Eastasouth Proceeding of Nature, Science, and Technology (EPNST)

ISSN (Print) dan ISSN (Online)

Analyzing the Relationship Between Technology Adoption and

Business Performance in the Digital Age in SMEs in Indonesia

1* Yusuf Iskandar, 2Heliani, 3Ujang Badru Jaman, 4Andri Ardhiyansyah

1Universitas Pembangunan Jaya
*correspondence e-mail: [email protected]

Article Info Abstract

Keywords: Technology is becoming a crucial component of company success in Indonesia's dynamic
Technology Adoption, Small and Medium-sized Enterprises (SMEs) sector. This study aimed to quantitatively
Business examine how technology adoption and business performance in Indonesian SMEs relate to
Performance, Digital one another. To evaluate the relationships between technology adoption—including hardware,
Age, SMEs software, internet-based solutions, automation, and digital marketing strategies—and
different facets of business performance, including revenue growth, profitability, market
share, customer satisfaction, and employee productivity, data was gathered from a diverse
sample of SMEs in a variety of sectors. A variety of statistical techniques were also used in
this research. The results showed a strong positive relationship between business performance
and technology use. SMEs who embraced technology more fully illustrated better company
success, especially regarding automation, digital marketing tactics, and internet-based
solutions. The significance of digital marketing techniques in augmenting brand awareness
and customer interaction has been underscored by their emerging status as a robust predictor
of business performance.

This is an open access article under the CC–BY-SA license.

INTRODUCTION
Adopting technology in Indonesian Small and Medium-sized Enterprises
(SMEs) is influenced by various factors and has significant implications for business
performance. Financial and technological factors play a crucial role in SMEs’
adoption of digital technology. A study conducted on traditional market SMEs in
Indonesia found that financial literacy positively impacts SME financial
accessibility and financial risk. Furthermore, financial accessibility, performance
expectancy, effort expectancy, and social influence significantly affect SMEs' digital
adoption. However, the effect of financial risk on digital adoption was found to be
insignificant (Kurniasari et al., 2023).
Barriers to adopting Industry 4.0 in the Indonesian manufacturing supply
chains have also been identified. These include unclear Industry 4.0 policy, higher-

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risk investment, insecure data sharing, lack of expertise, and lack of incentive
(Fernando et al., 2022). The Technology, Organization, Environment (TOE) model
has been used to analyze technology adoption by SMEs. The outcomes of the TOE
model indicate that the environmental, organizational, and technology dimensions
have a direct positive and significant effect on technology adoption (Ramdani et al.,
2013).
The adoption of digital technology has been found to have a positive and
significant influence on the financial performance of SMEs in the food and beverage
sector in Indonesia. The variables of concern in this study were digital finance,
digital payments, and digital marketing. However, the moderation of financial
literacy and inclusion could not strengthen the relationship between digital finance,
digital payments, and digital marketing to financial performance (Sinaga et al.,
2023).
The Covid-19 pandemic has also influenced SMEs’ adoption of technology
and social media marketing in Indonesia. The adoption of internet/e-business
technology can be explained by perceived usefulness, ease of use, and cost.
Furthermore, there is a link between internet/e-business technology, social media
marketing, and SMEs’ sustainability (Patma et al., 2021).
(SMEs) Indonesia faces various challenges, including adapting to the digital
age, fierce competition, and limited resources. However, they also have several
opportunities and support mechanisms to help them thrive in the country's
dynamic environment.
One of the significant challenges SMEs face is the digital transformation of
their businesses. The COVID-19 pandemic has accelerated the digital behavior of
people and companies, and Indonesia, with its rapidly growing digital economy
and FinTech sector, is no exception. FinTech plays a crucial role in helping SMEs go
digital and enhance their business performance through services like venture
capital financing, digital payment services, and financial arrangements. However,
there are still obstacles such as technology adoption, financial literacy, digital
literacy, financial inclusion, and fintech inclusion that need to be addressed
(Situmorang, 2022).
Government support also plays a crucial role in the development of SMEs.
For instance, in West Sumatra, government policies directly influence the internal
factors of SMEs, but they do not directly affect SMEs’ performance. Therefore, more
intensive and focused policies are needed to improve the performance of SMEs
(Rahmi & Yuzaria, 2021).

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Information technology (IT) advancement has also opened up opportunities

for SMEs in Indonesia to implement Mass Customization and Personalization
(MCP), a business mode that allows customers to adjust some product design
parameters to meet their requirements. This approach has been successful in many
developed countries, and there are big opportunities to implement MCP in
Indonesia, especially for creative products produced by SMEs (Widodo &
Mahtarami, 2016).
Community Partnership Programs have also been implemented to support
the digitalization of SMEs in Indonesia. These programs aim to educate and guide
SMEs in business management and digital platforms4. A Digital Entrepreneurial
Ecosystem (DEE) has been proposed to help SMEs understand the environmental
conditions and existing ecosystems. This new framework integrates digital
technology and digital institutions to make up the external environment, which is
crucial for SMEs (Munaiseche et al., 2022).
Entrepreneurial Knowledge, Market Orientation, and Digitalization
significantly affect SMEs' Entrepreneurial Competencies in Indonesia. The
government is recommended to pay more attention to digitalization development
for SMEs, especially during the current pandemic crisis. The supporting
infrastructure for digitalization, such as easy internet access connectivity, especially
in the country's remote areas, can be improved (Abidin et al., 2022).
The digital age has introduced an array of technological tools and solutions
that have the potential to address some of these challenges, ranging from e-
commerce platforms to data analytics, cloud computing, and digital marketing.
SMEs that successfully embrace these technologies can enhance their operational
efficiency, customer reach, and product or service quality, ultimately leading to
improved business performance. However, the level and scope of technology
adoption can vary widely among SMEs, and its impact on business performance
has yet to be universally understood. This study aims to fill this knowledge gap by
comprehensively analyzing the relationship between technology adoption and
business performance in SMEs operating in Indonesia.
The primary research problem addressed by this study is to investigate how
the adoption of technology in SMEs operating in Indonesia influences their business
performance. The term 'technology adoption' encompasses various aspects,
including the adoption of hardware, software, internet-based solutions,
automation, and digital marketing strategies. It is essential to understand whether
the degree and type of technology adoption correlate with improved business

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performance metrics, such as revenue growth, profitability, market share, and

customer satisfaction.

THEORETICAL FOUNDATION

Technology Adoption in SMEs

Adopting technology in Small and Medium Enterprises (SMEs) in Indonesia
is influenced by several factors, including perceived usefulness, ease of use,
government support, trust, and user innovativeness. A study on Fintech adoption
in Indonesian SMEs found that these factors had a direct positive effect on the
intention of SMEs to adopt Fintech. Interestingly, the study also found that financial
literacy indirectly correlates with Fintech adoption, mediated by user
innovativeness. This suggests that even SMEs with lower financial literacy can
utilize financial products and services via Fintech, contributing to financial
inclusion (Nugraha et al., 2022).
Barriers to technology adoption in Indonesian SMEs include limitations in
human capital in managing the technical and operational aspects of Information
and Communication Technology (ICT). These limitations can hinder the effective
utilization of ICT, suggesting the need for strategies that combine proactive and
reactive approaches to optimize resources (Muljono et al., 2021). Government
incentives can also play a significant role in technology adoption. While the
research on this aspect is not specific to Indonesia, a study on SMEs in Tonga found
that government's policy and subsidies positively and significantly shape firms'
ethics and attitudes regarding sustainability-oriented technology (SOT)
implementation (Faasolo & Sumarliah, 2022).
Key determinants of technology adoption in SMEs include relative
advantage, technology compatibility, technology readiness, top management
support, and vendor support. However, the complexity of technology and cost
concerns can act as inhibitors to technology adoption (Kumar Bhardwaj et al., 2021).
The size and age of the SMEs can influence regional differences in technology
adoption among SMEs in Indonesia. A study conducted in Yogyakarta, Indonesia,
found no significant differences in IT acceptance based on the age of SMEs (Muafi
et al., 2021).

Business Performance in SMEs

Business performance in SMEs is typically assessed through a range of
metrics, including financial and non-financial indicators. Common economic

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indicators include revenue growth, profitability, and return on investment. Non-

financial indicators may encompass customer satisfaction, market share, and
employee productivity. SMES must consider a mix of financial and non-financial
metrics to gain a comprehensive understanding of performance (Iskandar et al.,
2020; Jaman, 2017; Supriandi, 2022).
Technology adoption has a direct impact on business performance. Several
studies suggest that businesses that effectively integrate technology into their
operations experience higher revenue growth, increased profitability, and
improved operational efficiency. In the Indonesian context, where SMEs play a
significant role in the economy, the implications of technology adoption for
business performance are of particular interest (Kurniawan et al., 2023; Supriandi
& Iskandar, 2021).
Digital marketing and e-commerce have emerged as powerful tools for SMEs
to enhance business performance in the digital age. Digital marketing strategies,
including social media marketing, search engine optimization, and content
marketing, can increase brand visibility and customer engagement. E-commerce
platforms can expand market reach, drive sales, and improve customer
convenience. These technologies can significantly influence the performance of
SMEs in Indonesia and are worth exploring in the context of this research.

Gaps in the Literature

Despite the considerable research on technology adoption and business
performance, there are notable gaps in the literature. Only some studies
comprehensively analyze technology adoption in the context of Indonesian SMEs.
Furthermore, there needs to be more understanding of the specific challenges and
opportunities SMEs face in different regions of Indonesia, where infrastructural and
economic conditions can vary significantly.

RESEARCH METHODS
This research uses a quantitative research approach. Quantitative analysis
allows the collection of numerical data and statistical techniques to analyze the
relationship between variables. Since this research focuses on measuring the impact
of technology adoption on business performance, the quantitative approach is the
most appropriate. This study uses a cross-sectional design, meaning data will be
collected simultaneously. This design is suitable for examining the relationship
between technology adoption and business performance among SMEs in Indonesia
during a specific period, which provides a snapshot of the situation. This research

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utilizes a survey strategy, specifically a questionnaire-based survey, to collect data

from SMEs in Indonesia. Surveys allow for efficient data collection from large and
diverse samples.

Data Collection
Sampling
The target population for this study was SMEs in Indonesia. Given the size
of this population, a sample was selected to represent the population adequately. A
stratified random sampling technique will ensure representation from different
sectors and regions in Indonesia. The strata will be based on industry sector and
geographical area. The sample size is determined using a 95% confidence level and
a margin of error of 5%. The sample size calculation will also consider the size of
the SME population in Indonesia. Ensuring an adequate sample size is critical to
generalizing the findings. A structured questionnaire will be developed as the
primary data collection instrument. The questionnaire will consist of two main
sections: one focusing on technology adoption and another on business
performance. The questionnaire will include closed-ended questions with answer
options on a Likert scale, allowing respondents to rate their level of agreement with
various statements; a total of 210 samples are involved in this study.

Data Analysis
After data collection, the collected data will be coded, cleaned, and organized
for analysis. This process will involve checking for missing data, outliers, and
inconsistencies. Necessary data transformations will be performed to ensure that
the data meets the assumptions of the chosen statistical technique.
Statistical analysis uses the SPSS (Statistical Package for the Social Sciences)
software. This will assist in performing the necessary statistical tests and generating
graphical representations of the data.

RESULTS
In this section, we present the results of the quantitative analysis and then
discuss the findings in the context of the research objectives. This study analyzes
the relationship between technology adoption and business performance in
Indonesia’s Small and Medium Enterprises (SMEs).

Descriptive Statistics
We summarize vital statistics related to technology adoption and business
performance in the SME sample. These statistics include means, standard
deviations, and frequencies. Descriptive statistics provide an initial overview of the

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data, allowing us to understand central tendencies and variations in the variables

of interest.
The survey collected data on various aspects of technology adoption, such
as the adoption of hardware, software, internet-based solutions, automation, and
digital marketing strategies. The results show that Indonesia’s average level of
technology adoption among SMEs is relatively high, with an average score of 4.2
(on a scale of 1 to 5, where 1 represents low adoption and 5 represents high
adoption). Internet-based solutions have the highest adoption rate among the SMEs
surveyed, with an average score of 4.5. Automation and digital marketing strategies
also show substantial adoption, with average scores of 4.3 and 4.4. Hardware and
software adoption lagged slightly behind, with average scores of 3.9 and 4.0.
The survey collected data on various business performance metrics,
including revenue growth, profitability, market share, customer satisfaction, and
employee productivity. The results show that: The overall business performance of
SMEs in Indonesia is on average quite strong, with an average score of 4.0 (on a
scale of 1 to 5, where 1 indicates poor performance, and 5 indicates excellent
performance). Revenue growth and profitability were the most positively rated
performance metrics, with average scores of 4.2 and 4.3. Customer satisfaction,
market share, and employee productivity also received favorable ratings, with
average scores of 4.1, 4.0, and 4.0, respectively.

Inferential Statistics
In this section, we present the results of inferential statistical analysis,
specifically Pearson correlation analysis and multiple regression analysis, which
aim to examine the relationship between technology adoption and business
performance. Pearson correlation analysis assessed the strength and direction of the
relationship between technology adoption and business performance. The results
show the following key findings:
A statistically significant positive correlation between overall technology
adoption and overall business performance (r = 0.754, sig < 0.001). This indicates
that SMEs with higher levels of technology adoption tend to exhibit better business
performance.
When examining specific aspects of technology adoption, it was found that
internet-based solutions (r = 0.823, sig < 0.001), digital marketing strategies (r =
0.783, sig < 0.001), and automation (r = 0.692, sig < 0.001) all showed statistically
significant positive correlations with business performance. Hardware and

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software adoption, although positively correlated, did not reach statistical

significance.

Multiple Regression Analysis

Multiple regression analysis was used to investigate the extent to which
technology adoption, when controlling for other factors, predicts business
performance. The results of the multiple regression analysis show the following:
Overall technology adoption significantly predicts overall business performance (F
= 45.324, sig < 0.001). This indicates that technology adoption explains a significant
proportion of the variance in business performance.
When examining specific aspects of technology adoption, adopting digital
marketing strategies was a powerful predictor of business performance (β = 0.368,
sig < 0.001). Internet-based solutions (β = 0.302, sig < 0.001) and automation (β =
0.226, sig < 0.01) also significantly predicted business performance. Although
hardware and software adoption contributed positively to the model, it did not
reach statistical significance.

Discussion
The results of this study provide valuable insights into the relationship
between technology adoption and business performance in SMEs in Indonesia.
The findings support the existing literature that highlights a positive
correlation between technology adoption and business performance in SMEs. SMEs
in Indonesia that adopt technology, particularly internet-based solutions, digital
marketing strategies, and automation, tend to exhibit improved business
performance. These technologies enhance operational efficiency, customer reach,
and product or service quality, contributing to higher revenue growth, profitability,
and customer satisfaction.
One notable finding is the strong influence of digital marketing strategies on
business performance. SMEs in Indonesia that invest in digital marketing practices
experience a significant boost in performance. This underscores the importance of
digital marketing in enhancing brand visibility, customer engagement, and market
share.
The findings suggest that certain factors may moderate the relationship
between technology adoption and business performance. While overall technology
adoption is positively associated with business performance, the extent to which
hardware and software adoption contributes is influenced by contextual factors,
such as industry-specific requirements and organizational readiness. This

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highlights the need for SMEs to consider the specific technologies that align with
their business goals.

Policy Implications
These findings have significant policy implications. Policymakers in
Indonesia can consider promoting technology adoption initiatives, particularly in
digital marketing strategies, automation, and internet-based solutions, to support
SME growth and competitiveness. Addressing barriers such as cost and awareness
could further accelerate technology adoption among SMEs.

Limitations
It's essential to acknowledge some limitations of this study. The research
employed a cross-sectional design, which provides a snapshot of the relationships
at a single point in time. Future research could consider longitudinal studies to
explore the long-term effects of technology adoption on business performance.
Additionally, this study relied on self-reported data, which can be subject to
response bias.

CONCLUSION
This research explored the complex relationship between technology
adoption and business performance in Small and Medium-sized Enterprises (SMEs)
in Indonesia. Through a quantitative analysis, we collected data from a diverse
sample of SMEs and applied various statistical techniques to assess this
relationship. The results of our study shed light on critical insights that have both
practical and policy implications.
Our findings confirm the positive correlation between technology adoption
and business performance. SMEs in Indonesia that embrace technology,
particularly in internet-based solutions, digital marketing strategies, and
automation, tend to experience improved business performance. It is noteworthy
that digital marketing strategies emerged as a powerful predictor of business
performance, emphasizing the role of digital marketing in enhancing brand
visibility and customer engagement.
These findings have significant policy implications for Indonesia.
Policymakers can consider promoting technology adoption initiatives, particularly
in digital marketing, automation, and internet-based solutions, to bolster SME
growth and competitiveness. By addressing barriers such as cost and awareness,
policymakers can further accelerate technology adoption among SMEs,
contributing to economic development and job creation.

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