• Vol 10, No 1 (2019)
  • Industrial Engineering

The Impact of Information and Communication Technology Capability on the Competitive Advantage of Small Businesses

Achsanul Qosasi, Erna Maulina, Margo Purnomo, Anang Muftiadi, Erwin Permana, Fajri Febrian


Cite this article as:
Qosasi, A., Maulina, E., Purnomo, M., Muftiadi, A., Permana, E., Febrian, F., 2019. The Impact of Information and Communication Technology Capability on the Competitive Advantage of Small Businesses. International Journal of Technology. Volume 10(1), pp. 167-177
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Achsanul Qosasi Department Business Administration, Faculty of Political and Social Siences, Padjadjran University, Street Bukit Dago Utara Bandung 40135, Indonesia
Erna Maulina Department Business Administration, Faculty of Political and Social Siences, Padjadjran University, Street Bukit Dago Utara Bandung 40135, Indonesia
Margo Purnomo Department Business Administration, Faculty of Political and Social Siences, Padjadjran University, Street Bukit Dago Utara Bandung 40135, Indonesia
Anang Muftiadi Department Business Administration, Faculty of Political and Social Siences, Padjadjran University, Street Bukit Dago Utara Bandung 40135, Indonesia
Erwin Permana School of Business Management, Binus University, Street Kebon Jeruk Raya 27, Kebon Jeruk Jakarta Barat 11530, Indonesia.
Fajri Febrian Department Business Administration, Faculty of Political and Social Siences, Padjadjran University, Street Bukit Dago Utara Bandung 40135, Indonesia
Email to Corresponding Author

Abstract
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The aim of this paper is to establish how Information and Communication Technology (ICT) capability has no effect on competitive advantage through the entrepreneurial orientation and organizational agility of Indonesian SMEs in the apparel retail sector. The study is based on resources that cannot be directly converted into the competitive advantage of companies but must instead be subjected to an entrepreneurial process and offer new insights into the use of ICT as a valuable corporate resource. The paper is based on a quantitative approach using a population comprising apparel retailers from traditional markets in Jakarta, Indonesia. The sample was obtained using random sampling. The survey was conducted among 462 small businesses across five traditional apparel markets managed by PD. Pasar Jaya. The data were processed using Structural Equation Modeling-Partial Least Squares. The results show that ICT capability has no significant effect on competitive advantage, although it does have a significant effect on entrepreneurial orientation and organizational agility. Organizational agility and entrepreneurial orientation have a significant effect on competitive advantage, thus indicating that ICT capability in small businesses cannot be directly converted into a competitive advantage. The finding of the research is that ICT capability is able to create competitive advantage in small businesses but only when present in conjunction with entrepreneurial orientation and organizational agility.

Apparel retail; Competitive advantage; Entrepreneurial orientation; ICT capability; Organizational agility

Introduction

Information and Communication Technology (ICT) capability is one of the approaches by which business organizations can aim to increase their competitive advantage. According to Parida et al. (2016), ICT capability involves a firm’s ability to strategically use information and communication technology functions or applications in their business activities and incorporates the use of e-mail, websites, e-commerce, web conferencing, intranets, extranets, and other similar tools. This definition is in accordance with that given by Teece et al. (1997) on capability, namely that it relates to a firm’s ability to reconfigure resources and routines for the purpose of achieving sustained competitive advantage. Accordingly, ICT capability is required so that companies are able to adjust, integrate, reconfigure, and recreate their internal and external competencies in order to gain a competitive advantage in an ever-changing business environment.

Indonesia is experiencing a high rate of growth in the utilization of ICT as a small business capability. Euromonitor International notes that online sales in Indonesia are higher than those in Thailand and Singapore, while it is believed that the Indonesian e-commerce market offers the potential for further growth in the future. This is supported by both the country’s large population and by it having the highest gross domestic product (GDP) among the ASEAN. Statista International notes that there was continued growth in the average volume of online sales in Indonesia during the period 2014–2020. Wireless mobile broadband (3G, LTE/4G) is the most widely used network access technology for online transactions for individual buyers, which means that the development of mobile phone technology influences the dynamics of the business.

The high volumes of online sales in Java and Bali are also driven by the high penetration of the Internet across their regions. Yogyakarta, Jakarta, and Bali are the three provinces with the highest Internet penetration rates, standing at 47%, 4%, and 4%, respectively. This penetration is driven mainly by 3G cell phone users. With their large populations and potential for economic growth, these three provinces represent prospective markets for e-commerce players.

According to statistics from the Ministry of Communication and Information Technology of the Republic of Indonesia (2016) pertaining to the volume of goods and services purchased via e-commerce in 2016, a total of 78.3% of purchases were for ready-made apparel. These data indicate that in the digital economy era, the process of buying and selling products occurs not only in conventional stores but also via digital media.

Previous research has shown that ICT capabilities can have a significant effect on competitive advantage (Powell & Micallef, 1997; Maguire et al., 2007; Olatokun & Kebonye, 2010; Cakmak & Tas, 2012; Chibelushi & Trigg, 2012; Harrigan et al., 2012; Higón, 2012; Adeniran & Johnston, 2014; Kadadevaramath et al., 2015; Adeniran & Johnston, 2016; Yunis et al., 2017). Hult and Ketchen (2001) argue that it is the collective contribution of a combination of resources that can determine competitive advantage.

Researchers of the competitive advantages of SMEs such as Bagheri et al. (2014), Budiarto et al. (2017), and ?erbu and Borza, (2014) believe that the current era of the digital economy requires every person and organization to be involved in effective ICT in the context of economic and community development. Hoque et al. (2016) in particular state that the study of the role of ICT in small businesses has become a special challenge. This is due to the fact that it relates to small businesses that have only limited resources and ICT but yet also possess certain distinctive characteristics from which to create a competitive advantage (Tripathy et al., 2016). Small clothing businesses in traditional markets have realized the importance of managing their ICT capability resources.

The originality of this research lies in its bid to test and explain the competitive advantages of small apparel retailers in traditional markets in Jakarta Province based on Resources Based View (RBV). In this case, there are three constructs involved, namely ICT capability, which forms part of the RBV of the firm, entrepreneurial orientation in the process of building organizational capability, and organizational agility in the process of forming competitive advantage. This phenomenon is approached based on the theory of the firm proposed by Barney (1991). A library search for ICT Capabilities, Entrepreneurial Orientation, Organizational Agility, and Competitive Advantages in SMEs revealed there to have been no prior study of the relationships among the constructs as described.

Therefore, the issue to be addressed by this research is the influence of ICT capability on competitive advantage through entrepreneurial orientation and organizational agility in small apparel retail businesses in Jakarta.


Conclusion

The results of this research prove empirically that ICT capability does not directly affect the competitive advantage of small businesses. ICT capability in small businesses will affect competitive advantage only if present and executed in conjunction with organizational agility and or through an entrepreneurial orientation. Thus, organizational agility does have a direct effect on competitive advantage.

Small-scale retail apparel businesses need to improve their ICT capabilities, notably with regard to improving their ICT infrastructure so that they can reach a wider market, not only locally but also abroad. In addition, ICT capability helps companies to improve the efficiency and effectiveness of their business operations, which in turn can bolster the competitive advantage of small businesses. This research confirms the results of research by Nowacki and Staniewski (2012), Lee et al. (2016), and Qosasi and Permana (2017) that innovation is critical when seeking to deal with various situations in the market and in order to maintain a competitive advantage.

The results of this study could be further strengthened by conducting research in different places and with an expanded population, such as the population in Indonesia. In order to strengthen and confirm the relationship between the variables in order to become a well-established theoretical concept, it is recommended that future research uses a different choice of dimensions, even if the locus and emphasis of the research remain the same.

Acknowledgement

We gratefully acknowledge the support of the DKI Provincial Government through the PD. Pasar Jaya. 

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