Digitalization of Indonesian MSMEs: Innovation Challenges and Opportunities

This chapter aims to present the performance of the digital economy in Indonesia and the opportunities for MSMEs for digitalization, especially the use of digital platforms. Using data from the Indonesian digitalization survey (2021), Three provinces (West Sumatera, West Java and DI Yogyakarta) as case studies, and secondary data on the digitalization status of Indonesian MSMEs, it was found that the conversion of MSMEs to the digital economy was maintained and secured the market for MSMEs during and after the COVID-19 pandemic. Most MSMEs are connected through social media and market platforms, and only a small percentage of MSMEs use digital technologies to support business management and production. Digitalization facilitated MSMEs to take advantage of the market; however, it had little impact on MSME innovation and productivity. Meanwhile, digitalization of MSMEs in the production sector will open a new business model, despite some challenges such as job displacement and global competition. The entrepreneurship capacity of MSMEs is a key to transforming digitalization into innovation.