1 1. CHAPTER 1 INTRODUCTION 1.1 Background The Indonesian creative industry represents a rising industry within Indonesia’s economy. The creative economy has grown by over 25,8% from 2011-2019. In addition, the creative economy in Indonesia also has a faster-growing workforce, growing at 4.02%, in comparison to the national workforce which has a growth of 2.02% (Badan Ekonomi Kreatif, 2020). Currently, the creative economy contributes 11.9% of national exports. The 3 main contributors are fashion, crafts, and culinary. Fashion is the largest export product representing 62.04% of the exports, however, these exports mainly represent large multinational brand manufacturers (Badan Ekonomi Kreatif, 2020). Only 30% of the fashion and garment industry in Indonesia manufactures for domestic needs while the rest is for foreign export (ASEAN, 2021). Figure 1.1 Growth of revenue in the Indonesian fashion industry from 2017-2025 projections. (Source: Statista, 2023) Domestically, the fashion market in Indonesia has also grown steadily according to Statista (2023) and as can be seen in Figure 1.1, The Indonesian fashion industry has rapidly grown from the year 2019-2021 and is expected to grow to a market value of USD 10.526 million by 2025 (Bright Indonesia, 2022). Furthermore, 87% of Indonesian consumers are now more likely to buy local products than global ones and 59% of Indonesian consumers disagree that global 2 brands make better products than local brands (IPSOS, 2021). However, the Covid– 19 pandemic has affected this industry brutally due to the lack of investment during this term (Sonobe et al., 2021). In addition to that, there is growing competition from imports abroad to Indonesia. However, this was resolved due to the increasing demand for apparel in Indonesia and the rapid expansion of e-commerce in Indonesia due to the growth of e-commerce within Indonesia during the pandemic (Sonobe et al., 2021). The e-commerce market in Indonesia has grown to $32 billion in the year 2020 from $21 billion in the previous year according to (Janio Asia, 2020). This phenomenon was induced by the Indonesian consumers being forced to isolate due to the pandemic and conducting their shopping all online (Firmandani et al., 2021). This event can be seen through the growth of user and e-commerce penetration in Indonesia.According to Firmandani et al., (2021) The growth is projected to reach 212.2 million users in 2023, with a penetration rate of 75.3% of the total population of the selected market, with 38% of these purchases representing purchases of fashion products as can be seen from Figure 1.2 and Figure 1.3. Figure 1.2 Users and E-commerce penetration in indonesia (Source: Firmandani et al., 2021). 3 Figure 1.3 Diagram of purchases from shopee (Source: Firmandani et al., 2021). The growth of e-commerce in Indonesia, in combination with the impacts of isolation and the Covid-19 pandemic, has influenced SMEs to digitize their sales operations.