Preface

Since the burgeoning public popularity of the Internet in the 1990s, electronic business (e-business)/electronic commerce (e-commerce) has been widely adopted in various countries to promote economic growth. For example, the expansion of e-business stimulated trade growth between the BRICS countries (Brazil, Russia, China, South Africa) [1]. While many e-commerce systems have been successfully adopted in businesses across different industries, an increasing amount of research on artificial intelligence (AI) in marketing has shown that AI can mimic humans and perform activities in an 'intelligent' manner [2]. In this new scenario, big data and machine learning (ML) extend traditional customersegmentation methods to e-business [3]. ML also facilitates business intelligence (BI) into applications [4]. Businesses will need to leverage the capabilities of key employees who have such emerging technology skills, and this understanding requires ongoing education [5 p.115, p.116]. The need for highly skilled employees with advanced technological knowledge is a challenge for higher education sectors and researchers. This book addresses e-business/e-commerce in higher education, digital economy development, AI in e-business, and BI applications.

The first section of the book focuses on higher education and digital economy development.

Chapter 1 reviews the development of China's higher education in e-commerce between 2001 and 2019 and explores the requirements of the internationalization of China's e-commerce higher education. The included literature review spans twenty years, starting from 2001 when the first thirteen e-commerce programs were offered in China. The authors adopt the benefits-driven model (BDM) to explain the reasons for the internationalization of China's E-commerce higher education. This research may be valuable for any international organization interested in collaborating with China's higher educators.

Chapter 2 presents an overview of digital entrepreneurship in Central and Eastern European (CEE) countries and examines how certain components of the DESI index affect GDP per capita in these countries and how modern information technologies affect their economies. The data presented herein partially confirms the hypothesis that DESI index components positively impact GDP per capita. DESI rank, connectivity, and human capital did not prove significant, whereas internet services, integration of digital technology, and digital public services exhibited a significant positive effect.

Chapter 3 elaborates on the paradox of digital economy development in Indonesia. This study describes the problematic situation of Indonesian digital economy governance. It is a qualitative study where the primary data derives from primary statutes, official government documents, and reports. The discussion consists of the Indonesian digital economy's main driver, the Indonesian digital regulatory framework and its challenges, and the Indonesian digital economy's paradoxes.

The second section of the book addresses AI in e-business.

Chapter 4 describes natural language processing (NLP) applications in business. The author believes that NLP is an effective technology when integrated with advanced technologies, such as AI, ML, and deep learning (DL), to improve the understanding and processing of natural language. This enables more effective human-computer interaction and allows for the analysis and formatting of large volumes of unusable and unstructured data/text in various industries. Focusing on this aspect, the chapter explains the concept of NLP, its history, and development while also reviewing its application in different industrial sectors.

Chapter 5 examines how organizations spread and integrate the practices of Information Technology Governance, Risk and Compliance (IT GRC). The arising problem is how to choose the best practice to satisfy a precise need. This chapter concerns the study and conception of decision-making architecture with a Multi-Agent System (MAS). The proposed approach integrates two disciplinary aspects: data warehousing and IT GRC.

The third section of the book discusses three BI applications.

Chapter 6 covers recent advancements in commercial integer optimization solvers as exemplified by the CPLEX software package, particularly but not limited to mixed-integer linear programming models applied to BI applications. The chapter also covers heuristic-based algorithms that include preprocessing and probing strategies and more advanced local or neighborhood search methods for polishing solutions towards enhanced use in practical settings. It also offers other considerations on parallelization, solution pools, and tuning tools, culminating with concluding remarks on computational performance vis-à-vis BI applications with a perspective for future work in this area.

Chapter 7 compares many ML and DL methods used for sentiment analysis to determine which method is most effective for prediction and for which types and amount of data. While many papers reviewed prediction techniques based on technical analysis methods, papers on using text-mining methods are more scarce than other articles that discuss the various ways to forecast the stock market. This study clarifies recent research findings by giving a detailed analysis of textual data processing and presents future research opportunities.

Finally, Chapter 8 focuses on modern BI. Currently, BI systems are used extensively in many business areas based on making decisions to create value. Traditional BI focuses on collecting, extracting, and organizing data for enabling efficient and professional query processing to obtain insights from historical data. Due to big data, the Internet of Things (IoT), AI, and cloud computing (CC), BI has become a critical and important process that is attracting a lot of interest in both industry and academia. Modern BI processes are needed to achieve total data-driven creation value. As such, this chapter highlights the importance of big data analytics, data mining, and AI for building and enhancing modern BI.

I would like to give special thanks to all the authors for their valuable contributions to this book.

> **Robert M.X. Wu Ph.D.** School of Engineering and Technology, CQUniversity Australia, Australia

**Marinela Mircea** Bucharest University of Economic Studies, Romania

### **References**

[1] Svetlana G., Igor G. & Margarita S. 2021. E-commerce Trends and Opportunities in BRICS countries. SHS Web of Conferences, 93, pp.1-7.

[2] Vlačić B., Corbo L., Costa e Silva S. & Dabić M. 2021. The evolving role of artificial intelligence in marketing: A review and research agenda. Journal of business research, 128, pp.187-203.

[3] Ballestar M.T. 2021. Editorial: Segmenting the Future of E-Commerce, One Step at a Time. Journal of theoretical and applied electronic commerce research, 16(2), pp.I-III.

[4] Khan W.A., Chung S.H., Awan M.U. & Wen X. 2019. Machine learning facilitated business intelligence (Part I). Industrial management & data systems, 120(1), pp.164-195.

[5] Davenport, T. H., & Ronanki, R. (2018). Artificial intelligence for the real world. Harvard Business Review, 96(1), pp.108-116.

Section 1

## Higher Education and Digital Economy Development

#### **Chapter 1**

## Internationalization of China' s E-Commerce Higher Education: A Review between 2001 and 2019

*Wenying Huo, Mingxuan Wu and Jeffrey Soar*

#### **Abstract**

The purpose of this chapter is to review the development of China's higher education in electronic commerce (e-commerce) and explore the requirements of the internationalization of China's e-commerce higher education. The Benefit-Driving Model (BDM) was adopted to explain the reasons for the internationalization of China's e-commerce higher education. The literature review spans 20 years from 2001 when the first 13 e-commerce programs were offered from China's 597 universities. By 2019, 328 e-commerce programs were offered by 831 universities. There is a sustainable growth from 2001 (2.17%, 13 of 597) to 2019 (39.47%, 328 of 831). Currently, six universities offer two e-commerce programs with different majors. Eight universities established specialized e-commerce schools. There are also six jointly founded or cooperative e-commerce programs run in China with overseas universities. This research may be valuable for any international organization interested in collaboration with China's e-commerce higher education. A limitation is that this research focuses only on bachelors of e-commerce programs. Further research will explore factors for success in jointly founded e-commerce programs with China's e-commerce educators.

**Keywords:** e-commerce, e-commerce education, e-commerce program, higher education, internationalization

#### **1. Introduction**

In the past 40 years, China's higher education has undergone the transition from elite focused education to popular and mass education. In 2019, the number of students enrolled in China's higher institutions was 8.2 million, and the enrollment rate was 79.53% [1]. Students enrolled in the bachelor program of China's universities were 4.22 million, while the enrollment rate was 43.3% [2]. It is estimated that the enrollment rate of higher education will reach over 60% by 2035 [3]. Comparing the number of students enrolled (0.27 million) and the enrollment rate (5%) in 1977 [4], this is a remarkable growth in the development of China's higher education.

Since the Internet started to become popular with the public in 1994, the electronic commerce (e-commerce) market has evolved from a simple counterpart of brick and mortar retail to a shopping ecosystem; when looking at the e-commerce landscape, a relatively mature market with established players and a clear set of rules can be seen [5]. Among them, China's e-commerce market is expected to grow by 20% annually over the 5 years since 2018 which is twice as fast as the United States or the United Kingdom [6]. Thus, the e-commerce industry requires quality talent in e-commerce.

However, a number of issues are challenging China's e-commerce higher education. Business managers feel that it is still difficult to find satisfying e-commerce talents. In the meantime, e-commerce graduates found that it was difficult to get appropriate job positions. Research shows that managers' Knowledge has become one of the critical success factors (CSFs) for small and medium enterprises (SMEs) for adopting e-commerce successfully [7]. Staff competency is also vital to successful e-commerce adoption [7, 8]. The probability of the acceptance of e-commerce is linked to higher individuals' awareness and knowledge of e-commerce [9]. Regular training may help staff in better understanding new and updated systems adopted for business processes. Organizations with strong technical expertise and e-commerce knowledge that provide e-commerce training are most likely to realize e-commerce implementation success [10].

The purpose of this chapter is to review the development of China's e-commerce higher education and explore the requirements of the internationalization of China's e-commerce higher education. The Benefit-Driving Model (BDM) was adopted to explain the reasons for the internationalization of China's e-commerce higher education. The literature review spans a 20-year review since 2001 when the first 13 e-commerce programs were offered. The following section will explain the benefits driving the internationalization of China's higher education. The third section will review China's e-commerce higher education. The fourth section will discuss the internationalization of China's e-commerce higher education. The fifth section will provide four suggestions for the further development of China's e-commerce programs. The last section will focus on conclusions, research limitations, and further research.

#### **2. The benefit of driving the internationalization of China's higher education**

Wu and Yu [11] developed the Benefit-Driving Model (BDM) for illustrating the factors influencing the internationalization of China's higher education. The BDM will explain the reasons for the internationalization of China's e-commerce higher education. According to BDM, there are three driving factors pushing China to open her educational market linked to three prominent benefits for China (see **Figure 1**).

#### **2.1 The first driver for the growth is students' demands**

China's students' demands drive quality improvement in China's higher education. Students' desires are to obtain advanced educational training so as to improve competitive capacity and to increase career opportunities. This pressure from students pushes China's universities to improve their educational quality and to catch up with the recent advances in higher education [11].

By 2019, 21 joint-founded universities had been successfully established in China (see Appendix A). There are about 450,000 students in international cooperational programs in China, which are 1.4% of the number of students enrolled in China's universities [12].

#### **2.2 The second driver is marketing globalization**

The second driver is the marketing globalization, which benefits the two-way exchanges. International cooperative programs do not only provide opportunities *Internationalization of China's E-Commerce Higher Education: A Review between 2001 and 2019 DOI: http://dx.doi.org/10.5772/intechopen.91951*

#### **Figure 1.** *The Benefit-Driving Model ([11], p. 211).*

for students to accept overseas higher education in China, but opening an educational market can also attract overseas students to study in China. Many international cooperative programs and several cooperative universities are operating in China. This is an explicit trend that China has increasingly become one of the international education providers.

China has undergone a transition from a one-way education outflow to a twoway student exchange market. The number of Chinese students studying abroad in 2018 was over 662,100 [13, 14]. At the same time, the number of overseas students from 196 countries studying in China had increased to more than 492,200 including 258,122 studying at China's universities [14]. In 1950, there were only 33 foreign students from Eastern European countries studying in China [15].

#### **2.3 The third driver is financial constraint**

The driver of financial constraint provides an opportunity for international higher education providers to joint-found or cooperate international programs in China. Cooperative programs may reduce the costs of moving overseas. Expensive tuition fees prevent many Chinese students from studying overseas. Cooperative programs provide the opportunity for those students who wish to access the advanced educational resources offered by overseas higher educational institutions. The students just pay about \$5000 per year for enrolled in such joint-founded or cooperated programs in China [16]. It saves approximately 70% of tuition fees compared to studying overseas.

#### **3. China's e-commerce higher education**

The world's first undergraduate e-commerce program was offered by Acadia University, Canada, in September 2000 [17], where the University of California, San Diego offered a master's degree in e-commerce in 1998 [18]. China's universities started to recruit students in bachelor of e-commerce programs in September 2001 [19]. Thirteen of China's universities offered a bachelor of e-commerce program in 2001. As one of the international pioneers, China's education sector

#### *E-Business - Higher Education and Intelligence Applications*

#### **Figure 2.**

*The development of China's e-commerce higher education between 2001 and 2019 (Source: Data in 2001– 2015 from Wu et al. [20]; Data in 2016–2019 from MOE [3, 21, 22]).*


**Table 1.** *E-commerce programs by 16 schools.* *Internationalization of China's E-Commerce Higher Education: A Review between 2001 and 2019 DOI: http://dx.doi.org/10.5772/intechopen.91951*

has been involved in e-commerce programs since the beginning of the twenty-first century [20].

#### **3.1 Run with different majors**

By September 2019, 831 universities had been established in China and 328 universities (39.47%, 328 of 831) offered e-commerce programs. This is a sustainable growth since 2001 (2.17%, 13 of 597) (see **Figure 2**). They are currently provided by 19 different schools including Economics Management; Business; Management; Management Science; Management Information System; Computer Science or IT; Business Administration; Economics and Trading; E-commerce; Transportation and Logistics; Business Planning; Intellectual Property; Tropical


#### **Table 2.**

*Offering two programs within the university.*


#### **Table 3.** *E-commerce schools established in China.*

Agriculture and Forestry; International; Science, Technology and Art; Innovation and Entrepreneurship; Arts, History, and Law; Humanities; and Big Data Engineering (see **Table 1**).

Most of China's e-commerce programs focus on the field of business and management (73.47%, 241 of 328) including Economics Management (36.59%, 120 of 328), Business (18.90%, 62 of 328), Management (10.06%, 33 of 328), Business Administration (4.57%, 15 of 328), Management Science (3.35%, 11 of 328), and only 9.45% (31 of 313) and 7.01% (23 of 313) focus on MIS and Computer Science (IT) in 2019, respectively (see **Table 1**).

#### **3.2 Two e-commerce programs offered within the same university**

Six universities offer two e-commerce programs with different majors by different schools within the same university (see **Table 2**). These specialization majors in e-commerce include Marketing Management, Computer Science, MIS, Logistics Management, and Law, which are offered by the schools of Business Administration, Business and Management, Management, Logistics and E-commerce, IT and Security, IS, Computer and Information Science, Applied Technology, and Law.

#### **3.3 Eight e-commerce schools established**

As the first mover, Henan University of Economics and Law established a school of E-commerce and Logistics Management in 2009. Three universities followed and established e-commerce schools in 2015. Henan College of Animal Husbandry and Economics established a school of Logistics and E-commerce; Luoyang Normal University and Jiujiang University established a school of E-commerce; in 2016, Zhejiang Wanli University established a school of Logistics and E-commerce; and Nanyang Institute of Technology established a school of E-commerce. In 2018, Zhejiang University of International Studies established the school of Cross-border E-commerce. Thus, eight China's universities established e-commerce schools as shown in **Table 3**.

#### **4. Internationalization of China's e-commerce higher education**

The University of Nottingham, UK, in partnership with Zhejiang Wanli University, China, launched the first overseas joint-founded university – the University of Nottingham, Ningbo China in Autumn 2004 in China [43]. Many countries have since then exported their advanced higher education programs to China. It is predicted that the coverage of cooperative educational programs is likely to continue to increase substantially.

The first joint-founded e-commerce programs run in 2004. Clearly, China's e-commerce higher education took steps to keep up with the internationalization of education, while China is embracing the world's economy and markets since entering the twenty-first century. In the internationalization's review of China's e-commerce programs, six joint-founded or cooperative e-commerce programs are run in China with overseas universities (see **Table 4**).

Beijing University of Posts and Telecommunications and the Queen Mary University of London were firstly joint-founded the bachelor of e-commerce and law in 2004. Three joint-founded programs were then followed and run by Zhengzhou Institute of Light Industry jointed with Edinburgh Napier University, UK; Jilin University of Finance and Economics jointed with Charles Sturt University, Australia; and Beijing Normal University jointed with Hong Kong Baptist University in

*Internationalization of China's E-Commerce Higher Education: A Review between 2001 and 2019 DOI: http://dx.doi.org/10.5772/intechopen.91951*


#### **Table 4.**

*Joint-founded e-commerce programs.*

2005. Two programs run in 2017 including Nankai University jointed with Neoma Business School in France and Guizhou University of Finance and Economics jointed with Marshall University in the United States.

These programs were jointly founded in 2004 with five different countries and regions including the United Kingdom (2), Australia (1), France (1), the United States (1), and Hong Kong, China (1). China's e-commerce higher education sector has been involved in the internationalization of higher education.

#### **5. Suggestions for the development of China's e-commerce programs**

For the better development of China's e-commerce programs further, the following four suggestions will be provided and discussed.

#### **5.1 Learning curriculum from international experience**

Although there are 328 e-commerce programs run in 2019, there are only six joint-founded or cooperative e-commerce programs run with overseas universities. **Table 5** shows the international pioneers in e-commerce education [20]. China's e-commerce educators could learn the experience of curriculum development from these international pioneers.

#### **5.2 Integrating e-commerce courses into postgraduate programs**

CEO and senior staff IT/e-commerce/e-commerce marketing knowledge play critical roles for SMEs successfully in adopting e-commerce [51]. If the decisionmaker is knowledgeable about the issues and reliability problems on the Internet, he/she is likely to make a more informed decision about e-commerce adoption [52]. The higher the managers' knowledge of e-commerce, the higher the probability of the acceptance of e-commerce [52]. Senior business management knowledge is highly relevant to e-commerce success.


#### **Table 5.**

*The international pioneers in e-commerce education.*

#### **5.3 Developing teaching materials based on industry requirements**

Although many real business cases have been discussed, teaching materials still lag the business and industry requirements. Although some China's universities have established the number of joint programs with industries, China's e-commerce education needs improvement in business practices, industry requirements, and industry involvement [20]. Innovative technologies have not yet been introduced into e-commerce education, such as virtual reality (VR), augmented reality (AR), and mixed reality (MR). Apple has developed ARKit as its own Augmented Reality platform for iOS, and Google has developed ARCore as its own Augmented Reality platform for Android [53]. The emerging innovative technology of VR, AR, and MR may be widely used for developing immersive e-commerce systems and enhancing customer online experience. It should be encouraged to adopt the real industry project into teaching materials and study assessments.

#### **5.4 Offering specialization major in cross-border e-commerce**

Despite a slowing Chinese economy, a shift in purchasing power from the U.S. and Europe to China and Southeast Asia has begun [5]. China's cross-border retail e-commerce sales are projected by eMarketer to reach \$245 billion by 2020 [54]. China has announced another 24 cities as pilot zones for cross-border e-commerce to boost exports in December 2019 [55]. Cross-border e-commerce has thus expected as one of the dominating industry sectors and contributors to impetus the development of China's economy. There is only Zhejiang Foreign Studies University that offers a specialization major in Cross-border e-commerce.

#### **6. Conclusions, limitations, and further research**

Since 2004, Chinese higher educational institutions have taken steps to catch up with the internationalization of education in terms of collaboration with overseas

*Internationalization of China's E-Commerce Higher Education: A Review between 2001 and 2019 DOI: http://dx.doi.org/10.5772/intechopen.91951*

universities. The purpose of this chapter is to review the development of e-commerce higher education in China and address the requirements of the internationalization of China's e-commerce higher education.

The Benefit-Driving Model (BDM) was adopted to address the reasons for the marketability of internationalization of China's e-commerce higher education. A 20-year review of China's e-commerce program found that there was sustainable growth from 2001 (2.17%, 13 of 597) to 2019 (39.47%, 328 of 831). Three hundred and twenty-eight e-commerce programs are run by 19 different schools. Six universities offer two e-commerce programs with different majors. Eight universities established specialized e-commerce schools. There are also six joint-founded or cooperative e-commerce programs run in China with overseas universities. There are opportunities to improve including adopting the learning curriculum from international experience, integrating the e-commerce courses into postgraduate programs, developing the teaching materials based on industry requirements, and offering the specialization major in cross-border e-commerce.

Although this research focused only on China's e-commerce higher education, the increasing demand will also affect international higher education providers. This research should be also of interest for any international education organizations attracted to China's e-commerce higher education.

#### **Acknowledgements**

This research is sponsored by the Fund for Shanxi "1331 Project" Collaborative Innovation Center, China.

#### **Appendix**

#### **21 Sino-foreign cooperative universities**



*Internationalization of China's E-Commerce Higher Education: A Review between 2001 and 2019 DOI: http://dx.doi.org/10.5772/intechopen.91951*

#### **Author details**

Wenying Huo1 , Mingxuan Wu1,2\* and Jeffrey Soar3

1 Shanxi Normal University, China

2 School of Engineering and Technology, CQUniversity, Australia

3 University of Southern Queensland, Australia

\*Address all correspondence to: robert\_wumx@hotmail.com

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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#### **Chapter 2**

## An Overview of Digital Entrepreneurship in Central and Eastern European Countries

*Mladen Turuk*

#### **Abstract**

The aim of the study is to explore and present an overview of digital entrepreneurship in Central and Eastern European countries and to examine how certain components of the DESI index affect GDP per capita in CEE countries and in what way modern information technologies affect their economies. The paper uses secondary data sources, mostly scientific and professional journals from the studied area, DESI reports, Eurostat data, and other Internet sources. The first part of the paper presents a short introduction on digitization digital entrepreneurship and digital technologies. The second part provides a descriptive analysis of digital entrepreneurship indicators and explores business demography in the ICT sector while the third part refers to the analysis of the DESI index. The panel method on data from 2015 to 2019 was used to show the influence of the different DESI index components on the observed countries' GDP per capita. The hypothesis that the components of the DESI index have a positive impact on GDP per capita has been partially confirmed. DESI rank, Connectivity and Human capital did not prove to be significant, while Use of internet services, Integration of digital technology, and Digital public services proved their significant positive effect.

**Keywords:** digital entrepreneurship, digital economy, digital society, ICT, CEE countries

#### **1. Introduction**

Digitization does not only change certain segments of business and individual industries – it fully affects all spheres of society and the economy, both technologically and organizationally. Digital technologies based on new platforms can transform the way economies function and impact all sectors of the economy, including traditional ones. Digital technologies "have the potential to create new or expand existing goods and services with digital features – yet possibilities in this regard depend on the characteristics of specific sectors' end products" [1, 2]. Full efficiency and profitability are impossible without digital transformation in which the private sector can and must be a leader. Although the crisis caused by COVID 19 severely affected a number of industries, the economic impact on the technology, media, and telecommunications sectors was largely neutral or even positive for some industry segments. For Europeans to take advantage of the opportunities offered by digital technologies, the European Commission adopted its digital strategy on 19

February 2020. During the coronavirus crisis, this strategy is even more important in creating favorable environment for digital entrepreneurship.

The aim of the study is to explore and present an overview of digital entrepreneurship in Central and Eastern European countries and to examine how certain components of the DESI index affect GDP per capita in CEE countries and in what way modern information technologies affect their economies. Central and Eastern European countries are European Union member states which were once part of the former Eastern bloc. The following countries are Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia.

The study is further structured as follows. The second part provides an overview of digital entrepreneurship. The third part explains research methodology followed by the descriptive analysis of information and communication technology sector of CEE countries and provides an insight into ICT share in GDP, the share of ICT employment in total employment and the share of R&D in the ICT industry in total R&D. Furthermore, it analyses business demography of the ICT sector and provides an overview of enterprises' birth, death, and churn rates. The fourth part of the study provides Digital Economy and Society Index analysis and relates observed DESI components to countries' GDP per capita while final remarks are presented in conclusion.

#### **2. Overview of digital entrepreneurship**

Entrepreneurship, in its simplest form, can be described as self-employment [3]. Digital entrepreneurship, on the other hand, diverges from this definition seeing as it involves entrepreneurial pursuits which occur on a digital platform ([4], as in [5], p. 1). Digital entrepreneurship is "an essential driver within the innovation system. It changes the structure, aims, and networking mechanisms of the overall business system and, ultimately, affects the various levels and dimensions of the innovation system "[2], p. 1. Bringing inevitable changes to the innovation system, digital technologies may not only provide new business opportunities but also be disruptive and cause new vulnerabilities"[2], p. 1. "The term 'Digital Entrepreneurship' most commonly refers to the process of creating a new - or novel - Internet enabled/ delivered business, product or service. This definition includes both start-ups bringing a new digital product or service to market - but also the digital transformation of an existing business activity inside a firm or the public sector "[6], p. 1,

Digital entrepreneurship is the practice of pursuing "new venture opportunities presented by new media and internet technologies" [7], p. 8. Digital entrepreneurship is "a subcategory of entrepreneurship in which some or all of what would be physical in a traditional organization has been digitized" [8], p. 4. "Digital entrepreneurship embraces all new ventures and the transformation of existing businesses that drive economic and/or social value by creating and using novel digital technologies. Digital enterprises are characterized by a high intensity of utilization of novel digital technologies (particularly social, big data, mobile, and cloud solutions) to improve business operations, invent new business models, sharpen business intelligence, and engage with customers and stakeholders. They create the jobs and growth opportunities of the future" [9], p. 1. Digital enterprises are different from traditional entrepreneurial ventures because they have different business models and can pursue their products, marketing and distribution activities using digital platforms [10].

Global diffusion of "digital technologies as general use tools has also spurred arguments that it may increase knowledge diffusion through improved communication efficiency, improve consumer engagement, and allow countries to leapfrog

*An Overview of Digital Entrepreneurship in Central and Eastern European Countries DOI: http://dx.doi.org/10.5772/intechopen.95961*

traditional methods of increasing productivity" [11], p. 1. Online business does not just mean having a good communication strategy which is then marketed through various digital channels. Online business also means connecting business entities in an efficient way, enabling digital transformation that facilitates business in a simpler, more accessible, and often cheaper way. Jobs related to digital technologies or digital economy are the most sought after and most stable occupations. Without the new technologies, digital entrepreneurs "would be unable to deliver their products or services, and in some cases, the business model itself could not exist without information technology. The sector of information and communication technology remains a key driver of innovation and a sector with huge growth potential" [12], p. 180.

#### **3. Research methodology**

The first part of the analysis refers to the descriptive analysis of ICT sector and its business demography. Percentage of the ICT sector in GDP, total employment, and R&D in CEE countries are analyzed. Moreover, business demography in ICT sector in CEE countries is explained through enterprises' birth rate, death rate and churn rate. The next chapter analyses DESI index in CEE countries. DESI is a composite index that summarizes relevant indicators on Europe's digital performance. The main components of the DESI index are a) Connectivity (CON), b) Human capital (HC), c) Use of internet services (IS), d) Integration of digital technology (IDT) and e) Digital public services (DPS). In accordance with the stated aim, the following research hypothesis was formulated: *H1. The components of the DESI index have a positive impact on GDP per capita.* In hypothesis testing, GDP per capita is used as a dependent variable in the model, while the components of the DESI index: Connectivity (CON), Human capital (HC), Use of internet services (IS), Integration of digital technology (IDT) and Digital public services (DPS) – represent independent variables in the model. The analysis uses panel method and begins with estimating the equation using OLS, Random, Between, First difference and Fixed models. The next step is to determine which of the above models best specified the equation. For this purpose, the Breusch-Pagan Lagrange multiplier test and the Hausman test are performed. The Breusch-Pagan Lagrange multiplier test tests whether the "OLS" or "Random" model is suitable. The null hypothesis assumes that the variance between entities or industrial activities is zero, i.e. that there are no panel effects, which indicates the use of the least squares method or the OLS method. Furthermore, the Hausman test helps in choosing a "Fixed" or "Random" model. It tests whether the errors are correlated with the regressors. The null hypothesis assumes that the errors are not correlated with the regressors, which would indicate the use of the "Random" model. The null hypothesis of the Breusch-Pagan / Cook-Weisberg test indicates homoskedasticity in the model. Given that in this case the null hypothesis cannot be rejected at all standard levels of significance, it is concluded that there is no heteroskedasticity in the model.

#### **4. Descriptive analysis of ICT sector and its business demography**

Prior to the introduction of the DESI index (Digital Economy and Society Index), some of the indicators of the intensity of digital entrepreneurship in the total economy were the share of the ICT industry in GDP, the share of the ICT industry in total employment and the share of R&D in the ICT industry in total R&D. One of the prior indicators of digital development was citizens' Internet

penetration. Specific studies presented in **Table 1** showed positive correlation of internet penetration on GDP growth.

Koutroumpis [15] and Czernich et al. [16] conducted studies of the impact of the internet on economic growth focused mainly on the EU and US OECD countries. These studies found that a 10 per cent increase in internet penetration correlates with a 0.9–1.5 and a 0.3–0.9 percentage point (pp) in gross domestic product (GDP) growth respectively (Hernandez et al., 2016). Other indicators are analyzed below.

The average share of the ICT industry in CEE countries in GDP is 4.39%, with Hungary having the largest share (6.04%) and Lithuania having the smallest share (3.02%). The Republic of Croatia is in the middle with the share of the ICT industry in GDP of 4.40%. The average share of employment in the ICT industry in CEE countries in total employment is 3.00%, with Estonia having the largest share (5.14%) and Romania having the smallest share (2.36%). The Republic of Croatia is just ahead of Romania with the share of employment in the ICT industry in total employment of 2.45%. The average share of R&D in the ICT industry in CEE countries in total R&D is 0.83%, with Lithuania having the largest share (2.49%)


#### **Table 1.**

*Correlations with GDP growth for every 10-percentage point (pp) increase in internet penetration [13], p. 7, based on [14].*


#### **Table 2.**

*Percentage of the ICT sector in GDP, total employment, and R&D in CEE countries, 2017 [20].*


*An Overview of Digital Entrepreneurship in Central and Eastern European Countries DOI: http://dx.doi.org/10.5772/intechopen.95961*

#### **Table 3.**

*Business demography in ICT sector in CEE countries in 2017 [20].*

and Slovakia having the smallest share (0.32%). Eurostat data is presented in **Table 2**.

The birth rate of a given reference period (usually one calendar year) is the number of births as a percentage of the population of active enterprises. The death rate of a given reference period (usually one calendar year) is the number of deaths as a percentage of the population of active enterprises. The churn rate is equal to the sum of the birth and the death rate. Eurostat data is presented in **Table 3**.

The average company birth rate in the ICT industry in CEE countries is 15.08%. Lithuania (21.95%) has the highest company birth rate, followed by Estonia (18.39%) and Slovakia (17.41%), while Croatia (10.54%), Czech Republic (11,40%) and Slovenia (12.63%) have the lowest company birth rate (11.40%). The average company death rate in the ICT industry in CEE countries is 9.29%. Lithuania (26.60%) has the highest company death rate, followed by Bulgaria (11.70%) and Estonia (10.90%), while Hungary (0.21%), Slovenia (5.01%) and Latvia (5.72%) have the lowest company closure rate. The average churn rate of companies in the ICT industry in CEE countries is 24.37%. Lithuania has the highest churn rate (48.55%), followed by Estonia (29.29%) and Slovakia (27.00%), while Hungary (13.95%), Croatia (16.81%), and Slovenia (17.64%) have the lowest turnover rate.

#### **5. DESI index analysis**

The European Commission has been monitoring the intensity of the digital economy since 2014 by publishing DESI reports for individual member states. DESI is a composite index that summarizes relevant indicators on Europe's digital performance and tracks the evolution of EU Member States in digital competitiveness [21]. The main components of the DESI index are a) Connectivity (CON), b) Human capital (HC), c) Use of internet services (IS), d) Integration of digital technology (IDT) and e) Digital public services (DPS).

Connectivity indicators in the DESI index look at both the demand and the supply side of fixed and mobile broadband and consist of: a) Overall fixed broadband take-up (% households), b) At least 100 Mbps fixed broadband take-up (% households), c) Fast broadband (NGA) coverage (% households), d) Fixed Very

High Capacity Network (VHCN) coverage (% households), e) 4G coverage (% households – average of operators), f) Mobile broadband take-up (Subscriptions per 100 people), g) 5G readiness (Assigned spectrum as a % of total harmonized 5G spectrum), and h) Broadband price index (Score 0 to 100). In connectivity, Latvia had the highest score, followed by Hungary and Romania. Bulgaria, Croatia, and Czech Republic had the weakest performance for this dimension of the DESI.

Human capital in DESI index consists of: a) At least basic digital skills (% individuals), b) Above basic digital skills (% individuals), c) At least basic software skills (% individuals), d) ICT specialists (% total employment), e) Female ICT specialists (% female employment), and f) ICT graduates (% graduates). According to the latest data, Estonia is leading in human capital, followed by Croatia and Czech Republic. Romania, Bulgaria, and Latvia rank the lowest.

Use of internet services in DESI index consist of: a) People who have never used the internet (% individuals), b) Internet users (% individuals), c) News (% internet users), d) Music, videos and games (% internet users), e) Video on demand (% internet users), f) Video calls (% internet users), g) Social networks (% internet users), h) Doing an online course (% internet users), i) Banking (% internet users), j) Shopping (% internet users), and k) Selling online (% internet users). Estonia Lithuania and Hungary have the most active internet users. Conversely, Romania, Bulgaria and Poland are the least active.

Integration of digital technology in DESI index consist of: a) Electronic information sharing (% enterprises), b) Social media (% enterprises), c) Big data (% enterprises), d) Cloud (% enterprises), e) SMEs selling online (% SMEs), f) e-Commerce turnover (% SME turnover) and g) Selling online cross-border (% SMEs). The top performers are Czech Republic, Lithuania, and Croatia. At the other end of the scale are Bulgaria, Romania, and Hungary.

Digital public services in DESI index consist of: a) e-Government users (% internet users needing to submit forms), b) Pre-filled forms (Score 0 to 100), c) Online service completion (Score 0 to 100), d) Digital public services for businesses (Score 0 to 100 – including domestic and cross-border), and e) Open data (% of maximum score). The top performers are Estonia, Latvia, and Lithuania. On the other hand, Romania, Slovakia, and Croatia score the lowest.

#### **5.1 Hypothesis**

The aim of the study is to explore and present an overview of digital entrepreneurship in Central and Eastern European countries and to examine how certain components of the DESI index affect GDP per capita in CEE countries and in what way modern information technologies affect their economies. In accordance with the stated aim, the following research hypothesis was formulated.

*H1. The components of the DESI index have a positive impact on GDP per capita.*

In hypothesis testing, GDP per capita is used as a dependent variable in the model, while the components of the DESI index: Connectivity (CON), Human capital (HC), Use of internet services (IS), Integration of digital technology (IDT) and Digital public services (DPS) – represent independent variables in the model.

The results of the conducted econometric analysis of the hypothesis test are presented below. The analysis begins with estimating the equation using OLS, Random, Between, First difference and Fixed models.

$$\begin{aligned} \text{GDPpc}\_{i,t} &= \beta\_0 + \beta\_1 \text{DESIram}\_{i,t} + \beta\_2 \text{CON}\_{i,t} + \beta\_3 \text{HC}\_{i,t} + \beta\_4 \text{IS}\_{i,t} + \beta\_5 \text{IDT}\_{i,t} + \beta\_6 \text{DPS}\_{i,t} \\ &+ u\_{i,t} \end{aligned}$$


*An Overview of Digital Entrepreneurship in Central and Eastern European Countries DOI: http://dx.doi.org/10.5772/intechopen.95961*

#### **Table 4.** *Stata panel model output.*

The results of the panel model (fixed effects) are presented in **Table 4** above. The hypothesis has been partially confirmed. Three components of the DESI index did not prove to be significant – DESI rank (positive sign), Connectivity (negative sign) and Human capital (positive sign), while three proved to be significant – Use of internet services (IS), Integration of digital technology (IDT) and Digital public services (DPS) (all three with the positive sign).

#### **5.2 Data analysis**

In order to prove the model's reliability and validity five different models were analyzed. The analysis begins with estimating the equation using OLS, Random, Between, First difference and Fixed models. Integration of digital technology (IDT) proved to be significant in three out of five models (OLS, Random and Fixed), while Internet services (IS) and Digital public services (DPS) proved to be significant in two out of five models (Random and Fixed).

The next step is to determine which of the above models best specified the equation. For this purpose, the Breusch-Pagan Lagrange multiplier test and the Hausman test are performed. The Breusch-Pagan Lagrange multiplier test tests whether the "OLS" or "Random" model is suitable. The null hypothesis assumes that the variance between entities or industrial activities is zero, i.e. that there are no panel effects, which indicates the use of the least squares method or the OLS method. In this case, the test result indicates that the null hypothesis can be rejected at all standard levels of significance, which means that in this case it is more appropriate to use the "Random" model.

#### *E-Business - Higher Education and Intelligence Applications*

Furthermore, the Hausman test helps in choosing a "Fixed" or "Random" model. It tests whether the errors are correlated with the regressors. The null hypothesis assumes that the errors are not correlated with the regressors, which would indicate the use of the "Random" model. As in the specific case the result of the Hausman test could not obtain positive test values, the test proved to be inappropriate, but the Fixed model was chosen, given the greater significance of the same.

The null hypothesis of the Breusch-Pagan / Cook-Weisberg test indicates homoskedasticity in the model. Given that in this case the null hypothesis cannot be rejected at all standard levels of significance, it is concluded that there is no heteroskedasticity in the model.

Descriptive data analysis is presented below.

The intensity of the individual components of the DESI index is shown in **Figure 1** below.

**Figure 1.** *DESI index components in CEE countries in 2019 [21–25].*

*An Overview of Digital Entrepreneurship in Central and Eastern European Countries DOI: http://dx.doi.org/10.5772/intechopen.95961*

**Figure 2.** *DESI rank and DESI score in CEE countries, 2016–2020 [21–25].*


#### **Table 5.**

*DESI index components for 2020 [21–25].*

DESI ranks and DESI scores for CEE countries from 2016 to 2020 individual countries' reports are shown on **Figure 2** above. Data from 2020 reports refer to the year 2019. Each country has an increase in DESI score in 2020 (2019) compared to 2016 (2015). Croatia has made the most progress, jumping from 23rd to 20th place within the European Union, while Bulgaria, Hungary and Lithuania have fallen behind in the rankings. The biggest negative shift was made by Lithuania, moving from 12th to 14th place within the European Union. The Czech Republic and Slovakia are countries that have not had a shift in the DESI scale.

DESI index components for 2020, DESI 2020 rank and countries' GDP per capita are presented in **Table 5** above. Data from 2020 individual countries' reports refer to the year 2019.

#### **6. Conclusions**

Digital technologies provide tremendous growth opportunities. The corona crisis has changed the business of almost every entrepreneur. This crisis has shown how important it is to switch from analogue to digital business. The way of doing business had to change literally overnight. All business processes had to be organized differently in uncertain moments where instructions and notifications were received almost hour by hour. A quick adjustment and constant communication with all stakeholders are more important than ever.

Panel method used on 2015–2019 data for 11 CEE countries showed that use of Internet services (people who have never used the Internet; Internet users; news; music, videos and games; video on demand; video calls; social networks; doing an online course; banking; shopping; and selling online), Integration of digital technologies (electronic information sharing; social media; big data; cloud; SMEs selling online; e-Commerce turnover; and selling online cross-border) and Digital public services (e-Government users; pre-filled forms; online service completion; digital public services for businesses; and open data) have positive significant effect on GDP per capita. Other three components of the DESI index did not prove to be significant – DESI rank (positive sign), Connectivity (negative sign) and Human capital (positive sign). Among the significant variables, in the Use of internet

*An Overview of Digital Entrepreneurship in Central and Eastern European Countries DOI: http://dx.doi.org/10.5772/intechopen.95961*

services Estonia Lithuania and Hungary have the most active internet users, while Romania, Bulgaria and Poland are the least active. The top performers in Integration of digital technology are Czech Republic, Lithuania, and Croatia. At the other end of the scale are Bulgaria, Romania, and Hungary. Estonia, Latvia, and Lithuania are top performers in Digital public services while on the other hand, Romania, Slovakia, and Croatia score the lowest.

It is extremely important to continuously implement the digital transformation of the economy. The digital transformation starts with the intention to introduce digital technologies in all parts of society, among the population, in companies, in government institutions, infrastructure and more. The introduction of digital transformation implies not only hardware and software adaptations, but also education of the population, business owners and employees in order to make the best use of the opportunities provided by new technologies such as Internet of Things, Big Data, blockchain, machine learning or artificial intelligence (AI).

Digitization is currently the most important economic reform. It remains for the Member States as well as the European Commission to adopt and implement digitization programs and to provide the financial capacity to support the digital transformation and building of the digital society.

#### **Conflict of interest**

The author declares no conflict of interest.

#### **Author details**

Mladen Turuk Faculty of Economics and Business, University of Zagreb, Zagreb, Croatia

\*Address all correspondence to: mturuk@efzg.hr

© 2021 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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#### **Chapter 3**

## The Paradox of Indonesian Digital Economy Development

*Vience Mutiara Rumata and Ashwin Sasongko Sastrosubroto*

#### **Abstract**

In line with the rapid growth of the global e-commerce industry today, Indonesia has enormous digital economic potential in the future. The Indonesian government is focusing on developing the digital economy by increasing the connectivity infrastructures as well as the local market. Nevertheless, there are some paradoxes caused by the existing regulations. This paper elaborates on the paradox of digital economy development in Indonesia. By using a mainstream-approach policy analysis method, this study describes the problematic situation of Indonesian digital economy governance. This is a qualitative study where the primary data derive from mostly statutes, government official documents, as well as reports. The discussion consists of (1) e-commerce: the main driver of Indonesian Digital Economy; (2) Indonesian Digital Regulatory Framework and Challenges; and (3) The Paradoxes of Indonesian Digital Economy. Due to various sectors of the digital economy, the discussion focuses on the e-commerce sector.

**Keywords:** digital economy, e-commerce, paradoxes, Indonesia

#### **1. Introduction**

Indonesia's digital economy is under the spotlight. Many studies have confirmed its potential in the future. A study report launched by Google and Temasek/Bain in 2019 states that Indonesia's internet economy grows in high-speed which estimated at 40 billion USD in 2019 and vigorously on track to reach 130 billion USD by 2025 [1]. At the regional level, the internet economy value in the South East Asia region reaches 100 billion USD in 2019 and would increase tripled by 300 billion USD in 2025 [1].

In order to boost the digital economy, the Ministry of Communication and Informatics of the Republic of Indonesia (the MCI) has embarked a national information and communication technology (ICT) infrastructure development. The Telecommunication and Information Accessibility Agency (BAKTI), the MCI's public service agency, launches "Merdeka Sinyal 2020" meaning Independent Signal 2020, which is a program to provide telecommunication access in 5000 frontier, outermost, and underdeveloped areas or known as "3T areas" in 2020 [2]. In addition, the Palapa Ring project was officially inaugurated and operated in October 2019 [3]. The Palapa Ring project is a telecommunication network development project that connects 514 districts/cities in Indonesia, which consists of Marine Cable and Fiber Optic Communication system development. This project was initiated in 2005 but the construction was started in 2016. All these activities are part of the effort to fulfill the Indonesian agreement as a member of WSIS. Besides

the Palapa Ring project, the government also enhances the postal logistics infrastructure in the 3T areas through the Postal Service Obligation (PSO) program. This program is Indonesian government commitment as a member of the UN body— Universal Postal Union (UPU).

Nevertheless, the supporting programs for a sustainable digital economy remain in question. In 2018, the MCI launched a "1000 digital startup" national movement which mainly was a coaching program for future *technopreneurship* in 10 cities including Jakarta [4]. This coaching program consists of several phases: ignition (seminar to increase knowledge to become a *technopreneur*), workshop, hackathon (aims to develop a prototype or software or apps), and Bootcamp. Unfortunately, this program has missed the participants' target. Instead of participants who have interest and idea to build digital applications, the participants who registered to the 1000 start-up digital web was regular young people who are "curious" and had less commitment about this program [4]. Immediate improvement is necessary or the idea to create new digital *technopreneurs* would be in peril.

McKinsey, in its 2016 report, states that "Indonesia has a long way to go in the digital age" [5]. There is a paradox that the country might not be able to embrace the benefits of modern technology. Although daily internet usage is considerably high, the level of literacy remains to lag behind compared to some other countries in the Southeast Asia region. The digital technology may drive the national economy in a country, but this should be critically assessed particularly in Indonesia's case. The growing e-commerce apps usage in Indonesia has a direct impact on imported consumer goods [6]. In the meantime, Indonesia is still far behind in terms of digital competitiveness. According to the IMD World Digital Competitiveness Ranking 2019, Indonesia ranks 56 out of 63 countries (Knowledge ranks 56, Technology ranks 47, and Future Readiness ranks 58) [7].

This paper elaborates the paradox of digital economy development in Indonesia. The mainstream-approach policy analysis method is used in order to describe the problematic situation of Indonesian digital economy governance. This is a qualitative study where the primary data derive from mostly statutes, government official documents, as well as reports. The discussion consists of (1) e-commerce: the main driver of Indonesian Digital Economy; (2) Indonesian Digital Regulatory Framework and Challenges; and (3) The Paradoxes of Indonesian Digital Economy. Due to various sectors of the digital economy, the discussion focuses on the e-commerce sector.

#### **2. Mainstream policy analysis**

A policy analysis basically is about defining the issues, formulating and implementing the policies to address those issues. Policy-making is a complex process. It involves a wide range of elements of the State in the formulation process, as well as a wide range of impacts in the implementation. The complexity of the policymaking process may need effective policy analysis techniques. There is a suggestion that there are two primary domains of policy analysis: by looking at the process and the content [8]. The process may involve the network of involved actors at the local, national, and even international levels. The content may specifically depend on the issues, context, problems, scope, as well as regulative products and output. The common sense about policy analysis is that a policy process is a political process. In terms of the policy analysis method, it is decided to start by defining the orientation of the policy analysis. There are at least three policy research orientations: (1) mainstream, (2) traditional, and (3) interpretative [9].

#### *The Paradox of Indonesian Digital Economy Development DOI: http://dx.doi.org/10.5772/intechopen.92140*

This study is a mainstream policy research orientation that focuses on the policy process and also the interaction within the governmental networks involved in [9]. Nevertheless, there is a sliced section between mainstream and interpretative policy research orientations. It can be seen in the similarity of data sources and even the focus of the study [8]. There are at least 11 major mainstream methods that can be used in mainstream and also interpretative policy studies [8]. One of these methods is "frame reflexive policy analysis" which is rooted in the notion of "framing" which is generally understood as the way to define and understand reality according to own perspective. Framing, in the policy-making sense, is a way to examine the problematic situation and formulate normative actions to address it [10]. The policy controversies are common as it emerges due to multiple frames and perspectives of the government (i.e., the Executive, the Legislative, the Judicative), the general public, the community, or the social groups in viewing a problematic situation. Nevertheless, there is a two standpoint in judging someone's frame: (1) positivism which argues that policy controversies can be solved by fact and logic and (2) relativism which argues that each of existing frames is equally valid [10].

The focus of frame reflexive policy analysis can be about the policy discourse, action frames, rhetorical frames, institutional frames, and even meta-cultural frames [8]. A policy discourse helps policy analysts to define the power behind the policy formulation process [11]; the emerging problematic situation and multidimensionality policy concerns from a media perspective [12].

This focus of policy analysis in this paper is defining the existing discourses about the Indonesian digital economy particularly the e-commerce industry. It aims to understand the complexity of digital economy governance and its impact on creating paradox situations. We conduct a document study as a data-gathering method. The documents mainly are statutes (i.e., the Presidential decree, the Ministerial Regulation, the Government Regulation, and other related regulative documents). This study does not describe the political condition or power that influences policy implementation.

#### **3. E-commerce: the main driver of Indonesian digital economy**

#### **3.1 The digital economy in global trend**

There are some terminologies to describe today's new economy: digital economy, attention economy, internet economy, knowledge economy, or network economy, which sometimes are used intertwined. In this paper, we use "the digital economy" terminology. Apparently, the digital economy is industry 4.0's primary fuel. Industries, governments, and societies are adjusting themselves to this ever-changing business model which disrupts the old fashion one. Many companies have integrated digital technology to provide better products. Meanwhile, the government has integrated digital technology to provide better policies. Nevertheless, the effort to get the best benefit of the digital economy is still challenging.

The cores of the digital economy are the internet and digitization. The better utilization of these cores, the better the product produced and even the more profit gained. This can be seen from big technological companies particularly based in the United States. They are likely to control all of the digital business lines which at the end will inevitably monopolize the global market. The key element of the monopoly denomination is the company growth itself and its ability to make sure its customers continue to use or stick to its products [13]. Google, for example, spent billions of USD to conjure the company not only as of the leader of a search engine in the

world, but also to the leader of "one-stop online activity" kind of apps (email, communication apps, video-sharing, file storage, word-processing service, and so on). In addition, it aggressively reconstructs its position on the internet infrastructure to keep pace with technology.

The Digital Economy, in general meaning, is an economic activity by using digital and computing technologies. The Internet has evolved to provide basic infrastructure for the digital economy. Nevertheless, the impact of this digital economy is not merely just a business or economy, but also social, cultural, politics, and many other facets of human life. Tapscott argues that the digital economy is the economy of "the Age of Networked Intelligence." He warns the dark side of this era that includes (1) dislocations (many old jobs will have perished); (2) privacy threat (the personal data breaches); (3) polarization of wealth (20% of household worth 80% of country's wealth); (4) digital gap among society; and also (5) digital slave (technology invades every part of human time and space) [14]. Therefore, government policies should ensure that technology should not create these negative effects, but to serve people.

#### **3.2 Indonesian e-commerce highlights**

It is internationally acknowledged that Indonesia has a great digital economy potency. In the 2018 Frost & Sullivan 2018 White Paper, it is mentioned that the digital service industry in Indonesia will increase significantly with a value up to 9528.4 million USD in 2022 [15]. In the region, Indonesia's internet economy along with Vietnam—will enjoy 40% growth rate annually which is bigger than Singapore, Malaysia, Thailand and the Philippines [1]. The MCI projects that in 2020, the digital economy in Indonesia can grow 130 billion US dollars or around IDR 1700 trillion, 20% of Indonesia's total GDP [16].

The growth of digital start-ups in Indonesia can be traced back to 2010. The ride-hailing start-up Gojek was established in 2010. Some of the start-ups in that year have high involvement of foreign investors. Yahoo, for example, acquired Koprol, the Indonesian online social networking service, in May 2010 [17]. Today, some of Indonesia's digital start-ups show expansion at the global level. Gojek is classified as "Decacorn" which has 10 billion USD valuations [18]. Gojek was the first local start-up that earned this classification along with other 21 companies globally. Following Gojek, the leading Indonesian e-tailing start-up Tokopedia has 7 billion USD valuations. It is predicted that it will get the "Decacorn" title within 2–3 years. These two start-ups have contributed significantly to national economic growth. Tokopedia contributed 58 trillion IDR or 4.1 billion USD to the Indonesian national economy in 2018. The contribution is predicted to grow up to 170 trillion IDR or around 12 billion USD in 2019 [19]. With over 90 million active users, Tokopedia has provided around 3 million new jobs in 2018, while Gojek contributed around 44.2 trillion IDR or 3.13 billion USD to the Indonesian national economy in 2018 [20].

E-commerce remains the star of the digital economy in Indonesia. The Morgan Stanley study finds that Indonesia's e-commerce market size reaches 13 billion USD in 2018 or has grown 50% each year for the last 2 years [21]. This increasing market size may be driven by the increase in internet access and usage. According to APJII's 2019 report, there are at least 171.17 million internet users or around 64.8% of total populations [22]. According to We are Social January 2019 report, the average of Indonesian internet users' daily time spent online is 8 hours and 36 minutes while time spent on social media is 3 hours and 26 minutes. The same report shows there are at least 107 million people (40% of the total population) purchase consumer goods through e-commerce platforms. This number is predicted to grow

*The Paradox of Indonesian Digital Economy Development DOI: http://dx.doi.org/10.5772/intechopen.92140*

continuously due to the speed race of mobile gadget penetration. The annual sales revenue of consumer goods on e-commerce reaches 9.5 billion USD or 41 USD per capita [23]. These data show how lucrative the e-commerce market in Indonesia. There are some factors that influence the growth of e-commerce volume in Indonesia, such as (1) the increasing income per capita; (2) the increasing of various companies in e-commerce industry; (3) the expansion of telecommunication infrastructure and internet access particularly in rural areas; and (4) the changing of consumers' behavior from "offline" to online shops. Indonesia's economy tends to endure amid the uncertain global economic turbulence. The economic growth in 2018 reached 5.17% or increased from 5.07% from 2017 with GDP per capita reaches 3927 USD or 56 million IDR [24]. Even so, Indonesia is still considered as a "middleincome trap" country since the GDP per capita less than 4250 USD.

The variance of existing e-commerce business model in Indonesia is as follows: (1) Classified Ads/listing (e.g., olx.co.id, Berniaga, FJB-Kaskus); (2) Marketplace (e.g., Tokopedia, Bukalapak, Lamido); (3) Shopping mall (e.g., Matahari Mall); (4) B2C online shop (e.g., Berrybenka, Zalora, Lazada, Sociolla); and (5) Online shops on social media (e.g., Facebook, Instagram) [25]. These business models connect three sectors, which are the government, business, and costumers, indirect and interactive ways. But, to build e-commerce platforms requires exhaustive resources. It needs high-performance infrastructures, a huge amount of capital and investment, and even high skilled human resources. The availability of these resources is relatively rare in developing countries such as Indonesia and so this country is still dependent on developed countries. In addition, the advancement of the digital economy may lead to job replacement which requires more technology than human resources. The existing policies and regulations should not only ensure the growth of the digital economy industry but also to address these critical issues.

#### **4. Indonesian digital regulatory framework and challenges**

#### **4.1 The Indonesian digital governance**

Although Indonesia's digital economy is likely to grow in the future, there is no grand design or roadmap of digital economy development yet. Currently, however, the Indonesian government is drafting the national digital economy strategy [26]. This draft aims to address the upcoming challenges of the digital economy which has not been covered by the existing roadmap of e-commerce 2017–2019 through the enactment of the Presidential decree number 74 year 2017. The existing e-commerce roadmap determines the admission of e-commerce steering committee which consists of inter-sectoral government collaboration to implement at least eight primary programs, which are:


The primary law of internet regulation in Indonesia is Law number 16 year 2019 (amendment of the law number 11 year 2008) on the electronic information and transactions (*Undang-Undang Informasi dan Transaksi Elektronik* or the ITE Law). The President will issue the Government Regulation (*Peraturan Pemerintah* or PP) to implement the Law. The PP to implement the UU ITE is the PP number 71 year 2019 (amendment of PP number 82 year 2012) on the Electronic System and Transaction Management. This PP regulates the global and local Electronic System and Transactions providers which operate in Indonesia, to:


Nevertheless, the revised PP is relenting particularly on the global providers' requirement to place their data center and data recovery center in Indonesian territory [28].

The PP mandates that e-commerce is considered as "strategic electronic system which has a serious impact on public interest and service." Henceforth, the regulation on e-commerce should be carefully taken since this industry is open to global competition. Recently the Indonesian government has enacted PP number 80 year 2019 on electronic-based commerce (Perdagangan Melalui Sistem Elektronik/PP PMSE) after long-standing public debate and discussion. However, the PP has no significant difference with existing PP 71 year 2019 which obliges both local and foreign e-commerce business doers (B2B, B2C, C2C, G2B) to meet these requirements such as:


In addition, the PP number 80 year 2019 mandates the local and global e-commerce platforms to have an Electronic based Reliability Certificate which issued by the Electronic Certification Provider (*Penyelengara Sertifikat Elektronik* which commonly known as Certification Authority/CA). The CA is a legal subject that functions as a trustworthy third party that facilitates online transaction security systems with Digital Signature and Public Key Encryption, and also issues a quite range of digital certificate services that includes:

1.Examination of prospective Electronic Certificate holders.


Based on the Ministerial of Communication and Informatics Regulation number 11 year 2018, this CA should get acknowledgment from the MCI based on three levels: registered, certified, and rooted [30]. By this digital certificate, the identity and legal status of the owner of the signature are cleared and ensured so that it may guarantee the online transactions. Nevertheless, whether this PP would be able to force global internet-based application and content services providers to comply with the Indonesian law remains unclear.

Some existing regulations are obsolete and seem unable to regulate the digital economy sector. Hence, the regulation to protect e-commerce customers remains unclear. The law number 8 year 1999 on Consumer Protection is insufficient to protect consumers in doing e-commerce transactions. For instance, the law mandates the consumers' rights to obtain comfort, security, and safety in using or consuming the goods and/or services [31]. In e-commerce, the provision of the right to obtain comfort may be impeded due to the absence of a physical place where consumers can see, touch, feel and even taste the products before buying. The provision of the right to obtain security on e-commerce transactions is another issue. Hence, the existence of security standards on e-commerce in Indonesia is also questionable.

#### **4.2 The challenges of the Indonesian digital governance**

The Research and Human Resource Development department of the Ministry Communication and Informatics (the MCI) proposes the digital platform based regulatory framework particularly in online transportation (including ride-hailing start-up). In **Figure 1**, the digital business platform industry involves several facets: technology, economic, social and politics. Hence, the legal aspect of this industry should embrace what extends the impact on these facets [32].

Nevertheless, the legal issue that emerged, regarding of digital business platform industry, is the inter-ministerial regulation that causes partial legal implementation and authoritarian. In the online transportation case, the MCI is authorized to regulate the digital platform including the company registration, while the Ministry of Transportation is authorized to regulate the safety and service aspects of public transportation. Therefore, it is suggested that the MCI should be the initiator in issuing comprehensive digital platform business regulations.

A similar issue also occurs in e-commerce industry. The practice of inter-ministerial regulation may be challenging particularly in the dynamic environment such as the digital economy. Some regulations concerning e-commerce: the Law number 7 year 2014 on Trade (authorization in the Ministry of Trade), the law number 10

#### **Figure 1.**

*Digital business platform regulatory framework.*

year 1998 on Banking (authorization in the Central Bank), the Law number 25 year 2007 on Capital Investment (authorization in the Capital Investment Boarding Body), the Law number 20 year 2008 on Micro, Small and Medium Enterprises (authorization in the Ministry of Micro, Small and Medium Enterprises), the Minister of Finance Regulation number 112 year 2018 (authorization in the Ministry of Finance), the Law number 38 year 2009 on Postal and the Law number 16 year 2019 on ITE (authorization in the MCI). These laws have a different legal scope so that they might not be enforced comprehensively in the collision sector as digital economy. Currently, there is no single law on the digital economy. However, the President's new proposal on Omnibus Law for several activities a few months ago might be used to set up a single and more supportive law on e-commerce. It should be noted that laws can be initiated either by the Executive and/or the Legislative. Even so, the process to enact a law would take some time if there is a fierce debate between the Executive, Legislative as well as industry. The feasibility of one Omnibus Law on digital economy law needs further study.

Another challenge of digital economy regulation is absent in current regulations of upcoming digital economy issues such as personal data protection and cross border e-commerce transactions. The bill of personal data protection is still an ongoing discussion between the Legislative and the MCI. In the meantime, the regulation for cross border e-commerce transactions is quite challenging. The Central Bank (Bank Indonesia/BI) and The Ministry of Finance are developing the data integration system to monitor cross border e-commerce in Indonesia [33]. The question remains whether this system is sufficient to address cross border issues and needs further study.

The formulation of taxation particularly for global e-commerce providers is conflicting among the authorities. The MCI may loosen the obligation to place a data center in Indonesia territory while the Ministry of Finance will pursue the legal status of the global company as Indonesian taxpayers. This is one of the paradoxes that will be discussed more in the next subchapter.

Whether the Digital economy should or should not be regulated, the regulation policy of the digital economy remains challenging for regulators all over the world. The government may be facing a dilemma situation. The MCI explicitly will less

#### *The Paradox of Indonesian Digital Economy Development DOI: http://dx.doi.org/10.5772/intechopen.92140*

regulate the digital economy sector in order to create a business-friendly environment [34]. In order to do this, the Ministry has simplified 36 permitting regulations into five regulations for the industry. But the ultimate goal of regulation is to create a conducive environment for local e-commerce platform providers to grow and be able to compete at the global level which at the end will contribute more to the national economy.

#### **5. The paradoxes of Indonesian digital economy**

The regulation on the digital economy may be influenced by both domestic and international regulatory frameworks. In e-commerce case, the existing regulations both national and international level would potentially create the paradox which furtherly discussed below.

#### **5.1 The regulative paradox**

A good regulation is the one that focuses on the goal which may be addressing certain issues or problems. The paradox of regulation emerges when it does not have an appropriate level of enforcement by the government itself or other relevant stakeholders [35]. The law enforcement does not solely depend on the government, but more to the governance with the involvement of various actors outside of the state to exercise a certain level of control. By this governance paradigm, well-defined and focused goals regulation is needed. To achieve this kind of regulation is not simple since it involves many parties with different interests. The law enforcement remains the biggest challenge to regulate the application and content product providers, particularly to create an equal level of playing field between local and global electronic transaction and system providers especially in the e-commerce industry [36]. The local e-commerce business companies have to comply with domestic regulations, whereas these domestic digital laws seem to do not applicable to global e-commerce companies. Permanent Status registration is the salience issue.

Regulating the digital industry is challenging for the regulators in particular by defining who and how the regulation should be. There are three strategies to regulate the data-driven digital platform according to the European Commission: (1) command-and-control regulation; (2) self-regulation, and (3) co-regulation [37]. A first strategy is a top-down approach where regulation is legal legislation with sanction backup. This strategy, however, may not fit the digital platform industry due to three reasons: (1) it may potentially obstruct innovation and harm the platform provider; (2) the enforcement of the rules may not easily be borne; and (3) the regulation may add more drawbacks for the existing complex issues. Hence, the top-down approach legislation relies on well-informed, well-educated, specially trained regulatory officials. The second strategy is self-regulation which means that regulation lies in the hand of industry. The regulations are defined and enforced collaboratively among the players within the industry.

This strategy may be fit too since the digital platform providers need to be independent with less and relatively no bureaucratic interference for technological adoption and innovation. Nevertheless, the self-regulation mechanism can be mandated by the public authorities to set up a specific standard in the industry. The last strategy is co-regulation which collaboration between government and nongovernment (private) sectors with distinctive role and task to achieve public policy objectives. The last strategy is considered as the best regulatory approach to regulate the digital platform industry. The public authority set up the objectives, while the

mechanism to achieve these objectives lies on the hand of the private sectors [37]. Thus, co-regulation is also considered as "regulated self-regulation" which acquires reciprocal actions between the regulators and the regulated ones.

The Indonesian government seems to adopt co-regulation strategy to regulate the digital economy. The Indonesian e-commerce platform providers are committed to support the government's digital economy sectors programs. *Tokopedia*, for instance, expands its services for tax payment gateway, e-government, as well as e-passport and e-ID by collaborating with several city governments in Indonesia [38]. In addition, *Tokopedia* drives local small medium enterprises to do business globally. The average of seller growth on *Tokopedia* reaches 150.4% annually where 86.5% of it is new sellers [19]. Even so, to what extent that the industry determines the formal regulation on digital economy is questionable. In other words, the coregulation scheme between the government and the private sector in order to face the global competitive challenges remains unclear. In some sector, the co-regulation is clearer. PANDI, for example, as non-government organization is authorized by the government to regulate the Indonesian top level Domain (.id) except second level military (.mil) and governmental domain (.gov).The fact that the government tries to increase internet access as well as logistic infrastructures to support national digital economy, the growing of e-commerce marketplace in Indonesia, however, may potentially harm domestic industries particularly small and medium enterprises. The Ministry of trade at that time claimed that 90% of goods traded on e-commerce marketplace are imported goods [39]. This is contrary to the what is mandated in the PP number 80 year 2019 article 12 that both global and local to prioritize domestic products exchanged on the platform as well as to increase the competition level of domestic products [29]. The government has urged the marketplace providers such as *Tokopedia, Shopee, Bukalapak, Blibli.com* and *Blanja.com* to increase the local products proportion but without clearer regulation [39]. This poses potential threat and should be addressed in further study.

The diminishing of physical space, as the impact of e-commerce, has threatened the sustainability of physical shop, both in modern and traditional market, in the future. The regulations for physical shop are tighter than e-commerce shops. The Minister of Trade regulation number 70/M-DAG/PER/12/2013 on the traditional markets, shopping centers and modern shop guidance, mandates the physical shops to sell 80% of domestic products in their shops. However, the implementation of this regulation may be ineffective since the capabilities of stock management varies among retailers and also the absence of clear mechanism that determine the fulfillment of 80% domestic products [40].

The regulations should be made to make the industry grow properly and can compete optimally with foreign competitors. On the other hand, the existing regulations may hinder it by enforcing the law unequally between the local and global e-commerce players which operate in Indonesia. As an example, Facebook's status in Indonesia will be discussed further. So far, its status is a service company instead of permanent establishment status (*Badan Usaha Tetap* or BUT) [41]. The Facebook's status in Indonesia is highly questionable whether it is in accordance or not with PP 71/2019, and also three others regulations on Tax which are: the Directorate General of Tax circular letter number 62/PJ/2013 on e-commerce taxation provisions; the Directorate General of Tax circular letter number 04/PJ/2017 on the establishment of BUT for foreign over application and content services providers in Indonesia; as well as the Ministry of Finance Regulation number 210 year 2018 on the e-commerce taxation. It is worth to be noted that the number of Facebook users in Indonesia reach 64.6 million users in 2018 [42]. It means that Indonesia is a lucrative market for Facebook. In addition, Facebook is more than just a social network platform. It has expanded to marketplace platform where its website uses

Indonesian language. Other similar cases with other platforms and social media must also be taken into account. This is a forthcoming challenge for Indonesian e-commerce industry.

Unlike global companies, the local companies should face tight regulations in order to open its business that includes digital economy sector. There are two important legal aspects for local company to enter the digital sector business namely: the subject and the associated impacts. For legal subject, the regulations may include: the Law Number 40 year 2007 on Limited Liability Companies, the Law Number 17 year 2013 on Social Organizations, the Law Number 17 year 2012 on Cooperatives, and the Law number 28 year 2008 on Foundations.

#### **5.2 The paradox of IT market growth**

Despite the debate between utopian and dystopian, the global discourse on ICT and its great impacts on national ICT governance and development should be critically assessed. Some studies found the contrast between global vision and the facts in the country [43].

As briefly mentioned above, the nature of e-commerce regulation in Indonesia is also influenced by international agreements, mainly regulations issued by global institutions such as the World Trade Organization (WTO). The negotiation on e-commerce has been initiated by the WTO E-commerce Working Party in 1998. At the beginning of 2019, there were 76 members of WTO, including Indonesia, which represents over 90% of global trade, urged WTO to update the existing rules particularly to address the changing technologies and issues related to e-commerce. Those existing rules such as the General Agreement on Trade in Services (GATS) and the Central Product Classification (CPC) system have not included internetbased services [44]. In the joint statement of 76 partners involved in 2019 talks on e-commerce, the new rules on e-commerce should reflect:


The free custom duties on electronic transmissions may be one of the critical topics of discussion at the international forums. The expansion of digital content beyond software and become an integral part of a wide array of distinctive products, goods, and services (game, movie, songs, and others) which then pose challenges particularly for developing countries such as Indonesia. In the 2017 WTO Ministerial agreement, it states that any digital product purchased and transmitted online should be free from custom duties, with no exception. This agreement may be advantageous for foreign producers and local importers. Although it seems to be rather unethical, although it might be legal, the foreign producers may even have the possibility to cut its hardware's selling price and add it to the software's selling price. Since the software can be transmitted through the internet, it can be exempted from customs duty [46]. It is to be noted that the Ministry of Finance has revised its regulation through the Minister of Finance

Regulation number 112/PMK.04/2018 on the Import Shipment Goods Provision. Through this revision, the government made adjustments to the minimum value of import duties and taxes in the context of import on shipments from the US \$ 100 to the US \$ 75 per person per day [47].

The 2017 WTO Ministerial agreement added the long-standing effort to liberalize ICT trade among countries. It may be initiated through the Information Technology Agreement (ITA) in late 1996 and entered in to force in April 1997. Indonesia was one of 29 original signatories as well as the only lower-middleincome country which agreed to this agreement and gradually reduced tariff import on IT ever since. The ITA membership expanded and in the 2015 Nairobi Ministerial Declaration of Trade in IT Products, there were 54 countries (EU counted as one country) agreed for ITA expansion with an additional of 201 IT products that should have zero custom duties [48].

The problem in applying IT, namely the occurrence of productivity paradoxes, occurs because IT investment still has not succeeded in providing the benefits expected by organizations [49–51]. So, the productivity paradox can arise when a company or organization has issued a large budget or investment for IT implementation but it is not followed by the increasing level of productivity. A similar way of thinking can be applied at the country level. If the government failed to balance the IT investment spending with productivity, then it may create a deficit. Today, Indonesia is perhaps one of the biggest net exporters of IT products. The import value of telecommunication equipment in 2017 was 7.426 billion USD increased twofold from the previous year [52]. China is the biggest exporter of telecommunication products in Indonesia lately. In 2017, the MCI issued at least 4053 certificates (out of 7308 certificates) imported telecommunication tools and devices from China [53].

The international agreements, particularly ITA and WTO Ministerial meetings, potentially hinder Indonesian local ICT industry [46]. The domestic IT production shows a deficit of 4.85 billion USD within 1996–2011 [54]. The local ICT producers could not be able to produce IT products competitively since ITA accommodates ICT products but not electronic components needed to produce ICT Products such as Passive and Active components such as Semiconductor, Printed Circuit Board, and many others. PT. INTI, for example, a state owned enterprise that used to produce telecommunication switching, telephone as well as other Telecommunication products, has changed its business core to the system-based solution which includes network management system and subscriber line maintenance system [55].

Nevertheless, these kinds of business models may slowly reduce the role of intermediary businesses such as physical shops and related logistics. The product exchange can be done directly from the seller (producers) to the consumers. Unfortunately, this potentially creates tax losses. The government's supervision over individual e-commerce business and transactions seems to be lag behind. The growing personal shopper of entrusted goods service exists, particularly on social media. This business is quite lucrative for frequent travelers, but the tax losses due to this emerging trend would damage the state's tax income. In 2019, for example, there were at least 422 cases that violate the free custom duty of 500 USD goods brought from abroad up until 25 September 2019 [56].

#### **6. Conclusions**

To sum up, Indonesia has great potential for its digital economy in the future. E-commerce sector is the main star of its digital economy which is also lucrative for the global market. This sector is an open market and may still be dominated by

#### *The Paradox of Indonesian Digital Economy Development DOI: http://dx.doi.org/10.5772/intechopen.92140*

global players. There are two paradoxes of the Indonesian digital economy development: the paradox of regulation and the paradox of productivity.

The main contribution of these paradoxes is law enforcement by the Indonesian regulators that may create an uneven level of playing field between the local and global platform providers. The permanent establishment status of global digital platform service providers, as mandated by Indonesia's ITE law, remains the issue. As a result, this global digital platform service provider should not pay value-added tax. In contrary, it is different from local digital service providers where they should face highly tight regulation just to enter the market.

Also, the government's involvement in global governance particularly relating to e-commerce should be reviewed. The international agreements, particularly ITA and WTO, may cause more import ICT products both hardware and software. As a result, this may weaken the local ICT market and productivity. The government should initiate some programs that may increase local IT-driven productivity so that they can compete with import products. There should be a future study regarding this. These agreements may give an impact on the Indonesian e-commerce industry too.

Also, Indonesia is an active member of global institutions namely WSIS and UPU. As a member of WSIS, Indonesia should develop ICT infrastructure to delineate the digital gap within the regions. As a member of UPU, Indonesia should develop logistic infrastructure. These two infrastructure developments are e-commerce activities enablers. Instead of increasing the local product to be traded on e-commerce platform, the level of import goods is extremely higher which reaching 90%. To address this, the Indonesian government should take fierce action by forcing global e-commerce platform providers should obey the Indonesian regulations and have Permanent Establishment status in accordance with the Law. Another way is by regulating cyber shops or e-commerce platforms to have an obligation to sell local products by 80% as similar to physical shops.

#### **Acknowledgements**

This work was supported by the Center of Research and Development on Informatics Application, Information and Public Communication, Research and Human Resources Development Agency of the Ministry of Communication and Information Technology of the Republic of Indonesia and also by the Research Center on ICT Business and Public Policy of Telkom University.

The views that expressed on this paper are those of the authors and do not reflect an official position of the Ministry of Communication and Informatics of the Republic of Indonesia.

In writing this paper, Vience M. Rumata is the lead author who conducting literature reviews as well as writing the article. Meanwhile, Ashwin S. Sastrosubroto contributes in terms of supervision and providing ideas. Both authors contributed to the final stage of the review.

#### **Conflict of interest**

The authors whose names are listed certify that they have no financial interest with the subject matter or material discussed in this book chapter.

*E-Business - Higher Education and Intelligence Applications*

### **Author details**

Vience Mutiara Rumata1 \* and Ashwin Sasongko Sastrosubroto2

1 The Ministry of Communication and Informatics of the Republic of Indonesia, Indonesia

2 Telkom University, Indonesia

\*Address all correspondence to: vien001@kominfo.go.id

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

*The Paradox of Indonesian Digital Economy Development DOI: http://dx.doi.org/10.5772/intechopen.92140*

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## Section 2
