Seminar Nasional Aplikasi Teknologi Informasi 2009 (SNATI 2009) ISSN: 1907-5022

Yogyakarta, 20 Juni 2009

EXTENT AND PURPOSE OF ADOPTING ICT FOR AGRIBUSINESS

DEVELOPMENT: THE CASE OF SAMPLED-FIRMS IN EAST JAVA

Sudaryanto1 and Soekartawi1

1
University of Jember, Indonesia
2
Brawijaya University, Malang, Indonesia
e-mail: ysudaryanto@students.ballarat.edu.au1; prof.soeka@gmail.com2; dr_soekartawi@yahoo.com2

ABSTRACT
This article is a part of the first-author PhD-dissertation entitled ‘Factors Influencing ICT Adoption in East
Java Agribusiness: Individual and Organisational Approaches’. The main objective of presenting this article is
sharing information related to investigation of ICT adoption done by samples who are asked to respond to a
multiple response questions.
ICT adoption ladder model is used for the analysis. The samples are grouped into four level of adoption---
lowest to highest level), namely (i) ICT- Conventional, consists of fixed line phone, facsimile, and mobile phone,
(ii) ICT- Computer, consists of stand alone computer with access to the internet via internet cafes, (iii) ICT-
Internet, consists of use of the internet for email and using a web browser, and (iv) ICT-E-business, consists of
using the internet for advertising, online business and virtual organisation activities.
About 178 sampled firms (farmers) in four regencies (Jember, Banyuwangi, Malang, Sidoarjo) were
interviewed in 2006. The respondents were given their opportunity to respond to multiple options on the purpose
for adopting ICT. Five options of ICT use were proposed: (i) ICT for communication among employees, (ii) ICT
for communication between companies and distributors, (iii) ICT for marketing and sales, (iv) ICT for searching
company’s resources, and (v) ICT for other purposes.
Results of the analysis show that all samples in group 1 (100%) adopted the lowest level of ICT. Group 2, 3,
and 4, respectively, adopted 75.3%; 44.9%; and 10.7%. This indicates the default automatic adoption level of
which all businesses operate at the minimum. The ladder shows that the higher the level, the smaller the
percentages of sampled firms. This means that as ICT technology becomes more sophisticated, fewer sampled
firms opt to adopt the higher levels on the ICT ladder. Also, firms at the higher levels still use ICT technology
from the lower levels. In other words, the existence of adopter advanced levels of ICT does not mean a reduction
of use at the lower levels. Some businesses maintain their existing ICT adoption levels and are not interested in
improvement by moving to the more sophisticated levels of ICT, due to considerations which will be investigated
in this research.
The results also show that general purposes of using ICT at the very basic level of the ladder needs to be
investigated in order to draw a picture of the benefit of adopting ICT.

Keywords: ICT adoption, agribusiness, Indonesia

1. INTRODUCTION everyday activities including in agricultural

The issue of ICT adoption recently has become activities. According to APO (2001), internet
a priority to support Indonesian agribusiness technology had now made it possible to search for
development facing the globalization era. Through and find the necessary information worldwide and
the Indonesian Ministry of Agriculture, e- on-demand very easily and quickly. Furthermore,
agribusiness was introduced to the public in early the convenience of advertising or selling products
2000. Web portal and mobile phone messages were worldwide using e-commerce facilities of the
initiated by the Ministry to service agribusiness in Internet technology had led to the rapid expansion of
accessing the most recent agricultural information. business activities including agribusiness. In the
The information was freely accessible for farmers at future the development of e-farmers would also be
any time. Some telecenters were also developed to important for farmers to facilitate access
support agribusiness located in rural areas. However, agribusiness statistics and information through the
there was no funding support provided by the ICT.
Indonesian Government for installing the internet for With regard to APO’s statement, the future
their individual businesses. Self-financing was prosperity for East Java agribusiness is its ability to
encouraged to be the most feasible option to meet consumer preferences and challenge
agribusiness. Therefore, the speed of adoption of competitors using sophisticated ICT. Market
ICT technology in agribusiness depends on both the information with advances in ICT is necessary to
external environment such as the government’s role, penetrate a global market (Gumbira-Said and
competition and technology sophistication and the Rachmayanti, 2001; MOA, 2005; Nainggolan,
internal organization’s capabilities. 2001). ICT can be highly beneficial for East Java
Recently, technology sophistication such as On-farm Agribusiness (EJOFA) by developing an
internet technology is becoming very important in online marketing information system. The

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Government of Indonesia (GOI) along with many the issue of how RBV resources both physical
Non Government Organization (NGOs), has also (hardware) and human resources (software) required
tried to embrace Small and Medium Size Enterprises to successfully adopting ICT. The RBV factors are
(SMEs) including agribusiness in funding programs, initiated in this stage in order to measure their
conducting managerial training, and ensuring capabilities facing the challenge of adoption ICT at
applicable technological adoption (APEC-ISTI, any levels of ICT adoption ladder.
2004). Therefore, the future directions of The second stage is the persasion stage which
agricultural and rural development in East Java evaluates whether the firm’s Perceived Benefits
should aim at ensuring their growth with equity, (PB) are influenced by External environment
towards decentralized, market-oriented, export-led (ENVI) factors. The model aims to answer the
agriculture on the basis of ICT. The private research question on whether the External
companies will be engaged to participate, especially environment factors influence the Perceived Benefits
in the use of capital intensive technology, in in EJOFA.
agricultural development to increase efficiency and The third stage is the adoption stage is the how
product competitiveness. It is necessary to uncover RBV, PB, and ENVI determine the level of ICT
the current trend of consumer preferences, which adoption by employing all RBV factors (O),
will determine what needs to be produced. External environment (ENVI), Perceived Benefits
The context of agribusiness in East Java reflects (PB) based upon Technological Organizational and
agro-industry development in which the sector Environmental (TOE) model. This adoption stage
contributes significantly to the national economy. addresses to answer the third research question on
This sector has become the economic backbone of what are the factors influencing ICT adoption in
the province with its contribution to the province as EJOFA.
the third rank in Gross Domestic Regional Product Binary step-down Logistic Regression was
(GDRP) contribution, after trade and restaurant and conducted on three characteristics: PB, RBV, and
mining sectors. Contradictorily, the agricultural ENVI as independent variables, while computer
industry is still lagging behind in using information adoption as the highest level of ICT adoption is the
technology which has resulted in rejected exports of dependent variable.
agribusiness products such as fisheries (Antara, The Logit model allows any types of data as
2007). Therefore, it is curious to study the factors independent variables with one or more variables are
influencing agribusiness adopting and implementing binary (dummy) (Hosmer and Lemeshow, 1989;
ICT for competitive advantage. Some reports written Kmenta, 1971, p. 425). This study uses binomial
by Sudaryanto Courvisanos, J. and Soekartawi Logit using enter method instead of stepwise
(2007a,b). method. Stepwise method works under trial and
With respect to agribusiness and ICT error procedure to find the best regression
sophistication in East Java, it is clear that estimation. The variables are run all together at the
agribusiness needs to embrace ICT for business in first stage and then are deleted as some independent
order to improve its competitive advantage. Thus, variables which contribute insignificantly to the
the factors influencing ICT adoption in East Java on- model. However, stepwise method is not applied to
farm agribusiness needs to be examined. test the theory which is normally stated in the
Accordingly, the basic research question that should hypotheses (Menard, 1995). Stepwise method is
be answered: ‘What are extent and purpose of applied for exploratory research with no hypothesis
adopting ICT for agribusiness development?’ testing. The method works under statistical
parameters rather than theoretical based. The
2. METHODOLOGY stepwise method is not used in this study in which
The sample size in this study is regressable with hypotheses testing are investigated.
178 samples. Details of this sampling can be seen in The following model is the Logit equation for
Sudaryanto (2009). Literature shows that adoption the research. The Logistic regression model is as
stage generally employs three factors namely follows:
Perceived Benefits (PB), Organisational Resources ⎛ p ⎞
(RBV) and External environment (Cooper and Zmud ln⎜⎜ ⎟⎟ = β 0 + β1 χlabor + β 2 χsales + β 3 χage
⎝1− p ⎠
(1990), Damanpour and Madison (2001) and Aguila-
+ β 4 χeducation + β 5 χliteracy + β 6 χ exp erience
Obra and Padilla-Melendez (2006) and Aguila-Obra
and Padilla-Melendez (2006). This can be seen in + β 7 χ exp erience2 + β 8 χreliability + β 9 χoperat cos t
Figure 1. + β10 χserv cos t + β11 χGovt sup+ β12 χTechsop
+ β13 χEdutrain + β14 χCompress + ε i
Initiation Stage: Persuasion Stage: Adoption Stage:
RBV, PB and
Where: ln is natural logarithm, p is the probability of
adopting computer; β 0 is constant value, β i are
RBV PB and ENVI
ENVI

Figure 1. Initiation, Persuasion and Adoption Stage

parameters to be estimated; y i = ⎛⎜ P ⎞⎟ is
Figure 1 presents an overview of the sequential ⎝1− P ⎠
adoption research framework. Initiation stage dependent variables on ICT adoption that takes on a
explores the organizational resources in a company value of Yes=1 if the respondent adopt ICT, and
needs in order to adopt ICT. These stages address No= 0 if not adopting ICT. The predictors are: (1)

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RBV, (2) External Environment and (3) Perceived the more sophistication ICT due to considerations
Benefits. which will be investigated in this research.
Details of this model and measurement From Figure 1, it can explained that the higher
variables may also be seen in Sudaryanto (2009) the level, the smaller the percentages of sampled
firms. This means that as ICT technology becomes
3. RESULTS more sophisticated, fewer sampled firms opt to
There are two main observations reported in this adopt the higher levels on the ICT ladder. Also,
paper, namely ICT adoption by samples, and factors firms at the higher levels still use ICT technology
affecting adoption of ICT in agribusiness. In this from the lower levels. In other words, the existence
case it is reported an adoption and the use for of adopter advanced levels of ICT does not mean a
internet only, while adoption for others ICT tools reduction of use at the lower levels.
they can be seen in Sudaryanto (2009).
ICT adoption by samples is presented in Figure
2. Data in Figure 2 shows that that all samples in
group 1 (100%) adopted the lowest level of ICT 100
(conventional ICT). Group 2, 3, and 4, respectively, Per cent 100
75.28
adopted 75.3% (computer); 44.9% (internet); and 80
10.7% (e-business).
60 44.94
Figure 2 also presents the ICT adoption ladder
in EJOFA from the sample surveyed. The sample 40
distribution reflects the highest level of ICT 20
10.67
adoption by business with the lower level. This is 0
the default automatic adoption level to which all Conventional Computer Internet E-business

businesses of the at least operate at minimum. The ICT levels

ladder shows the higher the levels the smaller the
percentage. This means that as the ICT technology
becomes for sophisticated, less firm opt to adopt the Figure 1. ICT Adoption Ladder in EJOFA
higher levels in the ICT ladder. Also firms at the
higher level, still use ICT technology from the lower Factor affecting ICT-internet adoption is
levels. In other words, existence adopter in advance reported in the following section, i.e. applying six
level of ICT does not equal to the lower levels models used to test 15 hypotheses. Variables used in
adopter. Some business maintains their existent ICT each model (which represented hypothesis) are the
adoption levels and are not interested to improving following:

Table 1. The Logit’s Types of Variables and Measurements

Variables Variable Number Descriptions Types of data
The level of adopting ICTs Dichotomous; Yes=1, No= 0 if
y i = ⎛⎜ P ⎞⎟ 1. Conventional otherwise
⎝1− P ⎠ 2. Computer
3. Internet,
(Dependent Variable/s) 4. E-business
A. RBV’s Predictors:
1. Physical resources
• Labor X1 Number of labor in the firms log10 of number of labor
2. Financial resources
• Sales X2 log10 of gross sales volume log10 of gross sales
4. Human resources (demographic characteristics)
• Age ≥40 X3 Manager’s age more than 40 Dummy variable
• Education TAFE or less X4 Manager’s education less than TAFE Dummy variable
• Literacy X5 ICT literacy of managers’ Scale 1= very weak, 5 = very strong
• Never used computer X6 Dummy variable
• Experience ≥5 yrs X7 ≥ 5 years Dummy variable
B. Perceived Benefits Predictors
• Reliability X8 Reliability of ICT Composite variable
• Operatcosts X9 Reduces operating cost Composite variable
• Servcosts X10 Reduces services cost Composite variable
C. External environments
• Govt support X11 Government regulations Composite variable
• Tech sophistication X12 Technological capabilities Composite variable
• Degree educ. train X13 Education and training Composite variable
• Com experiences X14 Competitive pressure Composite variable
• Voc. training X15 Education and training Composite variable
ε Assumed to be a standard normal Composite variable

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Table 2. Summary of Hypotheses Testing of ICT-Internet Adoption

Hypothesis Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
H1- Firm size is related positively to ICT-Internet adoption in East Java accepted accepted rejected accepted accepted accepted
agribusinesses at 99% at 99% at 90% at 90% at 95%
H2- Gross sales of the firm are related positively to ICT-Internet NA rejected rejected rejected Rejected rejected
adoption
in East Java agribusinesses
H3 - Firms in East Java agribusinesses with managers aged over 40 are NA accepted accepted accepted accepted
more likely to be ICT-Internet adopters than other firms. at 90% at 90% at 90% at 90%
H4- Firms in East Java agribusiness with managers who have a TAFE accepted accepted accepted accepted
qualification are more likely to be ICT – Computer adopters than other at 99% at 99% at 99%
firms. at 99%
H5- Firms in East Java agribusinesses with managers who have ICT accepted accepted accepted accepted
literacy are more likely to be ICT-Internet adopters than other firms. at 99% at 99% at 99% at 95%
H6- Firms in East Java agribusinesses with managers who do not have rejected rejected rejected rejected
computer experience are more likely to be ICT –internet adopters than
other firms.
H7- Firms in East Java agribusiness with managers who have had less rejected rejected rejected rejected
than five years computer experience are more likely to be ICT-Internet
adopters than other firms.
H8- The more the perceived benefits of reliability gained from adopting rejected rejected rejected rejected
ICT –I nternet, the more the positive contribution on the likelihood of
adopting ICT-Internet in East Java agribusinesses.
H9- The more the perceived benefits of reduced operating costs gained NA accepted rejected rejected
from adopting ICT-Internet, the more the positive contribution on the at 95%
likelihood of adopting ICT-internet in East Java agribusinesses.
H10- The more the perceived benefits of reduced services costs gained rejected accepted accepted
from adopting ICT, the more the positive contribution on the likelihood at 95% at 99%
of adopting ICT-Internet in East Java agribusinesses.
H11- Government support has a positive contribution on the likelihood NA rejected rejected
of adopting ICT-Internet in East Java agribusinesses.
H12- Technology sophistication has a positive contribution on the accepted accepted
likelihood of adopting ICT-Internet in East Java agribusinesses. at 90% at 90%
H13- Education and training readiness has a positive contribution on the rejected rejected
likelihood of adopting ICT - Internet in East Java agribusinesses.
H14- Competitive pressure has a positive contribution on the likelihood rejected rejected
of adopting ICT –Internet in East Java agribusinesses.
H15- The existence of vocational agricultural universities nearby the NA accepted
firms is related positively to ICT-Internet adoption in East Java at 95%
agribusinesses

Applying Logit’s model and using the above variables and rejects five others. Model 4 accepts
dependent variables resulted data analyses as five variables and rejects five variables while Model
presented in Table 2. From this table, it can be seen 5 accepts six variables and rejects eight variables.
that each explanatory variable used in the model has Model 6 has the best variables composition by
different power in explaining the respected which seven predictors on adopting ICT-Internet
dependent variables. Model 6 is most powerful were accepted, but eight others were rejected. Some
model followed by model 4. of them are consistent with their respective
Taking account of the vocational agricultural significance levels from previous models while
universities (VAU) variable in this Model 6 ensures others are not.
that one of the external environment variable
predictors increases the level of significance 4. CONCLUSION AND SUGGESTION
especially ‘reduced services costs’ which increases The process of identifying ICT adoption drivers
significance of the confidence intervals from 95 to through the ladder resulted in different sets of
99 per cent levels with 1.641 odds value. The odds suitable model compositions. The varieties of the
ratio of adopting ICT-Internet increased by 1.641 compositions of variables as drivers became the
times caused by the increasing ‘reduced services focus of the models at each adoption level.
costs’ as an impact of considering the existence of Regards to ICT adoption by samples, it is
vocational agricultural universities near the firms. presented in Figure 2. Data in Figure 2 shows that
The VAU variable itself has a 95 per cent that all samples in group 1 (100%) adopted the
confidence intervals with a 0.357 odds value. This lowest level of ICT (conventional ICT). Group 2, 3,
means that by including vocational agricultural and 4, respectively, adopted 75.3% (computer);
universities in the external environment factors, the 44.9% (internet); and 10.7% (e-business). Figure 2
odds value of ICT-Internet adoption is increased by also presents the sample distribution reflecting the
0.357 times. highest level of ICT adoption by business with the
Model 1 and Model 2 accept firm size as a lower level. Figure 2 also shows the higher the
significant influencing factor. Model 3 accepts three levels the smaller the percentage. This means that as

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the ICT technology becomes for sophisticated, less this study. The cross sectional data collected from
firm opt to adopt the higher levels in the ICT ladder. relatively small number of sample created some
Also firms at the higher level, still use ICT missing data such as zero values in the cross tabs
technology from the lower levels. In other words, which harms logit analysis. Therefore it is
existence adopter in advance level of ICT does not suggested to use a larger the sample size with panel
equal to the lower levels adopter. Some business data would provide better statistical results. The
maintains their existent ICT adoption levels and are sample coverage was only on-farm agribusiness in
not interested to improving the more sophistication four regions in East Java. The wider the coverage
ICT due to considerations which will be investigated and heterogeneity of the target population the better
in this research. the results represented.
The factor influencing at the ICT-Internet Regards to the future research it is suggested
adoption level was influenced by the manager’s that such research that would be able to understand
education background of TAFE or less. ICT Literacy the variations of the drivers in this study e.g in
also influenced the adoption with expectation of specific field of agribusiness, within different size of
reducing services costs on adopting ICT. Without businesses, in specific ICT tools and between
measuring the impact of external environment adopters and non adopters is needed. Deeper
factors, there seem to be no difference on the exploratory investigation would provide
number of influencing factors. It means that external confirmation or modification of the findings. The
environment factors play direct crucial roles on ICT- research framework developed in this study can be
Internet adoption in EJOFA without expecting the an important starting point for any research in other
perceived benefits of adopting ICT. provinces in Indonesia or in any other developing
Knowing that research in the role of ICT in countries.
agribusiness is less taken into account (rarely done)
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