Impact of information and communication technology on improving small and medium enterprises performance in an Urban Kampung

ICT has become an interesting phenomenon, specifically in the business world. It has contributed significant changes in many parts of the world where new SMEs emerged and challenged the domination of established corporations. However, although many SMEs have been able to seize its benefit, others are not so successful. Therefore, it draws curiosity as to how exactly ICT can give impact on the performance of the SMEs. This is the main concern of this research. To engage with it, the research formulates several research questions, which consists of one main question and several sub questions. The main research question is: How can SMEs utilize ICT to improve their business performance? The research also wants to know about: To what extent has ICT been implemented by SMES? How is the performance of SMEs before and after ICT implementation? How is the capacity of SMEs to absorb ICT? The research pursued the answers to these questions through devising a descriptive-case study. The data were collected through in-depth interviews, secondary data collection and field observation. The interviews were conducted with eleven respondents in a neighbourhood in Yogyakarta City, called RT 36 of Patehan. Ten respondents are SME owners, while one is the neighbourhood leader. The research found that despite internet illiteracy and low financial capital, the residents of RT 36 are able to build a computer-internet network providing a 24-hour-a-day internet connection. They call the network "Kampoeng Cyber" network. Most of the SMEs in the kampung have integrated ICT into their business. As the result, most of them are able to increase their business performance. Several SMEs even succeed to achieve exceptional improvement. However, some discrepancies are also recognized in which the respondents with more extensive ICT intervention have less performance improvement than other respondents with less extensive ICT. It indicates that the performance of the SMEs doesn't automatically improve after having ICT interventions. Further enquiries showed that the performance improvement relates to the Absorptive Capacity of the SMEs. Absorptive Capacity has four dimensions, namely Acquisition, Assimilation, Transformation and Exploitation. Of the four dimensions, significant distinction among the respondents can be spotted in terms of Transformation. The SMEs that manage to significantly improve their performance are able to combine the new innovation with their old knowledge. It enables them to put ICT into the context of their existing work system and properly merge the new innovation into their work mechanism. The research also found out that Absorptive Capacity has a strong relationship with entrepreneurship, social capital and networking of the SMEs. These aspects help the SMEs to break the barriers toward ICT absorption. The research finally concluded that SMEs can properly utilize ICT to improve their business performance by having adequate and proportional dimensions of Absorptive Capacity. Although all dimensions should be present, Transformation holds a significant role since it relates to placing ICT into the specific context of the SME. SMEs should also possess entrepreneurial capital, adequate networking and appropriate purpose of ICT intervention. Mere investment on ICT without full understanding of its own condition may make it difficult for an SME to integrate ICT into its work system and hamper its optimum utilization for performance improvement. This finding is relevant for policy makers. Giving out revolving funds without proper assistance to the SMEs might not be sufficient to push their performance. Relentless campaigns and trainings to improve their Absorptive Capacity are essential, so that the SMEs can maximize their resources and potentials to capture the opportunities in the market.