ACAES

Asia Economics Blog

blogbanner

Moderator:  Calla Wiemer (calla.wiemer@acaes.us)

Featured

Does Digitalization Improve Entrepreneurial Performance? Evidence from ASEAN

This post draws from a paper presented at the 2025 Allied Social Science Association Annual Meeting in the ACAES session on Digitalization in Asian Economies. 
 
Co-Authors: Willem Smit; Kun Fu; Yothin Jinjarak; Cynthia Petalcorin

Digital technologies enable perpetual innovation in how businesses create and deliver customer value. These technologies present especially promising opportunity drivers for new entrepreneurs since established businesses tend to focus on optimizing their existing business models which may hamper their ability to take advantage of the latest digital opportunities. We explore the effects of digitalization on business experimentation and performance by means of a 2020 survey of entrepreneurs for six countries in Southeast Asia.

With digitalization, entrepreneurial activities have become less constrained by spatial, temporal, and sectoral boundaries and open to a wider range of aspiring individuals. Figure 1 illustrates how the nature of entrepreneurial opportunities has been transformed,.

Figure 1. Impact of ICT and Digitalization on Entrepreneurship
Park Dig Fig1.1.jpg

Two key assumptions underpin the link we posit between digitalization and entrepreneurial performance. First, the adoption of digital technologies enables entrepreneurs to experiment more effectively. Second, ideas validated through experimentation are then incorporated into business models to improve firm performance. If entrepreneurs shape and pursue opportunities more effectively through iterative experimentation, and if that experimentation is enhanced by the adoption of digital technologies, this should support more effective pursuit of opportunity and thus better performance of entrepreneurial new businesses. Emerging economies in particular stand to benefit from digitalization as digital technologies offer opportunities to leapfrog conventional steps in economic development.

To test these propositions we collected data from 685 digital entrepreneurial businesses in six ASEAN countries: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. A digital entrepreneurial business was defined as an independent business firm that was owner-managed by an entrepreneur or a team of entrepreneurs and that applied digital technologies in its business model. The notion of applying digital technologies was defined loosely in that we did not wish to confine attention to the digital sector only but rather wanted to capture digitalization across the spectrum of economic sectors. We were especially interested in sampling modern start-ups run by entrepreneurs versed in digital culture and poised to compete through innovation.

To compile an index of business model experimentation we gathered information on the degree of change over the preceding year for 11 business elements with change measured on a scale of 1 to 5. Response distributions are presented in Table 1. Most subject to change was "business opportunities pursued" followed by "sales & marketing", then "customer interaction". Least subject to change was "suppliers" preceded by "arrangements with partners", then "partnerships". For regression purposes, our measure of business model experimentation is taken as the simple average of the 11 elements.

Table 1. Business Model Experimentation
Firm Responses on Degree of Change in Business Elements over Previous Year

Park Dig Table1.1

Note: Sample size is 685 firms. Elements are ranked by most to least changed based on the index.

Two measures of digital technology use were compiled, one representing adoption, the other application. The adoption measure is based on resporting on a 1 to 5 scale of the use of 12 different forms of technology ranging from such basics as smart phones and company websites to the highly sophisticated cloud computing and machine learning. The application measure is based on queries into 23 aspects of the use of digital technology in business activities in areas such as marketing, products and services, and partnerships. For each measure, a principal components methodology was used to construct a composite indicator.

Our three performance measures are qualitative in nature with firms having been asked to assess results relative to their own expectations both financially and operationally and relative to their competitors broadly speaking. Qualitative data were elicited to encourage a high response rate but arguably are more meaningful for start-up firms that have not yet established regular revenue streams. The financial measure rests on such indicators as sales and profitability and the operational measure on such indicators as efficiency and new products. A principal components approach was again used to construct a composite. 

Regression estimates for coefficients of interest are presented in Table 2. Digital technology is confirmed to be a potent driver of business model experimentation with respect to both adoption and application measures. In turn, business model experimentation is found to be effective in improving operational performance at a 5 percent level of significance and competitive performance at a 1 percent level, although no effect registers significantly for financial performance. The direct effect of digital technology application on business performance in all aspects is shown to be very strong even allowing for an indirect effect to be siphoned through business model experimentation. This result signals that the application of digital technologies by entrepreneurial businesses has more wide-ranging beneficial impacts than the facilitating effect on business model experimentation. No significant effect of digital technology adoption appears for any of the perfomance measures.

 Table 2. OLS Regression of Business Model Experimentation and Performance
Park Dig Table 2.1

Note: Sample size is 682 firms. Standard errors are given in parentheses. Significance at 1%, 5%, and 10% is given by *, **, and ***, respectively. Control variables included were firm age, number of employees, and country dummies.

We consider the findings reported here to be of value for the design of entrepreneurial and digitalization policies in Asian developing economies and in emerging economies more generally. Our analysis points to important performance implications of digital technology application by entrepreneurial businesses. Facilitating the digitalization of entrepreneurial businesses should be a priority for governments in such economies. In practice this means investing in digital infrastructure, extending the geographical coverage of such infrastructure, and making sure that the infrastructure can be accessed at affordable cost. As well, it is important to develop the digital literacy of entrepreneurs to better position them to benefit from advances in digital technologies and associated infrastructure.

_________________________________

Co-author Willem Smit is Lead Faculty for Entrepreneurship, YSEALI Academy at Fulbright University Vietnam.

Co-author Kun Fu is Senior Lecturer in Entrepreneurship and Innovation Management, Loughborough University London.

Co-author Yothin Jinjarak is Senior Economist at the Asian Development Bank.

Co-author Cynthia Petalcorin is Senior Financial Sector Officer at the Asian Development Bank.

×
Stay Informed

When you subscribe to the blog, we will send you an e-mail when there are new updates on the site so you wouldn't miss them.

The Effect of Monetary and Exchange Rate Framework...
Financial Inclusion, Wealth, and Consumption Smoot...

Related Posts