Promoting the Growth of MSMEs in E-Commerce via Effective Quality Signaling

As the world’s largest Muslim country, Indonesia faces strong demand among domestic consumers to ensure the halalness of food products consumed.  At the same time, there is rising demand from buyers for food suppliers to register for such food certification to provide quality assurance to consumers. This may be especially beneficial to MSMEs that operate in online commerce, where search frictions make it difficult for potential buyers to assess product quality. Hence, halal certification offers an excellent testing ground to assess the effect of quality certification on MSMEs’ success in online platforms, and its attendant impacts on firm digitization and use of DFS. Building on lessons from an exploratory survey, researchers identified a strong consumer demand and valuation for official quality certifications, for signaling both the halal-ness of the food and the safety and hygiene standard followed by the firm. However, the current adoption rate of these official certificates remains low among MSMEs, including both the downstream online sellers and their upstream suppliers. To answer these challenges and to promote quality signaling among e-commerce merchants, the research team designed a pilot study involving a novel survey to map out the food supply chain and identify the key barriers that prevent firms from credibly signaling their quality and adopting the certifications; followed by designing an intervention to provide supports to online merchants in getting certifications. The aim was to provide causal estimates of the signaling value of quality certification and examine the impact of quality signaling on MSMEs’ sales performance and growth online.

Although the pilot partnership with some of Indonesia’s online food delivery platforms could not be pursued due to firms' capacity and changing priorities, over the course of the pilot preparation, the research team has successfully conducted a supply-chain mapping survey to identify key barriers that prevent producers along the chain from adopting halal certification, while also measuring the potential benefits of adopting other official quality certifications on quality upgrading and business performance. The survey was conducted in collaboration with The Halal Product Assurance Organizing Body (BPJPH) and the Department of Food Security in Greater Jakarta. The research team focused on the slaughtering industry, specifically the poultry sector, as this sector is prominent in the food industry and also requires halal certification to operate. In summary, their results indicate that while halal certification could offer significant benefits to businesses, there is still room for improvement to fully realize its economic potential. In addition, the survey also shows that e-commerce platforms can play an important role in promoting the adoption of Halal Certificate as well as providing the opportunity for the merchants to showcase their quality assurance to boost their sales. This is particularly relevant as halal certification becomes a priority policy for the Government of Indonesia, with stricter enforcement expected in the coming years.