Making digital transformation less daunting for rural corner shops

Indonesia is on the path to establishing itself as a world leader in e-commerce. Even as the COVID-19 pandemic raged on, the country’s e-commerce market continued to boom as customers’ buying behavior changed and accelerated the shift to digital channels. However, only 19% of Indonesia’s 60 million micro-enterprises are part of the digital ecosystem. Micro-enterprises lack access to digital platforms, limiting their ability to compete, especially during crises like the current pandemic. MSC’s study on the impact of COVID-19 on MSMEs highlighted that 78% of enterprises reported a decrease in revenue by a median of 50%. While the situation has gradually improved since then, enterprises still face disruptions due to successive waves of infection and consequent movement restrictions.
Going digital is not a choice but an imperative to sustain business in the post-COVID world. Our previous blog highlighted how Yuyun, a diarist from Indonesia, sells Wi-Fi coupons from her corner shop, which enables her community to access the internet. This blog explores the stories of other diarists like her who use digital platforms for their enterprises and extracts lessons from their digital behavior.
We interviewed 25 micro-enterprises in our Corner Shop Diaries project. Only one of them is an active e-commerce seller, while five are active buyers on e-commerce platforms. Three diarists use some form of digital payments in their business, and five use WhatsApp for sales and promotion. These numbers further confirm the low levels of digital presence, even among microenterprises in rural Java, Indonesia’s most connected island in terms of ICT infrastructure.

The images below highlight the personas of our three diarists who use digital tools and platforms to either sell, purchase or promote products and services for their enterprises.

The common threads that connect Suryo, Edi, and Mulyani are access to a relatively stable network and personal smartphones. Often overlooked, a clear value proposition to go digital is the most significant factor common to the three diarists.

The stories of these diarists inspired us to understand how they came in touch with digital platforms while living in remote rural areas and gained the confidence to become regular users. Several factors motivated these entrepreneurs to sign up for digital platforms and eventually become regular users. Understanding these factors is critical for developing policies to deepen digital economy initiatives in rural geographies. MSC’s Financial Services Space (FSS) framework, depicted in the figure below, explains the observed digital behavior of our diarists.

Aggressive above-the-line (ATL) campaigns on television and radio, especially by e-commerce players, helped raise awareness of digital platforms in rural areas. The campaigns also communicated attractive promotional offers that encouraged some diarists to try digital platforms for their business. However, FSS drivers were crucial to encourage the uptake of digital platforms and drive their usage in rural areas.

Nudges from children in the family also motivated our diarists to conduct the first few transactions on digital platforms. Most of these transactions involved purchases from e-commerce platforms, primarily for personal consumption. Knowledge transfer from other family members and friends working in metro cities like Jakarta and familiar with digital tools for business also complemented these nudges.

Support services, such as logistics and agent banking in rural locations, deepened in Indonesia. This deepening also significantly encouraged the use of digital tools and provided much-needed convenience. The option for cash on delivery (COD) made users confident to conduct the initial few purchases. In contrast, banking agents in the neighborhood made it convenient to make and receive digital payments for business transactions. Edi used this opportunity to find spare parts, which were not readily available in his location.

The volumes or sustained usage was primarily a result of a strong value proposition to go digital. The value proposition varied based on individual context. For example, e-commerce provided Suryo an opportunity to get better prices and attract new customers, which resulted in a regular inflow of money into his account.

The experiences of our diarists highlight critical points to consider while designing programs and policies to build the digital capacities of rural micro-enterprises. Some of these policy lessons are as follows:

1. Communication of the value proposition is critical to adoption: Many initiatives to deepen the digital economy focus only on the process of signing up and using digital tools or platforms. They fail to communicate the value proposition of embracing the digital ecosystem effectively. Moreover, value propositions may differ based on the profile of micro-entrepreneurs. Generic communication fails to convince potential users in such a case. The initiatives should segment micro-entrepreneurs based on their personas and customize the messaging around the value proposition. This move will enable concerned entrepreneurs to relate to the proposed benefits of joining the digital bandwagon.

2. Rural entrepreneurs build trust through peer learning: Rural micro-enterprises relate better to information from someone they know and trust. Hence, programs that involve community members in capacity-building efforts are more likely to succeed. Rural community-based institutions, such as cooperatives, are crucial to ensuring digital tools and platforms reach the last mile.

3. Local success stories make the learning process more tangible and relatable: Rural micro-entrepreneurs gain confidence from success stories in their community. Capacity-building programs must include such case studies or personal interactions.

4. Quick and intuitive signup is essential for uptake. Still, usage depends on access to support services: Even if micro-entrepreneurs learn about the processes related to an individual platform or tool, knowledge of interconnections between different platforms and support services is essential to understand the ecosystem better. The learning curriculum should include a detailed guide of products and services offered by support service providers in their area.

5. Micro-entrepreneurs should be equipped to resolve grievances and safeguard themselves against cybercrimes: Micro-entrepreneurs face several risks as they enter the digital ecosystem. They need adequate knowledge and capacities in preventive and curative measures to avoid and resolve any potential grievances. Lack of such capabilities may affect their trust in the system.

The operations of micro-enterprises witnessed a paradigm shift in the post-pandemic era. Embracing digital ecosystems became the new normal. The rapid growth in digital platforms disrupts corner shops, which form the backbone of Indonesia’s rural economy. Indonesia needs robust policies and programs to facilitate the digital transformation of rural corner shops.

Raunak Kapoor

SENIOR MANAGER

Rahmatika Febrianti

ASSISTANT MANAGER

Yani Parasti Siregar

ASSOCIATE

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