The Role of Digitalization Performance on Digital Business Strategy in Indonesia MSEMs

Purpose: Aim of this study to get a clearer picture of the benefits of implementing digital business strategy (digitalization capabilities that supported by digital literacy) in MSMEs. Theoretical framework: The existence of MSMEs (Micro, Small and Medium Enterprises) is an important part of the Indonesian economy which has an impact to the smallest layer. Every business entity in every industry and every size is affected by digitalization, all companies must confront their strategic orientation and develop a digital strategy that is right for them. Design/methodology/approach: The data analysis used Partial Least Square and Structural Equation Modelling. We use purposive sampling technique, and the survey data was collected online during October-December 2021 and the respondents was MSME practitioner in 18 provinces in Indonesia. Findings: The results of the study found variables that had a positive and significant effect: digitalization capability on digitalization performance, digital literacy on digitalization performance, digital literacy on perceived financial performance, digitalization performance on perceived financial performance. The digitalization capability has no positive and significant effect on perceived financial performance. However, through mediating the digitalization performance, digitalization capability has a positive and significant impact on perceived financial performance. The value of R2 is 57% & 63% which shows the influence of the independent variables (digitalization capability & digital literacy) is strong enough on digitalization performance & perceived financial performance in this study. Research, Practical & Social implications: study show that perceived financial performance in digitalization has not become a top priority for MSME actors because digitalization is still considered an additional cost. Originality/value: The study is the first in the digital business strategy for MSEMs area discuss the role of digitalization performance.