaddafi.
Some 53% of Indonesia’s population live in rural areas, where access to services
such as finance and agricultural education is often difficult and costly. 8villages
offers an affordable platform through which communities can obtain valuable
information to help them grow their business, such as how to use fertilisers,
how to increase crop yield and how to apply for loans. Gaddafi noted, ‘we are
constantly partnering with leading universities, private institutions and government
agencies to engage with these communities and deliver the best information we
can to help them succeed.’ Communities have benefited greatly from 8Villages’s
program with many reporting increased productivity and closure of funding gaps.
The availability of technology is a key challenge for 8Villages. Access to internet
or digital devices can be expensive and limited in these communiities. That’s
why 8Villages chose SMS as their primary platform in delivering its content. ‘By
using our platform over SMS, we are bringing the conversation to a much more
comfortable and convenient setting for the farmers. This encourages farmers
to network with extension workers, to ask the tough questions and build a
relationship with the service providers,’ says Gaddafi.
8villages see a huge growth opportunity in the future. ‘There are some 26 million
farmers in Indonesia alone, and large agricultural sectors across the Asia-Pacific
region. They are all potential users of our product and can benefit from it.’ Gaddafi
notes that if accessibility of digital technologies continues to expand, 8Villages
can significant increase the coverage of its web and smartphone platforms which
provide richer content and interactive experience to its users. This will allow more
rural communities to take advantage of its services, growth their businesses and be
more successful.

4
The development of the digital economy and SME
sector in Indonesia remain behind some of its ASEAN
neighbours.
The percentage of the individuals accessing the internet 2013, selected countries
38%World average
Source: The Broadband Commission – The state of broadband (2014): broadband for all.

73%
16%
67%
29%
65%
44%
6%
13%
1%
37%
SINGAPORE
INDONESIA
MALAYSIA
THAILAND
BRUNEI
VIETNAM
CAMBODIA
LAOS
MYANMAR
PHILLIPINES

What is the ASEAN Economic
Community?
The ASEAN Economic Community (AEC) comes into
effect in 2015 bringing about unique opportunities and
challenges for Indonesia. This chapter explores how
the new regional paradigm will shift the competitive
landscape for Indonesian SMEs and how Indonesia
compares with its ASEAN neighbours.
The AEC can be traced back to 1997, when ASEAN leaders
collectively decided to transform ASEAN into a stable,
prosperous, and highly competitive region with equitable
economic development which reduced poverty and
socioeconomic disparities. Originally envisioned for 2020,
the regional integration was accelerated to 2015 with the
adoption of the ASEAN Economic Blueprint in 2007.
The Blueprint outlines key initiatives for ASEAN
integration by 2015, including free trade between
ASEAN members as well as changes to competition
policy, infrastructure development and SME
development. The Blueprint has been a strong force
for economic reform within the region, with more
than 70% of intra-ASEAN trade now conducted at zero
most-favoured nation tariff rates, and less than 5% are
subjected to tariffs above 10% (WTO, 2011). AEC’s
self-assessment scorecard reported that 77% of its
targets had been met by March 2013.
Indonesia is the largest economy in ASEAN,
representing 36% of its GDP (ASEAN, 2013). As
Indonesia’s most significant market segment, SMEs
play an important role in the country’s economy and
the upcoming regional economic integration.
The economic integration of ASEAN economies and
regional trade agreements will likely see significant
disruption in the competitive landscape of Indonesia’s
domestic market. Traditional domestic-focused SMEs
are likely to encounter increased competition within
Indonesia from overseas businesses. At the same
time, SMEs capable of extending to international
markets will see new opportunities within the
ASEAN economies and other international markets.
In both cases, the ability to lift the competitiveness
of Indonesian SMEs will be a key determinant in the
success of the regional economic integration, and
Indonesia’s future economic prosperity.

In the global economy, it is important that countries
build a strong foundation of national competitiveness.
That is, a set of institutions, policies, and frameworks
that will allow the country to be more productive and
sustain growth over time. Digital policy settings will also
be important for helping SMEs make the most of the
opportunities brought by the AEC.
Competitiveness
Overall, Indonesia has a range of competitive strengths
and weaknesses. According to the World Economic
Forum, Indonesia was 34th out of 144 countries in its
Global Competitiveness Index (GCI, 2014–15), behind
Singapore (2nd), Malaysia (20th) and Thailand (31st).
One area where Indonesia does not perform well is Ease
of Doing Business, which according to a World Bank
index, Indonesia ranked 114th out of 189 in 2015. The
index ranks economies based on 10 basic elements of
doing business, including acess to credit, paying taxes,
trading across borders and enforcing contracts. There are
significant opportunities for improvement in Indonesia,
especially in areas such as ease of starting a business,
dealing with construction permits, enforcing contracts
and paying taxes.
Digital policies
Overall, Indonesia’s digital policies are similar to or even
slightly behind those of other ASEAN economies. In some
areas such as SME policy and digital economy support
Indonesia performs reasonably well, but is behind in
broadband access, and e-government sophistication.
There are many broadband policies across ASEAN
economies, including the National Implementation plan
in Malaysia, the Philippine Digital Plan and National
Broadband Policy in Thailand. While Indonesia’s recent
announcements are promising by most current measures
of fixed or mobile access, Indonesia is behind most
ASEAN-6 economies in take-up.
E-government is an important part of government
digital activity because it affects how businesses
and consumers can use technology to interact with
government. According to the World Bank, e-government
sophistication in Indonesia was about average for
ASEAN economies. Its index score of 0.50 was above
Cambodia, Laos, Myanmar, and Vietnam, but below
Singapore, Malaysia, and Thailand. It was the same as the
Philippines.
All ASEAN economies have some form of digital
promotion policy. For example, Digital Malaysia is
a roadmap to 2020 with a focus on social media;
Intelligent Nation is Singapore’s roadmap with a focus
on convergence and social media; Smarter Philippines
focus on regions. So while Indonesia has made efforts to
improve its digital promotion policies, other countries are
doing the same.
Indonesia’s competitiveness and
digital policies

Broadband and social media
Indonesia’s digital infrasucture developments remain behind comparable economies in the ASEAN region. Its
broadband network is one of slowest and most expensive, which is a barrier preventing greater digital economy
growth in Indonesia. However, there is also evidence that compared with other economies, Indonesians have been
sophisticated users of the internet, with high rates of social media use despite the lack of internet access.
Broadband
Broadband access is one of the most common prerequisite for businesses and consumers to engage and interact
with the digital economy. In 2014, the Gobal Competitiveness Index reported that just 15.8% of the population in
Indonesia had broadband access; well below the global average of 38% and the ASEAN average of 35% (shown
in Figure 4.2. By comparison, Singapore and Malaysia widely recognised as two of the most developed digital
economies in the region, have well over 60% of their population accessing the internet.
Indonesia remains in the bottom half of the world in terms of connection speed. In 2014, Akamai reported an
average connection speed of 3.7 Mbps in Indonesia, slightly below the global average of 4.5 Mbps. In contrast,
rival economies, Singapore and Malaysia scored 12.2 Mbps and 4.1 Mbps respectively (shown in Table 4.3).
Figure 4.2: The percentage of the population accessing the internet 2013, selected countries
Source: The Broadband Commission – The state of broadband (2014): broadband for all.
73.0%
67.0%
64.5%
43.9%
37.9%
37.0%
28.9%
15.8%
12.5%
6.0%
1.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Singapore Malaysia Brunei Vietnam World Philippines Thailand Indonesia Laos Cambodia Myanmar

Broadband adoption is another challenge for
Indonesia. Figure 4.4 shows that Indonesian
broadband is one of the least affordable, with fixed
broadband subscriptions costing around 5.6%
of Gross National Income per capita, above the
affordability benchmark of 5% set by the global body
the Broadband Commission for Digital Development.
Although we note Indonesia’s mobile affordability is
much better in comparison, at just 0.8% GNI, it is more
affordable than Malaysia. This is likely a key driver in
the country’s large mobile use per population.
Table 4.3: Average connection speed in Asia Pacific,
Q3 2014
Figure 4.4: Fixed broadband price as % of Gross National Income per capita, 2013
Source: Akamai (2014), the state of the internet
Source: ITU Measuring the Information Society 2014.
Note: Mobile broadband affordability is measured by price of prepaid mobile broadband subscription.
Rank Country Q3 ‘14
Average peak
speed (Mbps)
Year on year
improvement
1 South Korea 25.3 14%
2 Hong Kong 16.3 29%
3 Japan 15.0 9.3%
10 Singapore 12.2 57%
27 Taiwan 9.5 16%
42 New Zealand 7.0 37%
44 Australia 6.9 25%
48 Thailand 6.6 39%
71 Malaysia 4.1 27%
75 China 3.8 32%
77 Indonesia 3.7 149%
101 Vietnam 2.5 22%
105 Philippines 2.5 39%
115 India 2.0 29%
Fixed broadband Mobile broadband

Social media and online shopping
Indonesia is rapidly emerging as the biggest digital
market in South East Asia, with close to 73 million social
media users, and is projected to surpass 100 million in
just three years (Statistia, 2013).
Facebook is by far the most popular online social
platform in the region, ranging from 66% to 92%
engagement from all active web users, with Indonesia
somewhere in the middle at 80% (ComScore, 2013).
Indonesia leads the region in Twitter engagement, with
26% of active web users having a Twitter account,
ahead of Philippines at 20% and Malaysia at 16%.
In addition to social media, the region is also known
for its market for smartphone messaging applications.
Popular messaging apps such as BBM, WhatsApp, Line,
and WeChat boast millions of active users in the region.
Beyond connectivity for consumers, social media is also
emerging as a key platform for businesses. Figure 4.5
shows that an average of 62% of active social media
users across the ASEAN would use social media sites to
inform their purchase decisions.
Figure 4.5: % would use social media sites to make purchase decisions, 2013
Source: Nielsen (2012), changing Asian media landscape
81%
69%
64%
62%
52%
44%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Vietnam Thailand Philippines Indonesia Malaysia Singapore

HijUp: growing through digital sales
HijUp.com is Indonesia’s first Islamic fashion e-commerce business. It has grown
from having two employees and supplying 14 brands of women’s fashion when it
launched in 2011 to 48 employees and carrying over 140 brands today. Suppliers
include a small number of large manufacturers, but most are small businesses
themselves.
According to Managing Director Diajeng Lestari, digital technologies played a pivot
role in helping the business grow.
Back in 2011, HijUp launched with a series of ‘how-to’ videos on YouTube
teaching women how to get creative with their hijab fashion. Not only was the
video series a tremendou sucess in featuring HijUp’s products, it also generated
significant following online. Over the next four years, HijUp worked with other
content creators like bloggers, vloggers and make-up artists to add more tutorials
and fashion-related content. Today, the YouTube channel boasts nearly 130,000
subscribers, and with over 16 million combined views is attracting brands like
Unilever and telco provider, XL, who are interested in collaborating on video
production.
HijUp’s sucess in using social media had a huge impact on sales growth. Some
20% of its website traffic are driven from HiJup’s youtube videos. The site now has
over 50,000 registered users and over 10,000 regular buyers. Payments are mostly
electronic, made through automatic teller machines, this has helped HijUp to
compete with traditional retailers that have much more costly operating models.
While HijUp’s focus is on the Indonesian market, there are challenges to growth.
Unreliable broadband coverage outside of cities restricts HijUp’s access to
consumer in less developed areas. Slow broadband in Jakarta makes managing
video and image content for its website time consuming and costly.
‘It’s not just Indonesians watching HiJup.com’s YouTube videos’ — more than 30%
of Hijup’s YouTube viewers are from outside Indonesia, with thousands watching
in Malaysia, Dubai and Morocco. Accroding to Diajeng, one benefit of online
technology is its ability to seemlessly reach international markets, ‘HijUp is a good
opportunity to showcase the Indonesian culture to other countries in ASEAN’
Diajeng said. Around 20% of HijUp’s revenue are from exports to other ASEAN
economies.

5
Public policy
Increased
broadband
access
Help all
businesses
to be digital
businesses

KEY AREAS WHERE GOVERNMENT
CAN DRIVE ECONOMY ENGAGEMENT
IN SME SECTOR
Access to
e-payments
Expand
access to
finance
Expand
e-government
services
5

Government needs to help lift GDP growth
through digital SMEs
To reach middle income country status by 2025 Indonesia
needs to boost its economic growth by an additional
2%. This could be achieved by accelerating the growth of
Indonesia’s digital economy, particularly among the SMEs.
Indonesian SMEs are well placed to reap the benefits of
the digital economy. Government policy, particularly in
areas such as infrastructure provision, digital regulation,
investment restrictions, could play a huge role in further
expanding and accelerating this growth by reducing
barriers to access and regulatory restrictions on use. In
this research, we identified five key areas of policy focus
for government to improve SME digital engagement:
Increasing broadband access is essential. Existing
internet access in Indonesia remains relatively expensive
and slow. Increasing broadband access and the quality
of service will encourage digital technology adoption
by SMEs and will improve performance of existing
technologies.
Broadband infrastructure developments need to be
balanced and open to innovative alternative technologies.
For example, while fixed infrastructure deployment can be
used to relieve network congestion and increase access
speed, mobile networks can help improve mobility and
coverage. Innovative technologies such as Wi-Fi access
points could be employed to offload existing traffic
from mobile networks to help increase capacity. The
government should ensure that regulatory frameworks
are flexible and open to these innovative technologies,
and, at same time, facilitate an efficient and competitive
environment.
Help all SMEs to be digital businesses. Many
government agencies provide SME support programs,
including those targeted at increasing SME digital
engagement. They are often overlapping and limited in
scale. Government needs to improve the coordination
of these SME programs between various agencies. A
strong partnership with the private sector will help.
Innovative online businesses such as HijUp and 8Villages,
and Google’s support for Gapura, which brings
digitally engaged SMEs together to share information
and solutions, are a good example of private sector
engagement.
Expand e-payments. Improving trust in e-commerce
payment platforms, increasing bankability of Indonesian
consumers and businesses and expanding alternative
payment systems will increase the volume of digital
transactions in Indonesia. The focus for government
should be to ensure that e-payment systems are
accessible, reliable and secure. This will build greater
consumer confidence and increase use.
Expand access to finance. Digital SMEs need a mix of
domestic and international sources of finance, barriers
to that will reduce their potential for growth. Investment
policies need to be open to all sources and types of
capital. Indonesian SMEs will benefit from greater access
to online micro-financing tools.
Expand e-government services. Government services
delivered through online platforms are more cost effective
and efficient. More online government services would
build consumer confidence in online activities and services
over time.
If the government builds on its existing efforts to help lift
the number of SMEs that are online, engaged with social
media and participating in e-commerce, more SMEs will
move up the engagement ladder, from offline to online
businesses and from basic to intermediate and advanced
businesses. These transformative changes will deliver the
improved business performance needed for Indonesia
to fully utilise its economic potential and reach middle-
income status by 2025.
Our findings come from our research, consultations
with businesses, business survey, and consultations with
Indonesian government departments and institutions.
Descriptions and comments on government policies are
the views of Deloitte.
Policy directions

The lack of broadband access in Indonesia should be
a top priority for government to address. Just 15.8%
of Indonesians have access to the internet and the
connection speed is the fourth slowest among ASEAN
countries.
The state of broadband access in Indonesia is likely to
prevent or restrict SMEs from using new and innovative
digital technologies. This is a key barrier for further
development of the SME sector and the growth of the
digital economy more broadly.
This issue is well recognised by the Indonesian
government. Indonesia Broadband Plan (IBP), a national
plan to boost broadband infrastructure development, is
a key component of the broader strategy to develop the
digital economy in Indonesia. The plan was a mandate
given by Komite Percepatan dan Perluasan Pembangunan
Ekonomi Indonesia 2011 – 2015 under the Connectivity
Working Group, a part of the master plan of development
acceleration (MP3EI). According to the Presidential Decree
(PP No.28, 2008), broadband not only is an important
growth driver of the ICT sector, it is also a significant
enabler for broader socioeconomical development.
Therefore, the development of broadband infrastructure
is a top priority for Indonesia. This will involve significant
efforts in infrastructure development and regulatory
reforms in the telecommunications sector. Existing
broadband infrastructure development needs to be
accelerated to expand coverage, relieve network
congestion, and increase speed and affordability.
Restrictive regulatory settings will need to allow the
adoption of innovative technologies and solutions.
Broadband development in Indonesia is geographically
challenging. With more than 17,000 islands, the need
to balance between fixed and wireless broadband
infrastructure is critical. While terrestrial wireless
broadband could be an effective way of expanding
coverage, it is easily congested and has limited capacity
without a strong fixed backhaul network support. The
issue is further complicated by the need for extensive
submarine cable roll-out.
Existing efforts in broadband development are led
by the Ministry for Communications and Information
Technology. Indonesia is aiming to expand broadband
access to 71% of households in urban areas (connected
to at least 20 mbps) and mobile access to the entire
urban population by 2019. The Ministry noted that
stronger backbone infrastructure links between regions
is a priority for broadband development, as well as
coordinating with local governments the provision of
mobile broadband (land access, towers, commercial PTS).
Future broadband rollout should build on these efforts
and focus on both increasing coverage, ensuring that all
SMEs have unrestricted access to high-speed broadband
and digital tools. This means improving performance of
existing networks to deliver a better and more robust
experience to digital SMEs.
Innovative private sector solutions could play an
important role in helping the government to deliver on
these improvements. Innovative technologies such as
Wi-Fi access points are helping to offload excessive traffic
from mobile networks relieving congestion, wireless
broadband technologies such as balloon or drone
transmission of wireless signal (Loon and Titan) could help
overcome high deployment costs across remote regions.
Regulatory regimes should remain open and conducive to
these innovative market solutions.
Furthermore, government needs to ensure that the
telecommunications market in Indonesia remains
competitive among private operators. Regulatory policies
should be targeted at removing existing bottlenecks in
access, and be supportive of infrastructure investment
and public-private partnerships. Policy initiatives such
as greater spectrum allocation and incentives for
infrastructure development could encourage greater
mobile network deployments.
In addition, broadband deployment targets should keep
pace with regional and global trends. For example,
other countries in the region are targeting much larger
increases in national broadband penetration (i.e. Korea
93%, Singapore 87% and Malaysia 73%), significantly
higher than Indonesia’s target of 30%.
Increasing broadband access

Government have an important role to play in lifting
SMEs’ digital engagement levels. Government support
in the form of technnical assistance, resource and
information provision is crucial in encouraging SMEs to
take advantage of digital technologies. Overly restrictive
regulatory regimes such as data centre localisation
could have a negative impact on Indonesia’s access to
innovative technologies.
The Indonesian government is actively providing
technical assistance to SMEs in order to improve their
digital engagement levels. These programs include
support relating to human resources, production,
general management, quality control, technology,
industrial clusters and SME innovation centres. These
policy initiatives in Indonesia have experienced moderate
success, with some program constrained by lack of legal
framework (OECD, 2014).
However, the rest of Government digital support policies
for SMEs in the past have been largely ineffective
due to the lack of coordination between government
institutions. According to the UKM centre, some 26
government agencies were identified as stakeholder
in the SME sector, yet there is no clear collaboration
framework between the agencies to coordinate efforts.
Further, the large number of SMEs (55 million in 2014) in
the Indonesian economy meant that direct government
policies often lack the necessary scalability to reach the
vast majority of businesses. For example, the UKM Centre,
Indonesia University provides educational workshops
for SMEs on topics including marketing, accounting,
tax and finance. The Centre also directly helps SMEs to
apply for credit by recommending SMEs to state owned
corporations. However, the centre lacks the necessary
scale, only helping around 400 businesses a year.
Future government initiatives should look to more
innovative solutions utilising the benefits of digital
technologies. Private sector examples such as HijUp and
8Villages alone have helped hundreds of SMEs across
Indonesia through facilitating online education, and
proving online sales platforms.
Government initiatives taking advantage of digital
technologies such as the internet could significantly
improve the scale and reach of existing programs. As
an example, in Singapore, a wealth of government
information and e-services can be access through a single
EnterpriseOne portal, which includes industry guides,
how to guides and case studies. SMEs can access this
information through their smart phones or dedicated
hotlines, some 22,400 SMEs are said to have benefited
from the portal in 2014 alone (EnterpriseOne, 2014).
Beyond improving basic access to digital technologies,
public policy should also focus on encouraging SMEs to
take advantage of the benefits these technologies could
bring to their businesses. Incentives for SMEs to use ICT to
modernise basic business systems (including accounting,
payroll, and supply-chain management) could greatly
improve business performance and labour productivity.
Special ICT development zones and funding to encourage
the development of innovative technology applications
for Indonesian SMEs will also improve SME performance
(McKinsey, 2015).
As the ASEAN Economic Community continues to
take shape in 2015, there will be significant export
opportunities for Indonesian SMEs. According to the
OECD report in 2014, SMEs in Indonesia often lack the
skills in dealing with both domestic and international
customers; they have limited knowledge about the
foreign language, culture, and business environment, as
well as the bureaucratic processes involve in participating
in export markets and production networks. Initiatives
such as UKM Centre’s web portal, which provides
food and goods standard in other ASEAN economies,
if extended, could be useful in assisting more SMEs
exporting overseas.
Help all SMEs to be digital
businesses

In addition, despite significant improvements over the
past decade, business registration and start-up process in
Indonesia remain cumbersome and costly. While there is no
official fee to start a business, there is usually, an unofficial
indirect administrative fee charged, ranging from 400–500
thousand IDR for small businesses. Registration time is also
longer than stipulated in relevant regulations, averaging
around 47 working days (OECD, 2014).
Government initiatives such as establishment of one-
stop shops (OSS) otherwise known as Pusat Pelayanan
Terpadu Satu Pintu (PTSP), which reduce the needs for
SME to obtain permits from multiple local governments,
are important steps towards resolving administrative
issues. Future government policies need to build on these
efforts and continue to formalise (registered with the
government) the SME sector and improve their access to
key government support programs.
Finally, in the past few years, there has been a proliferation
of regulations on the internet, particularly around data.
In Indonesia, Regulation 82 of 2012, article 17(2) says,
‘Electronic System Operator for the public service is
obligated to put the data centre and disaster recovery
centre in Indonesian territory for the purpose of law
enforcement, protection, and enforcement of national
sovereignty to the data of its citizens.’
Data centres in the business sector need to be located
based on economic and other efficiencies. There may
be economic or reliability benefits from hosting data
overseas or in multiple locations. A study by ECIPE in 2014
shows that mandatory business data centre localisation in
Indonesia could cost Indonesia as much as IDR 6 billion a
year (or 0.7% of GDP). The research argues that key sectors
of the economy including manufacturing and exports
are heavily dependent on a broad range of services at a
competitive price – such as logistics, retail distribution,
finance or professional services – which in turn are
dependent on secure, cost-efficient and real-time access to
data across borders.

The growth of the digital economy and e-commerce
are important opportunities for Indonesia. In order
to facilitate this growth, Indonesia needs a stronger
platform in banking and financial services to facilitate
online transactions. This could be addressed through
more branchless banking and settlement of transactions
using online payment systems.
From a consumer and a business perspective, the most
significant issue for engaging with online transactions
is the lack of trust in online payments and limitations of
payment channels. With majority of SME and consumers
not having bank accounts or credit cards, there is a
greater reliance on cash-on-delivery or other forms
of physical payments. This is likely to constrain the
efficiency and up-take of online transactions.
There are many types of e-payment systems, examples
include:
• Direct carrier billing
• Stored value cards
• Ali-pay, Paypal models
• Credit and debit cards.
Online consumer transactions in Indonesia remain
well below the regional average. In 2014, credit card
penetration in Indonesia was around 6%, much lower
than Singapore and South Korea which have 3.3 and 5
credit cards per person respectively (UBS, 2014).
Payment security concerns are holding back
development of e-payment systems. While there
are a range of alternative solutions currently used
by Indonesians, including cash on delivery and ATM
transfers, they each have their limitations and are less
efficient than direct online payments.
Improving e-payment systems will help increase online
transactions and help the emerging e-commerce sector
grow. E-commerce marketplaces are also a good starting
point for Government to raise digital engagement of
SMEs that lack financial resources and have limited
access to digital talent. E-commerce platforms such
as eBay, Lazada and Rakuten allow SMEs to sell online
without the need for significant capital investment.
To spur growth, some initiatives have been launched
across the region, including the Lifting-the-Barriers
roundtable at the ASEAN Business Club Forum (2014).
The forum highlighted some specific actions to lift
e-commerce in ASEAN economies including:
• Support the emergence of local players:
improving access to finance for small and medium
enterprises, fostering the integration of digital
talent into businesses, and promoting awareness of
e-commerce marketplaces
• Reinforce online security: increasing information
sharing and bilateral assistance, harmonising existing
legislative frameworks, and creating a regional online
dispute-resolution facility
• Promote e-payment: encouraging non-cash
transactions, establishing e-payment-specific
regulations, and harmonizing e-payment regulations
regionally
• Improve logistics and trade efficiency:
encouraging the development of online retail
logistics services, facilitating e-retailers and logistics
partnerships, accelerating the integration of logistics
systems, and ensuring full implementation of the
ASEAN Single Window.
If Indonesia adopts a stronger plan e-payment systems
and broader actions it can help spur the growth of
e-commerce.
Expand e-payments

Expand access to finance
A key barrier restricting Indonesian SMEs’ participation
in the digital economy is their lack of access to financing
options. SMEs account for just 20% of loans and 27%
bank accounts in Indonesia (Bank Indonesia, 2014), well
below their contribution to employment and GDP. There
are also restrictions to accessing foreign finance that are
discussed here.
Lack of access to finance is most often due to SMEs’
lack of collateral (and often legal recognition of land
rights). Despite the Banking Act specifies that business
activity is itself collateral and that owners can use
land as collateral for loans, the lack of financial record
keeping often prevents SMEs from providing adequate
evidence to qualify for load schemes.
There are some load programs for SMEs, including:
• Kredit Investasi Kecil (KIK), Kredit Modal Kerja
Permanen (KMKP), Kredit Usaha Kecil (KUK) provide
micro funding schemes are designed to give SMEs
the capital they need to grow and expand
• The Ministry of Justice administers a collateral registry
for movable collateral such as motor vehicles to help
overcome collateral related issues
• Bank Indonesia and OJK (Financial Services Authority)
have developed SMEs micro-sites that provide
information on loans, SMEs success stories, and
relevant SME research.
As with other SME support programs, most policy
initiative is limited in scale and reach. Indonesian SMEs
largely remain financially isolated. Innovative market
solution can help private sector financial assistance
and literacy programs epidomised by Koperasi Kasih
Indonesia (KKI) and 8Villages can be effective ways
of expanding government efforts. Government policy
should be flexible and adaptive to these private sector
solutions, and be open to emerging trends in the digital
economy.
Another way for businesses to overcome inadequate
finance is access to foreign investment. However,
Indonesian e-commerce businesses have restricted
access to this type of financing due to the inclusion
of e-commerce in Indonesia’s negative investment list
(presidential Decree No.39 in 2014). This is intended
to protect homegrown e-commerce businesses from
foreign competitive pressures, but may have the
opposite effects.
The negative investment list is unlikely to prevent
foreign firms from accessing the Indonesian market.
Foreign e-commerce businesses can easily facilitate
online transaction in the Indonesian market without
physically located in the country. In such a scenario, the
Indonesian economy simply does not gain from the local
employment or tax revenue it would otherwise receive if
the business was set up domestically. The effectiveness
of the negative investment list, especially in regards to
e-commerce needs to be re-assessed.

Expanding e-government services in Indonesia not only
offers opportunities for more efficient service delivery
of public services. It may also play a role in raising
consumer and business confidence in using digital tools
and have a positive demonstration effect on Indonesia’s
digital economy. Examples of e-government service
delivery include general services like online forms and
mobile apps and specific SME services such as online
registration.
Digital technologies are an effective way for government
to improve its own efficiency in delivering public
services. There are several e-government services
already active in Indonesia, including the National
Single Window (NSW), a nationally integrated electronic
system of 18 government institutions that provide
export/import-related services, an e-procurement
system, and the registration for a Tax File Number.
Expanding these e-government service platforms
could significantly boost the efficiency and quality of
government services.
The Department of Industry created a web portal for
SMEs to advertise their products, and educational
workshops for business owners to understand how to
use digital technologies. There are also a number of
apps commissioned by the Department that specifically
support SMEs in the manufacturing sector, particularly
in food and beverage, handicraft, and metals and
machinery manufacturing sectors. If extended, these
programs can have a significant and positive impact on
the public perception of digital tools and encourage
usage of digital technologies among SMEs.
There are a range of challenges to expand e-government
services. A key concern in the short term is internet
accessibility for the public, without which these services
will not be accessible. Finally, existing online portals do
not allow SMEs to communicate interactively on issues
relating to rules and procedures, a feature that could
further enhance their effectiveness (OECD, 2014).
The Indonesian government is undertaking a number
of initiatives to address these challenges. For example,
the Ministry of Communications and Information
Technology administers computer access points and
national IT volunteering programs. These programs
aim to improve the accessibility of the internet to the
broader Indonesian population and communicate its
value to consumers and businesses. These programs
need to be expanded and scaled to reach a much
broader population.
Expand e-government services

Sample specification
The sample comprised owners or managers of small
to medium businesses, defined as having 1–250
employees. In sampling, a spread of business industries
was targeted in order to compare differences by
industries, as well as a spread of business sizes and
owner/manager demographics.
Questionnaire
The questionnaire was translated from English into
Bahasa Indonesia, then back, as a quality control
measure. The questionnaire was then put online and
conducted by interviewers using iPads.
Collection
A mixed methodological approach was taken in order
to capture as broad a range of business respondents as
possible. This included a face-to-face, interviewer-led
survey component and an online, self-complete survey
component.
The face-to-face survey was conducted in six cities
across Indonesia: Jakarta, Bandung, Semarang,
Surabaya, Medan and Makassar. The sample was
focused on urban centres for two reasons: first it
allowed a greater variety of industries and business
types to be represented within the sample; second,
the practical challenges of face-to-face interviewing
in rural locations. A random sampling approach was
used, targeting small businesses within pre-determined
locations within each city. Up to six attempts were
made to contact and recruit the business owner or
manager once selected, in order to limit non-response
bias. Interviewers conducted the survey face to face,
using iPads to complete the survey.
Appendix A: Data
The online survey used an online research panel to
draw sample and administer the questionnaire. The
panel comprises individuals who have opted in to
participate in surveys and has over 60,000 active
members. The online survey allowed a broad sample
to be reached – both in terms of demography and
geography. Younger age groups (16–35 years) tend to
be over-represented on Indonesian panels, making this
an effective way to reach this particular segment of the
business owner/manager population, though making
it unsuitable as a sole data collection methodology.
A random sample of panel members were invited
by email to take part in the survey, and were first
screened to identify people who matched the sample
specifications. Upon completion of the survey, a small
monetary reward is credited to panellist’s accounts,
which they can later redeem as a gift voucher.

Appendix B: Interpretation
Causality
It is important to note the general issue of causality.
It is possible that higher levels of revenue growth
drives more digital engagement if strongly performing
businesses had more time or resources to undertake
digital take-up. Equally, given the ways in which
engagement helps growth – through employment,
exports and innovation (as described below) and based
on the evidence of our case studies, the most common
story is one of digitising businesses reaping benefits.
Interpretation
The reported results are the marginal impacts after
controlling for other business characteristics, including
size, location and industry, which means that individual
experiences with rising digital engagement are likely
to vary.
Statistical significance
Revenue growth
T-tests performed on regression coefficients show
different levels of statistical significance: p-value <5% for
the advanced online business coefficient, p-value<10%
for Intermediate online businesses and not statistically
significant for basic online businesses. This means
that while all results here are of a scale that matter
economically, they are not all precisely estimated.
Employment
T-tests performed on regression coefficients show
different levels of statistical significance: p-value <5% for
the advanced online business coefficient, not statistically
significant for basic online businesses or Intermediate
online businesses. This means that while all results here
are of a scale that matter economically, they are not all
precisely estimated.
Innovation and export
T-tests performed on innovation regression coefficients
show statistical significance: p-value <0.1% for all
coefficients. This means that while results here are of
a scale that matter economically and are statistically
precisely estimated.
T-tests performed on export regression coefficients
show significance: p-value <0.1% for basic online
businesses on exporting to ASEAN markets and not
statistically significant for international markets. This
means that while results here are of a scale that matter
economically, but are not all statistically precisely
estimated.

Appendix C: Econometrics
Econometric modelling is used to identify the
relationships between SME digital engagement and
business performance.
The econometric model estimates the impact of
digital engagement on revenue growth, employment,
innovation and export activities. Digital engagement
levels are measured by technology take-up among
Indonesian SMEs, including social web integration and
e-commerce capabilities.
Our modelling approach is primarily driven by the
underlying characteristics of the data. While some
variables, including innovation and employment are
categorical in nature (i.e. Respondent identified one of
four possible options, including revenue growth and
export activities are continuous integer variables by
nature. In this research, we applied a combination of
linear and multinomial logistic regression framework to
measure the statistical relationship between the variables.
Note that normalisation of one alternative is required
for identification of coefficients in MNL. In this
research, we have chosen ‘no change’ as a general
rule of thumb for selecting base alternatives. The MNL
model setup is as follows:
We are aware that MNL naturally assumes the
‘Independence of Irrelevant Alternative (IIA)’ condition;
this implies that the alternatives exhibit proportional
substitution. In a more practical sense, this meant that
the odds ratio between alternatives is irrelevant to the
availability and characteristics of other alternatives.
In our case, IIA is unlikely to hold (except for those that
said ‘don’t know’); this is because the alternatives are
ordinal in nature, and defined in such a way that they
are mutually exclusive. Therefore, we would expect a
disproportional substitution into closest substitutes (i.e.
If completely transform were removed, the majority of
respondents will choose the next closest option which
is considerable change). We formally test the existence
for such property using the Hausman test.
The Hausman test checks if the coefficients of the
restricted model are significantly different from the full
model, our results reveal no significant deviation from
the original estimates.
In addition to digital engagement, other explanatory
variables include:
• Size of the business
• Current employment levels
• Industry
• Location.
Linear regression framework
Simply Ordinary Least Squared (OLS) regression models
are applied on continuous variables, including the
revenue growth rates and share of export.
Multinomial logistic regression framework
Multinomial logistic regression (MNL) is a nonlinear
model designed to cater for categorical dependent
variables. For example, outcomes of innovation can be
categorised below.
Business innovation: Has your company changed the way it operate in the past 12 months
No Change Don’t knowIncremental Change Considerable Change Complete Transformation
Where ßi
represents the coefficient of the variable x’i
,
Pj is the probability of the outcome j.
Alternatives: Pr(Y=j|xi
)=Pj=
1+∑ exp(x’i
ßi
)j-1
i=1
exp(x’i
ßi
)
Base alternative: Pr(Y=0|xi
)=P0
=
1+∑ exp(x’i
ßi
)j-1
i=1
1

SME's Powering Indonesia's Success

References
Akamai. (2014). State of the Internet.
ASEAB. (2013). Macroeconomic Indicators. Accessed
2014 via http://www.asean.org/news/item/
macroeconomic-indicators
ASPI. (2014). Cyber Maturity In The Asia-Pacific Region.
Australian Strategic Policy Institute – International
Cyber Policy Centre.
Ayyagari, Beck, & Demirguc-Kunt. (2003). Small- and
medium-enterprises across the globe: a new database
Bernoff, J., & Li, C. (2008). Harnessing the Power of the
Oh-So-Social Web. 49(3).
ComScore. (2013). 2013 Southeast Asia Digital Future
in Focus. Access 2014 via http://www.comscore.com/
Insights/Presentations-and-Whitepapers/2013/2013-
Southeast-Asia-Digital-Future-in-Focus.
Deloitte. (2011). The Connected Archipelago. Deloitte
Access Economics, Australia.
ECIPE. (2014). The costs of data localisation: friendly
fire on economic recovery. Accessed 2015 via http://
www.ecipe.org/app/uploads/2014/12/OCC32014__1.
pdf
EnterpriseOne. (2014) Accessed 2014 via https://www.
enterpriseone.gov.sg/
Inmobi. (2014). State of mobile messaging apps in
Indonesia – Functionality wins over features. Accessed
2014 via http://www.inmobi.com/blog/2014/09/05/
state-of-mobile-messaging-apps-in-indonesia-
functionality-wins-over-feature
ITU. (2013). Guidelines for the preparation of national
wireless broadband masterplans for the Asia pacific
region. International Telecommunication Union.
Kharas, H., & Gertz, G. (2010). The New Global Middle
Class: A Cross-Over from West to East. Wolfensohn
Center for Development at Brookings.
McKinsey & Company. (2015). Ten ideas to maximize
the socioeconomic impact of ICT in Indonesia.
McKinsey & Company. (2012). The archipelago
economy: Unleashing Indonesia’s potential. McKinsey
Global Institute.
Nielson. (2012). The Asian Media Landscape . Accessed
2014 via http://www.nielsen.com/content/dam/
corporate/au/en/reports/2012/changing-asian-media-
landscape-feb2012.pdf.
OECD. (2012). Promoting SME development in
Indonesia. Organisation for Economic Co-operation
and Development.
OECD. (2014). ASEAN SME Policy Index 2014:
Towards competitive and Innovative ASEAN SMEs.
Access 2014 via http://www.oecd.org/globalrelations/
regionalapproaches/ASEAN%20SME%20Book%20
to%20Bali%20Final.pdf
Sato, Y. (2013). Development of Small and Medium
Enterprises in the ASEAN economies. In R. Sukma,
& Y. Soeya, Beyond 2015: ASEAN-Japan Strategic
Partnership for Democracy, Peachm and Prosperity in
Southeast Asia. Tokyo: Japan Center for International
Exchange.
Semiocast. (2012). Twitter reaches half a billion
accounts More than 140 millions in the U.S.
Accessed 2014 via http://semiocast.com/en/
publications/2012_07_30_Twitter_reaches_half_a_
billion_accounts_140m_in_the_US.
Statistia. (2013). Number of social network users in
Indonesia from 2012 to 2018 (in millions). Accessed
2014 via http://www.statista.com/statistics/247938/
number-of-social-network-users-in-indonesia/.
TECHINASIA. (2014). Twitter has close to 20 million
active users in Indonesia. Access 2014 via https://www.
techinasia.com/twitter-close-20-million-active-users-
indonesia/
UBS. (2014). ASEAN eCommerce: Is ASEAN at an
inflection point for eCommerce. UBS Global Research.
United Nations. (2012). United Nations E-Government
Survey 2012. Accessed 2014 via http://unpan3.un.org/
egovkb/Portals/egovkb/Documents/un/2012-Survey/
Chapter-1-World-e-government-rankings.pdf.
Wall Street Journal. (2014). Facebook Users in
Indonesia Rise to 69 Million. Access 2014 via http://
blogs.wsj.com/digits/2014/06/27/facebook-users-in-
indonesia-rise-to-69-million/

Wall Street Journal. (2013). Indonesia Impedes Card
Collectors. Accessed 2015 via http://www.wsj.com/
articles/SB1000142412788732453940457833985114
9437598
Wignaraja, G. (2012). Engaging Small and Medium
Enterprises in Production Networks: Firm-level Analysis
of Five ASEAN Economies. Asian Development Bank
Institute.
World Economic Forum. (2014). The Global
Competitiveness Report 2014-2015. Access
2014 via http://www3.weforum.org/docs/WEF_
GlobalCompetitivenessReport_2014-15.pdf.
World Bank. (2012). Doing Business Indonesia.
Washington, D.C.: The World Bank Group.
World Bank. (2012). The Little Data Book on
Information and Communication Technology, 2012.
The World Bank Group, Washington D.C.
World Bank. (2013). Urban Population Statistics (% of
total).
WTO. (2011). World trade report 2011. World Trade
Organisation.

Ric Simes
Partner
Tel: +61 2 9322 7772
rsimes@deloitte.com.au
Frank Farrall
Partner
Tel: +61 3 9671 6562
ffarall@deloitte.com.au
John O’Mahony
Director
Tel: +61 2 9322 7877
joomahony@deloitte.com.au
Jason Qu
Analyst
Tel: +61 2 9322 3055
jasonqu@deloitte.com.au
Our people
Edy Wirawan
Partner
Tel: +62 21 2992 3100; ext:30888
email: ewirawan@deloitte.com
Beby Widiyanti
Director
Tel: +62 21 2992 3100; ext:30941
email: bwidiyanti@deloitte.com
Wilson Wijaya
Analyst
Tel: +62 21 2992 3100; ext:30956
email: wwijaya@deloitte.com

Deloitte Access Economics is Australia’s pre-eminent economics advisory practice and a member of Deloitte’s global economics group. The Directors and staff of Access Economics
joined Deloitte in early 2011.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally
separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its
member firms.
About Deloitte
Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member
firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s approximately 200,000
professionals are committed to becoming the standard of excellence.
About Deloitte Australia
In Australia, the member firm is the Australian partnership of Deloitte Touche Tohmatsu. As one of Australia’s leading professional services firms. Deloitte Touche Tohmatsu and its
affiliates provide audit, tax, consulting, and financial advisory services through approximately 6,000 people across the country. Focused on the creation of value and growth, and
known as an employer of choice for innovative human resources programs, we are dedicated to helping our clients and our people excel. For more information, please visit our
web site at www.deloitte.com.au.
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited
© 2015 Deloitte Access Economics Pty Ltd.
MCBD_Syd_05/13_048400
Contact us
ACN: 149 633 116
Level 7
225 George St
Sydney NSW 2000
Australia
Tel: +61 2 9322 7772
Fax: +61 2 9322 7001
www.deloitte.com/au/economics

SME's Powering Indonesia's Success

More Related Content

What's hot (20)

Viewers also liked (20)

Similar to SME's Powering Indonesia's Success (20)

More from ICT Watch - Indonesia (20)

Recently uploaded (20)

SME's Powering Indonesia's Success