Digital Transformation Expands MSMEs in Small Towns



Laila Afifa

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  • Digital Transformation Expands MSMEs in Small Towns

    Digital Transformation Expands MSMEs in Small Towns

    TEMPO.CO, JakartaThe role of private companies such as Grab is crucial in supporting the government to increase digital inclusion in small cities.

    Becoming the backbone of Indonesia’s economy, the existence of Micro, Small, and Medium Enterprises (MSMEs) reaches almost 99 percent of the total business number throughout Indonesia and it is expected to increase every year. According to the data from the Ministry of Cooperatives and SMEs of The Republic of Indonesia in 2019 there were 65.4 million MSMEs.

    Ministry of Economy Coordinator also stated that MSMEs contributed 60.51 percent to Indonesia's Gross Domestic Product (GDP). Therefore, with a fairly good economic value and resilience, MSMEs are considered to have the potential to absorb considerable investment.

    Unfortunately, the pandemic from early 2020 until the end of 2021 had a major impact on Indonesia’s economy. Various business sectors were shaken, including MSMEs. Data of Bank Indonesia in March 2021 showed that 87 percent of MSMEs were affected by the Covid-19 pandemic and most of them experienced a serious decline in sales.

    In order to streamline the National Economic Recovery Program (PEN) for the MSME owners who were affected by the pandemic, the Indonesian government encourages digital transformation in the MSME sector. Digitalization is expected to strengthen the resilience of MSME businesses and increase their economic value, even though the pandemic has not yet ended. In fact, by 2024, the government has targeted 30 million MSME owners, or about 50 percent of the total recorded at the KemenkopUKM, to be onboarded in the digital ecosystem.

    Facing the Obstacles

    However, the implementation of this digital transformation still encounters several obstacles. The lack of knowledge and digital access in the community is a big challenge for MSMEs to survive and increase their business, especially for MSMEs located in small cities.

    In terms of digital literacy, many MSMEs owners have not mastered the operation of digital platforms. Digital Competitiveness Index data released by East Ventures in 2021 reveals that digital competitiveness tends to be dominated by large provinces, which are generally located on the island of Java. Communities in areas such as West Nusa Tenggara, Central Sulawesi, or even Papua are lack knowledge about digital technology.

    Indonesia, in various regions, until now still lacks connection to the internet. Especially in the 3T area (Front, Outermost, and Disadvantaged). The internet is the main instrument in accelerating the adoption of the digital economy. Data from the Indonesian Internet Service Providers Association (APJII) in the second quarter of 2019-2020 shows that the contribution of internet penetration in various parts of Indonesia is still focused on the island of Java.

    One obstacle for SMEs in small cities is the high shipping costs. This has an impact on the price of goods that are difficult to compete with areas with easy and cheap shipping access. According to the East Ventures Digital Competitiveness Index 2021, increasingly advanced logistics facilities will have a positive impact on economic growth in Indonesia. Therefore, the role of private companies such as Grab is important in supporting the government.

    For example, Fauziah Yusuf, an entrepreneur who sells flower bouquets, snacks, and balloons in Makassar, feels that the GrabExpress service in Makassar helps him to accommodate his business. According to him, GrabExpress makes it easier for small businesses, because he can send to five different addresses at one time.

    Digital platforms are keys for MSMEs business continuity

    The existence of a digital platform has proven to be effective in maintaining and developing businesses. With a digital platform, even small MSMEs in small cities can develop and preserve their regional superior products. The existence of a digital platform reaches a larger number of consumers and also a wider area with more affordable.

    For instance, sellers of noken bag crafts in Jayapura, Papua, will get buyers from the island of Java or even abroad, when selling their wares through digital platforms. This will bring a big impact on MSME owners in areas such as Jayapura. Not only in terms of cost-efficiency but also brings greater profits than before. Consumers will also feel the benefits because they don't have to go all the way to Jayapura to buy authentic Papuan noken bags.

    Grab Indonesia and EMTEK Group collaboration in expanding digital inclusion

    To support the government in expanding digital and financial inclusion, in various cities and districts throughout Indonesia, Grab Indonesia announced its strategic partnership with EMTEK Group last July. This inclusiveness effort is needed by MSMEs in smaller areas, to contribute to the national economic growth.

    Besides assistance, Grab Indonesia and EMTEK Group also encourage MSMEs in digitalization, so they can receive the benefit from the digital economy. In addition, the two companies will also hold the digitalisation program which targets MSMEs in small towns and focuses on integrated assistance programs.