The Significance of Digital Adoption for MSMEs in Indonesia

The Significance of Digital Adoption for MSMEs in Indonesia

  • InCorp Editorial Team
  • 30 May 2023
  • 5 minute reading time

The Significance of MSMEs in the Indonesian Economy

Despite their size, MSMEs provide a notable contribution to the Indonesian economy. Specifically, the Indonesian Minister of Finance highlighted that the contribution of Indonesian MSMEs amounted to 60.3%. Aside from this, MSMEs also contribute to labor absorption at the rate of 97% of employment.

These numbers are highly impressive, considering that these MSMEs are the ones that have been most affected by the COVID-19 pandemic. However, MSMEs continually face constraints, particularly regarding access to funding.

The Indonesian government and banks assist in MSME development by developing policies that would help stimulate growth. Acknowledging the significance of MSMEs, Philia Wibowo, Managing Partner of McKinsey & Company Indonesia, stresses how MSMEs need to have access to foreign markets to allow for more significant growth.

The Role of Digital Trade on Indonesian Economic Recovery

The COVID-19 pandemic has fueled significant development for the Indonesian digital economy. It has allowed for innovation, inclusiveness, and increased efficiency. Digital technologies such as the 5G mobile service, data analytics, and blockchain have increased access to various services. At the same time, the innovation in digital technologies expanded trade possibilities for the future. It is widely recognized that MSMEs are the backbone of ASEAN’s digital economy.

To further support the growth of MSMEs in alignment with the development of Indonesian digital economy, there are several enhancement programs introduced by the Indonesian government. Amongst others, the programs include the Proud of Indonesian Products Movement, a nationwide movement that encourages Indonesian citizens to purchase local products.

Another movement started by the government is Pahlawan Digital, a digital rebranding strategy for MSME products to boost competition. Aside from that, the Indonesian government has also begun utilizing QRIS, a standardized QR code for cashless transactions, which increases the ease of making payments.

The Role of Start-ups in Accelerating Digital Adoptions Among Indonesian MSMEs

The Current Landscape of Indonesia’s Start-Up Ecosystem

Start-ups in Indonesia have shown grit and determination as they continue to thrive across the board. Despite their role in increasing digitization, the levels remain relatively low across Indonesia’s key sectors. Information technology spending lags behind developed countries and peer countries in Indonesia’s key sectors.

Asset-heavy industries, which are the backbone of the Indonesian economy, such as mining, manufacturing, and natural resources that contribute to approximately 50% of the country’s GDP, still lack digitization. The reason for low digitization rates in these sectors primarily comes from the availability of cheap labor and poor internet quality, among others. Sectors such as government and healthcare also still have a long way ahead of them in terms of digitization.

The Important Role of Start-ups for Indonesian MSMEs

Indonesian start-ups have seen exponential growth and have fueled similar upward growth for MSMEs. This can be seen as a number of start-ups such as Grab, Gojek, and LinkAja continue to provide promotions and facilitate MSMEs in their attempt to digitize their businesses. By doing this, they are actively helping these businesses connect with more customers and survive the economic downturn brought about by the COVID-19 pandemic.

A concrete elaboration of this attempt can be seen by Grab’s new application called GrabMerchant. The new application is a one-stop service platform for MSMEs to digitally manage their operational hours, orders, employees, menus, and promotions. This is specifically targeting businesses in the food and beverage businesses.

Developing such an app assists merchant partners who face difficulties in accessing a purchasing network that would help meet their supply needs. Grab also collaborates with food and beverage businesses so its users can benefit from the grocery feature by purchasing staple supplies at a special price. In doing so, Grab cooperates with online grocery marketplaces such as TaniHub and SayurBox to provide next-day delivery services of the supplies to the relevant merchants.

The Managing Director of Grab Indonesia revealed how the COVID-19 pandemic pushed consumers to change their spending behavior and rely more on online services. However, MSMEs were mainly unprepared to face this new habit.

Therefore, a number of start-ups, including Gojek, have facilitated MSMEs to digitize their businesses and align themselves with the customer trends of purchasing goods online. Gojek’s co-CEO stressed that it is integral for MSMEs to have the ability to perform digital transformation and shift their businesses to online platforms.

The E-wallet platform has also shown similar initiatives as they have pushed for an increase in digital transactions among MSMEs through various promotions and cashback for local merchants. It is clear that the government’s social distancing policy has changed the preference for making transactions.

Therefore, MSMEs must keep up with the trends to survive the pressure of the COVID-19 pandemic. This is done through the help of start-ups. Startups looking to contribute to the growth of MSMEs can seek help registering themselves and obtaining the relevant licenses through Cekindo.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.