Climate Change, Global Uncertainty, and Operational Costs: Evidence from Indonesian SMEs
Article Sidebar
Main Article Content
Abstract
Background and Objectives: Small and Medium Enterprises (SMEs) play a crucial role in economic development and employment generation, particularly in emerging economies. In Indonesia, SMEs represent more than 99% of business entities, contribute approximately 61% of national GDP, and employ about 97% of the workforce. Despite their economic importance, SMEs are increasingly exposed to environmental and macroeconomic pressures that threaten operational sustainability. Climate change disrupts production through extreme weather events, energy price volatility, and instability in raw material supply chains. At the same time, global economic uncertainty reflected in inflationary pressures, exchange-rate volatility, and geopolitical tensions creates additional operational risks that may increase firms’ cost structures. These challenges are particularly relevant for SMEs in the garment and clothing sector, which is characterized by labor intensive production and strong supply chain dependence. Although previous studies have examined environmental uncertainty and firm performance, limited research has explored the mechanisms through which climate change and global uncertainty influence SMEs’ operational costs. In particular, digital technology adoption and digital financial literacy may function as adaptive capabilities that help SMEs respond to environmental turbulence, although such investments may also generate short-term adjustment costs. In addition, the role of financial inclusion in shaping these cost dynamics remains underexplored. Therefore, this study examines how climate change and global economic uncertainty influence SMEs’ operational costs through the mediating roles of digital technology adoption and digital financial literacy, as well as the moderating role of financial inclusion.
Methodology: This study employs a quantitative research design using cross-sectional survey data collected from 270 owners and managers of SMEs operating in Indonesia’s garment and clothing sector. Respondents were selected through purposive sampling to ensure their involvement in business operations, digital technology adoption, and financial decision-making. Data were collected using a structured questionnaire with Likert-scale indicators adapted from established studies. The main constructs include climate change exposure, global uncertainty, digital technology adoption, digital financial literacy, financial inclusion, and operational costs. The analysis also includes control variables, namely firm size, firm age, sub-sector, regional characteristics, and input utilization. The empirical analysis was conducted using Partial Least Squares Structural Equation Modeling (PLS-SEM), which is suitable for examining complex mediation and moderation relationships.
Key Findings: The empirical results reveal several important findings. First, climate change has a positive and significant effect on SMEs’ operational costs, indicating that environmental disruptions increase production, energy, and logistics expenses. Second, both climate change and global economic uncertainty significantly stimulate the development of adaptive capabilities, particularly through increased digital technology adoption and improved digital financial literacy. Third, digital technology adoption and digital financial literacy significantly increase operational costs in the short term. This finding reflects adjustment costs associated with digital transformation, including investments in digital infrastructure, employee training, and system integration. Fourth, digital capabilities play a significant mediating role, suggesting that environmental and macroeconomic pressures influence operational costs indirectly through capability development. Finally, the moderating effect of financial inclusion is not statistically significant, indicating that access to financial services alone does not substantially alter how digital capability investments affect SMEs’ operational cost outcomes.
Policy Implications: The findings offer several policy implications. First, policymakers should strengthen SME resilience by improving logistics infrastructure, promoting energy-efficient production technologies, and stabilizing supply chain systems to reduce climate-related cost pressures. Second, governments should expand SME digital transformation initiatives, including training programs in e-commerce management, digital accounting systems, and digital supply chain platforms. Third, because digital capability development requires substantial initial investment, financial policy support is needed to reduce SMEs’ transitional cost burdens. Policy instruments such as tax incentives for digital technology adoption, subsidized digital infrastructure, and low-interest financing programs can facilitate SME digitalization. Strengthening digital capabilities and digital financial literacy can ultimately enhance SME resilience and support sustainable economic development under climate-related risks and global economic uncertainty.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
The paper is published under CC BY-NC-ND, in which the article is freely downloaded and shared in its original form non-commercially and its citation details are identified.
References
Abu, N., da Silva, F. P., & Vieira, P. R. (2025). Government support for SMEs in the fintech era: Enhancing access to finance, survival, and performance. Digital Business, 5(1), 100099. https://doi.org/10.1016/j.digbus.2024.100099
Agrawal, R., Agrawal, S., Samadhiya, A., Kumar, A., Luthra, S., & Jain, V. (2024). Adoption of green finance and green innovation for achieving circularity: An exploratory review and future directions. Geoscience Frontiers, 15(4), 101669. https://doi.org/10.1016/j.gsf.2023.101669
Alshater, M. M., Hassan, M. K., Khan, A., & Saba, I. (2021). Influential and intellectual structure of Islamic finance: A bibliometric review. International Journal of Islamic and Middle Eastern Finance and Management, 14(2), 339–365. https://doi.org/10.1108/IMEFM-08-2020-0419
Amnas, M. B., Selvam, M., & Parayitam, S. (2024). FinTech and financial inclusion: Exploring the mediating role of digital financial literacy and the moderating influence of perceived regulatory support. Journal of Risk and Financial Management, 17(3), 108. https://doi.org/10.3390/jrfm17030108
Audretsch, D. B., Belitski, M., Caiazza, R., & Lehmann, E. E. (2020). Knowledge management and entrepreneurship. International Entrepreneurship and Management Journal, 16(2), 373–385. https://doi.org/10.1007/s11365-020-00648-z
Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2011). Firm innovation in emerging markets: The role of finance, governance, and competition. Journal of Financial and Quantitative Analysis, 46(6), 1545–1580. https://doi.org/10.1017/S0022109011000378
Statistics Indonesia (BPS). (2024). Statistical Yearbook of Indonesia 2024. Jakarta: BPS-Statistics Indonesia. https://www.bps.go.id/en/publication/2024/02/28/c1bacde03256343b2bf769b0/statistical-yearbook-of-indonesia-2024.html
Barney, J. B. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9(4), 49–61. https://doi.org/10.5465/ame.1995.9512032192
Bartik, A. W., Bertrand, M., Cullen, Z., Glaeser, E. L., Luca, M., & Stanton, C. (2020). The impact of COVID-19 on small business outcomes and expectations. Proceedings of the National Academy of Sciences, 117(30), 17656–17666. https://doi.org/10.1073/pnas.2006991117
Beck, T. (2020). Fintech and financial inclusion: Opportunities and pitfalls (ADBI Working Paper No. 1165). Asian Development Bank Institute. https://www.adb.org/publications/fintech-financial-inclusion-opportunities-pitfalls
Beck, T., Demirgüç-Kunt, A., & Maksimovic, V. (2005). Financial and legal constraints to growth: Does firm size matter? The Journal of Finance, 60(1), 137–177. https://doi.org/10.1111/j.1540-6261.2005.00727.x
Behl, A., Gaur, J., Pereira, V., Yadav, R., & Laker, B. (2022). Role of big data analytics capabilities to improve sustainable competitive advantage of MSME service firms during COVID-19: A multi-theoretical approach. Journal of Business Research, 148, 378–389. https://doi.org/10.1016/j.jbusres.2022.05.009
Bloom, N. (2014). Fluctuations in uncertainty. Journal of Economic Perspectives, 28(2), 153–176. https://doi.org/10.1257/jep.28.2.153
Davis, F. D. (1993). User acceptance of information technology: System characteristics, user perceptions and behavioral impacts. International Journal of Man-Machine Studies, 38(3), 475–487. https://doi.org/10.1006/imms.1993.1022
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147–160. https://doi.org/10.2307/2095101
Eccles, R. G., & Williamson, O. E. (1987). The economic institutions of capitalism: Firms, markets, relational contracting. Administrative Science Quarterly, 32(4), 602. https://doi.org/10.2307/2392889
Elfaki, K. E., & Ahmed, E. M. (2024). Digital technology adoption and globalization innovation implications on Asian Pacific green sustainable economic growth. Journal of Open Innovation: Technology, Market, and Complexity, 10(1), 100221. https://doi.org/10.1016/j.joitmc.2024.100221
Faruq, M. O., Akter, T., & Mizanur Rahman, M. (2023). Does intellectual capital drive bank’s performance in Bangladesh? Evidence from static and dynamic approach. Heliyon, 9(7), e17656. https://doi.org/10.1016/j.heliyon.2023.e17656
Feeny, S., & Rogers, M. (2003). Innovation and performance: Benchmarking Australian firms. Australian Economic Review, 36(3), 253–264. https://doi.org/10.1111/1467-8462.00285
Grohmann, A., Klühs, T., & Menkhoff, L. (2017). Does financial literacy improve financial inclusion? Cross-country evidence. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3034178
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2010). Multivariate data analysis (7th ed.). Prentice Hall.
Hair, J. F., Ringle, C. M., & Sarstedt, M. (2011). PLS-SEM: Indeed a silver bullet. Journal of Marketing Theory and Practice, 19(2), 139–151. https://doi.org/10.2753/MTP1069-6679190202
Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2–24. https://doi.org/10.1108/EBR-11-2018-0203
Harrison, R. L., Reilly, T. M., & Creswell, J. W. (2020). Methodological rigor in mixed methods: An application in management studies. Journal of Mixed Methods Research, 14(4), 473–495. https://doi.org/10.1177/1558689819900585
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135. https://doi.org/10.1007/s11747-014-0403-8
Hoekman, B. M., Mattoo, A., & English, P. (2002). Development, trade, and the WTO: A handbook. World Bank.
Huang, C., Wang, C., Rani, T., & Rehman, S. A. U. (2024). Digitalization’s role in shaping climate change, renewable energy, and technological innovation for achieving sustainable development in top Asian countries. Energy & Environment, 37(3). https://doi.org/10.1177/0958305X241258799
Huang, Y., Xu, Y., Zhang, J., Long, Z., Qian, Z., Liu, W., & Chen, L. (2024). Research on factors influencing the academic entrepreneurial ability of teachers in the digital age: Evidence from China. Heliyon, 10(2), e24152. https://doi.org/10.1016/j.heliyon.2024.e24152
Hügel, S., & Davies, A. R. (2024). Expanding adaptive capacity: Innovations in education for place-based climate change adaptation planning. Geoforum, 150, 103978. https://doi.org/10.1016/j.geoforum.2024.103978
Kock, N. (2015). Common method bias in PLS-SEM: A full collinearity assessment approach. International Journal of E-Collaboration, 11(4), 1–10. https://doi.org/10.4018/ijec.2015100101
Kroh, J., Globocnik, D., Schultz, C., Holdhof, F., & Salomo, S. (2024). Micro-foundations of digital innovation capability: A mixed-method approach to develop and validate a multi-dimensional measurement instrument. Technological Forecasting and Social Change, 198, 122942. https://doi.org/10.1016/j.techfore.2023.122942
Government of Indonesia. (2008). Law No. 20 of 2008 concerning Micro, Small, and Medium Enterprises. Retrieved from https://peraturan.bpk.go.id/Details/39653/uu-no-20-tahun-2008.
Le, D. V., Le, H. T. T., Pham, T. T., & Vo, L. V. (2023). Innovation and SMEs performance: Evidence from Vietnam. Applied Economic Analysis, 31(92), 90–108. https://doi.org/10.1108/AEA-04-2022-0121
Liu, F., Yu, Y., Fang, Y., Zhu, M., Shi, Y., & Xiao, S. (Simon). (2024). Lean strategy in SMEs: Inventory leanness, operational leanness, and financial performance. The Asian Journal of Shipping and Logistics, 40(2), 109–117. https://doi.org/10.1016/j.ajsl.2024.02.003
Liu, J., Zhou, K., Zhang, Y., & Tang, F. (2023). The effect of financial digital transformation on financial performance: The intermediary effect of information symmetry and operating costs. Sustainability, 15(6), 5059. https://doi.org/10.3390/su15065059
Lontchi, C. B., Yang, B., & Shuaib, K. M. (2023). Effect of financial technology on SMEs performance in Cameroon amid COVID-19 recovery: The mediating effect of financial literacy. Sustainability, 15(3), 2171. https://doi.org/10.3390/su15032171
Martos-Pedrero, A., Cortés-García, F. J., Abad-Segura, E., & Belmonte-Ureña, L. J. (2025). Internationalization, innovation, and resilience: Financial performance of agricultural cooperatives in southeastern Spain’s rural economy. Journal of Rural Studies, 117, 103682. https://doi.org/10.1016/j.jrurstud.2025.103682
Ministry of Cooperatives and SMEs Republic of Indonesia. (2024). Official statistics and development information on Micro, Small, and Medium Enterprises (MSMEs). Jakarta: Ministry of Cooperatives and SMEs Republic of Indonesia. Retrieved from http://kemenkopukm.go.id/.
Ministry of Industry Republic of Indonesia. (2024). Textile and apparel industry grows expansively due to exports. Jakarta: Ministry of Industry. Retrieved from https://kemenperin.go.id/.
Nguyen, P. H., Thi Nguyen, L. A., Thi Nguyen, T. H., & Vu, T. G. (2024). Exploring complexities of innovation capability in Vietnam’s IT firms: Insights from an integrated MCDM model-based grey theory. Journal of Open Innovation: Technology, Market, and Complexity, 10(3), 100328. https://doi.org/10.1016/j.joitmc.2024.100328
Nguyen Thanh, B., Son, H. X., & Vo, D. T. H. (2024). Blockchain: The economic and financial institution for autonomous AI? Journal of Risk and Financial Management, 17(2), 54. https://doi.org/10.3390/jrfm17020054
Parra-López, C., Ben Abdallah, S., Garcia-Garcia, G., Hassoun, A., Sánchez-Zamora, P., Trollman, H., Jagtap, S., & Carmona-Torres, C. (2024). Integrating digital technologies in agriculture for climate change adaptation and mitigation: State of the art and future perspectives. Computers and Electronics in Agriculture, 226, 109412. https://doi.org/10.1016/j.compag.2024.109412
Peteraf, M. A., & Barney, J. B. (2003). Unraveling the resource-based tangle. Managerial and Decision Economics, 24(4), 309–323. https://doi.org/10.1002/mde.1126
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. Free Press.
Sarstedt, M., Ringle, C. M., & Hair, J. F. (2022). Partial least squares structural equation modeling. In C. Homburg, M. Klarmann, & A. Vomberg (Eds.), Handbook of market research (pp. 587–632). Springer. https://doi.org/10.1007/978-3-319-57413-4_15
Schaeffer, R., Szklo, A. S., Pereira de Lucena, A. F., Moreira Cesar Borba, B. S., Pupo Nogueira, L. P., Fleming, F. P., Troccoli, A., Harrison, M., & Boulahya, M. S. (2012). Energy sector vulnerability to climate change: A review. Energy, 38(1), 1–12. https://doi.org/10.1016/j.energy.2011.11.056
Sucahyo, U. S., Damayanti, T. W., & Supramono, S. (2024). Unlocking success: Nexus between entrepreneurial orientation and financial performance in culinary MSMEs. Journal of Economics, Business, and Accountancy Ventura, 27(1), 1–13. https://doi.org/10.14414/jebav.v27i1.4432
Tang, H., Zhu, J., Li, N., & Wu, W. (2024). Impact of enterprise supply chain digitalization on cost of debt: A four-flows perspective analysis using explainable machine learning methodology. Sustainability, 16(19), 8702. https://doi.org/10.3390/su16198702
Teece, D. J. (2014). A dynamic capabilities-based entrepreneurial theory of the multinational enterprise. Journal of International Business Studies, 45(1), 8–37. https://doi.org/10.1057/jibs.2013.54
Teece, D. J. (2017). Dynamic capabilities and digital platform lifecycles. In J. Furman, A. Gawer, B. S. Silverman, & S. Stern (Eds.), Entrepreneurship, innovation, and platforms (Vol. 37, pp. 211–225). Emerald Publishing Limited. https://doi.org/10.1108/S0742-332220170000037008
Truong, B. T. T., & Nguyen, P. V. (2024). Driving business performance through intellectual capital, absorptive capacity, and innovation: The mediating influence of environmental compliance and innovation. Asia Pacific Management Review, 29(1), 64–75. https://doi.org/10.1016/j.apmrv.2023.06.004
Wahyudiono, T., Rochim, F., & Iswanto, J. (2022). Economic policy from the perspective of siyasah syar’iyyah: A case study of Islamic banks. International Journal of Health, Economics, and Social Sciences (IJHESS), 4(4), 325–334. https://doi.org/10.56338/ijhess.v4i4.6629
Wang, X., Li, Y., Fu, C., & Yue, Z. (2025). Does CEO competence affect enterprises’ financial performance? International Review of Economics & Finance, 99, 104001. https://doi.org/10.1016/j.iref.2025.104001
Zhao, F., Zhu, H., & Chen, Y. (2024). Due responsibility and true responsibility: A moderated-mediation model linking green-harmonious human resource practice to employee organizational citizenship behavior. Asia Pacific Journal of Human Resources, 62(2). https://doi.org/10.1111/1744-7941.12399
