The Role of Social Media Adoption as Mediating Variable between

Environment Context and SME Performance

Neva Novianti

, Zaitul

, Desi Ilona

and Herawati

Faculty of Economics and Business, Universitas Bung Hatta, Indonesia

Faculty of Economics, Universitas Putra Indonesia YPTK, Padang, Indonesia

Keywords:

Environmental Factors, Social Media Adoption, Business Performance.

Abstract:

Acceptance of social media in small and medium businesses has been largely achieved through previous

studies. However, previous literature paid less attention to Indonesia’s small-medium enterprise (SME).

This study aims to explore the role of social media adoption as a mediator between environmental factors

and the economic performance of SMEs. To understand the relationship of these variables, researchers use

Technology-organization-environment (TOE). SEM-PLS is used to analyse the primary data. The results

show that environmental factors have a positive correlation with the adoption of social media. Futhermore,

the environmental factor is also associated with business performance. however, social media adoption does

not play the role of mediator between the environmental factor and business performance of SME. Theoretical

and practical implication are discussed in this article.

1 RESEARCH BACKGROUND

One important aspect of technology is social media

and being used by many organizations in their

activities. (Kaplan and Haenlein, 2010) said,

Social media refers to a class of cyberspace derived

discharge that develop in the principle and state of

the art foundation of Web 2.0, and that enable the

exchange and creation of user produced contents.

In addition, (Constantinides and Fountain, 2008)

add that social media entail exchanging content

generated by user, taking feedback in real-time

basis and constructing society of customers to

sustain the process. Social media adoption by

business organization has been enhancing to many

functional management areas, like customer support,

operation, sales and marketing, and research and

development (Bernoff and Li, 2008). Social

media adoption in business is a part of technology

information implementation and it can allow business

organizations to performance better in the competitive

edge (AlSharji et al., 2018). Technology innovation

adoption has been explained by many theories

(Rogers, 2010; Tornatzky et al., 1990; Swanson,

1994). In organization level, TOE is famous theory

used to underpin the technology & environment and

organization outcome relationship.

Social media can be utilized by enterprise (SME)

to gain the competitive advantage due to minimal

technical requirement and its low cost (Ferrer et al.,

2013). Technology adoption among SME has been

documented by many researchers (Ahmad et al.,

2015; Gangwar et al., 2015; Maduku et al.,

2016; Shi and Yan, 2016). (Ahmad et al., 2015)

examine the introduction of retail e-business in many

countries and use regulatory support and competitive

pressure like environmental factors. In addition,

(Gangwar et al., 2015) examine cloud computing

in Indian SMEs and consider competitive pressures

as environmental factors. Further, (Maduku et al.,

2016) examine the e-marketing taken by SMEs in

South African and involve external factors such as

customer pressure, supplier support and competitive

pressures. Moreover, (Ramdani et al., 2013) examine

the takeover of business applications by SMEs in

north-west England and include industry, market

support, competitive pressure and external support

for ICT as environmental factors. (Shi and Yan,

2016) investigate the adoption of RFID by agriculture

SME in China and apply the environment factor, such

as competitive pressure, uncertainty and government

support.

Study on social media adoption also has been

done by previous researchers (Ahmad et al., 2018;

Ainin et al., 2015; Carlos Martins Rodrigues Pinho

and Soares, 2011). (Ahmad et al., 2018) examine

Novianti, N., Zaitul, ., Ilona, D. and Herawati, .

The Role of Social Media Adoption as Mediating Variable between Environment Context and SME Performance.

DOI: 10.5220/0009060100930100

In Proceedings of the Second International Conference on Social, Economy, Education and Humanity (ICoSEEH 2019) - Sustainable Development in Developing Country for Facing Industr ial

Revolution 4.0, pages 93-100

ISBN: 978-989-758-464-0

the social media adoption among UAE SME

by examining the effect of organization context,

environment factors, technology factor on social

media adoption. (Ainin et al., 2015) investigate

the factor affecting the Facebook usage and its

relationship with Malaysia’s SME non-ﬁnancial and

ﬁnancial performance. (Paniagua and Sapena, 2014)

examine the impact of social media adoption on

business success. (Parveen et al., 2015) use the

qualitative approach to analyse the usage of social

media purpose and its inﬂuence on organizational

outcome. (Carlos Martins Rodrigues Pinho and

Soares, 2011) survey the university student regarding

to social network adoption and ascertain TAM

explanatory power in the social network adoption.

Based on extensive literature review above, study on

social media adoption among SME is limited. Even

thought, there is one study that examines the adoption

of social media using Indonesia’s SME (Sarosa,

2012), but the study use the qualitative approach.

Therefore, it needs the further study that investigate

the adoption of social media using an Indonesia’s

SME. The aim of this of this study is to analyse

the function of social media adoption as mediating

variable between environmental factor and business

performance of SME. This paper is organised as

follow. The background to the study was explained

in the ﬁrst session. It continues to discuss theory

and hypothesis development. Following session is

research method. The results and discussion are in

the fourth session. Last session is conclusion and

recommendation.

2 THEORETICAL ASPECT AND

HYPOTHESIS

2.1 Social Media Adoption

The important of social media adoption among

small and medium enterprise have been documented

by social media experts. However, there is no

consensus among experts about deﬁnition of social

media. In addition, social media can be employed

for various management functional sectors, like

operation, research and development, sales and

marketing, customer support and etc (Bernoff and Li,

2008). Social media adoption improve an interaction

and information sharing, enhancing brand visibility,

leveraging community service, and building customer

relationship and social interaction, and reaching wide

range of customers and expanding existing markets

(Ahmad et al., 2018). The relationship between

adoption of social media with business performance

has been researched by previous researchers. (Ahmad

et al., 2018) found that there is no relationship

between adoption of social media with business

performance of SME in UAE. (Ahmad et al., 2018)

documented that adoption of social media improve

the performance outcome:

• improve costumer clientele,

• increase brand awareness, loyalty, and reputation,

• reducing communication and marketing cost,

• revenue generation,

• attracting new customers and

• increase the competitive advantage.

(Bakri, 2017) found no signiﬁcant effect of social

media application on SME’s business performance.

(Ainin et al., 2015) conclude that adoption of

social media adoption and business performance has

positive impact. (McCann and Barlow, 2015) also

conclude that the positive impact of the social media

adoption and business performance. Furthermore, the

hypothesis can be developed as follows.

H1: Social media adoption positively affect

Business performance

Previous research on relationship between

environmental factors and technology adoption

has been done by several studies (Lippert and

Govindarajulu, 2006; Pan and Jang, 2008). (Lippert

and Govindarajulu, 2006) examine the impact of

environmental factors on the introduction of web

services and suggest that the higher the competitive

pressure, the more likely the introduction of web

service technologies. In addition, (Pan and Jang,

2008) studied the relationship between environmental

factors and enterprise resources planning (ERP)

adoption and conclude that the environmental factor

is not an important factor for the introduction of

ERP. Study on relationship environmental and

technology adoption among small-medium enterprise

has been done by (Ahmad et al., 2018; Ahmad

et al., 2015; Scupola and Nicolajsen, 2013). (Ahmad

et al., 2018) concluded that there was a positive

inﬂuence of environmental factor and adoption

of social media by UAE’s SME. (Ahmad et al.,

2015) have shown that there is a link between the

environmental factor (external change agent) and

the takeover of electronic commerce by SMEs

in Malaysia. (Scupola and Nicolajsen, 2013)

describe level of adoption e-commerce among

Australia’s SME. Due to competitiveness intensity

and industry, small-medium enterprise will adopt the

technology and several management areas, such as

operation, customer support, sales and marketing,

ICoSEEH 2019 - The Second International Conference on Social, Economy, Education, and Humanity

and research and development areas, are becoming

value for money (efﬁcient, effective and economics).

Therefore, the business outcome will be enhanced

and proﬁtability as one of business performance

measurement ﬁnally increase. Previous studies on the

relationship between the environmental factors with

SME business performance has been done (Aziz and

Yassin, 2010; Gaur et al., 2011). However, the effect

of environmental factors on business performance

might be through technology adoption (adoption

of social media). Further, there is a insufﬁciency

of studies investigating this social media role as

mediator. Based on the explanation above, we

develop three hypotheses as follow.

H2: Environmental factors positively affect Social

media adoption

H3: Environmental factors positively affect

Business performance

H4: Social media adoption mediated relationship

between Environmental factors and Business

performance

2.2 Environmental Factors

Environmental factors are factors from business

environment where business operates. business

environment has been becoming competitive

(Wang, 2016). In fact, the business environment

requires innovative behavior and a higher

level of risk (Jos

e Ruiz-Ortega et al., 2013).

Environmental factors could stem from technological

development, globalization and the rapid spread

of new technologies (Derham et al., 2011). In

addition, (Tornatzky & Fleischer, 1990) argue

that environmental factors might be categorised as

industry structure, regulatory system and suppliers.

There are three environmental factors: a industry

competitiveness (Thong and Yap, 1995); Train

pressure (Sun, 2013); and competitive pressures

(Gutierrez et al., 2015). The competitive intensity of

the sector is the pressure of impending competitive

advantages (Zhu et al., 2003). In addition, if a

business organization adopt the technology, it has a

large opportunity to gain the competitive advantage.

Thus, bandwagon pressure is a psychological

phenomenon and a business organization use

the technology or innovation largely due to its

peer doing so (Ahmad et al., 2018), and not

because the technology ﬁt with its own strategy.

Finally, competitive pressure refers to level of

competitiveness inside industry (Lertwongsatien and

Wongpinunwatana, 2003). Another word, a business

organization will adopt a technology because of its

business partner has adopted that technology.

3 RESEARCH METHODS

This research object is owner/manager of small

medium enterprise (SME). This study uses the simple

random sampling. This study applies primary data

and gathered via online survey. Latent variables in

this study consisted of three types: independent latent

variable (environmental factor), mediation latent

variable (social media adoption), and dependent latent

variable (business performance). Environmental

factor consists of eight items which were developed

by (Gutierrez et al., 2015; Sun, 2013; Thong and

Yap, 1995). Social media adoption has ﬁve items

which gathered from (Cesaroni and Consoli, 2015).

Finally, business performance construct has six items

was taken from (Ahmad et al., 2018). SEM-PLS

is used to analysis the data. PLS is used because

of relatively new research phenomena (adoption of

social media in Indonesian SMEs), which is why

a PLS approach is often more appropriate (Chin

et al., 1998). Smart-pls is used and includes

two model evaluations (Wang, 2016): measurement

model and structural model. The measurement model

includes two validity tests: convergent validity and

discriminant validity (Wong, 2013). In addition,

discriminant validity use Fornell-Lacker criterion

(Fornell and Larcker, 1981), crossloading (Henseler

et al., 2015), and Heterotraits-heteromethod (HTMT)

ratio (Hair Jr et al., 2016; Henseler et al., 2015). The

structural model assessment applies bootstrapping

and aims to determine the predictive relevance and

power as well as testing the hypothesis.

4 RESULT AND DISCUSSION

4.1 Demographic Variable

This styudy employs twenty-nine small middle

entreprises (SME). 20.69% SMEs run the business

in Padang city. SMEs operates in Payakumbuh

city is 24.14%. in addition, 27.59% SMEs run its

business in Bukittinggi city. the rest is in other

city in west sumatra. Regarding to SME’s business

category, three SMEs (10.34%) has in the restourant

and catering business. Further, three SMEs (10.34%)

is categorised as profesional service business. One

SME (3.45%) is classiﬁed as tour and travel business.

Finally, the rest of SME is in other business type.

4.2 Measurement Model Assessment

This section discusses the results of the assessment

of the measurement model (convergence validity and

The Role of Social Media Adoption as Mediating Variable between Environment Context and SME Performance

discriminatory validity). Table 1 shows the result of

the convergence validation test. Four properties are

used to evaluate the convergent’s validity (Hair Jr

et al., 2016): “outer loading, Cronbach’s alpha

(CA), composite reliability (CR) and average variance

extracted (AVE)”. he results show that the external

load of all constructions is greater than 0.700

(Hulland, 1999). Environmental factor construct has

eight items and two items have outer loading lower

than 0.700 (eci1 and eci2) and they are, therefore,

excluded in next analyse. Besides, social media

adoption construct also has two items that have outer

loading lesser than 0.700 (sma1 and sma5). Internal

consistency of all construct are reliable due to the CA

and CR value are greater than 0.700 (Bagozzi and Yi,

1988). Finally, AVE for all construct is also greater

than cut-off value, 0.500 (Bagozzi and Yi, 1988).

Table 1: Convergent validity.

construct items

outer

CA CR AVE

business

performance

bp1 0.919

0.963 0.97 0.845

bp2 0.963

bp3 0.947

bp4 0.919

bp5 0.933

bp6 0.827

environmental

factors

ebp1 0.905

0.960 0.968 0.836

ebp2 0.932

ebp3 0.956

ecp1 0.941

ecp2 0.911

ecp3 0.836

social

media adoption

sma2 0.809

0.718 0.842 0.639sma3 0.802

sma4 0.787

Table 2 provides us with result of discriminant

validity that indicates the uniqueness of a construct

compared to another construct. There are three types

of discriminant validity tests: the Fornell-Lacker

criterion, crossloading, and the heterotrait-monotrait

ratio (HTMT). Table 3 shows the result of

discriminant validity using the Fornell-Lacker

criterion. The diagonal value (in bold) corresponds

to the square root of the AVE, while the value outside

the diagonal corresponds to the correlation. (Chin

et al., 1998), (Fornell and Larcker, 1981) the squared

correlations between the latent variable and all latent

variables should be lower than the latent variable

AVE. For example, square root of environmental

factor’s AVE (0.914) is greater than relationship

between this construct and all other constructs

(business performance and social media adoption).

Second discriminant validity test using cross

strain. The cross-burden is the burden of one indicator

for the identiﬁed latent variable, which must be higher

than that of all other latent variables (Hair Jr et al.,

Table 2: Discriminant validity-Fornell-Lacker Criterion

construct 1 2 3

Environmental factors (1) 0.914

business performance (2) 0.790 0.919

social media adoption (3) 0.652 0.623 0.799

2016; Henseler et al., 2015). J

org (Henseler et al.,

2015) argue that the lack of discriminant validity,

when two constructs are perfectly correlated, is a

defect that is not effective for empirical research. As

shown in Table 3, the load of one indicator of the

latent variables associated with it is greater than that

of the other latent variables. For example, indicator of

bp1 to bp6 loaded to business performance construct

and have a higher loading value (bold).

Table 3: Questionnaire’s Indicators.

Items

Environmental

factors

business

performance

social media

adoption

bp1 0.632 0.919 0.573

bp2 0.697 0.963 0.574

bp3 0.689 0.947 0.583

bp4 0.721 0.919 0.496

bp5 0.800 0.933 0.614

bp6 0.785 0.827 0.578

ebp1 0.905 0.710 0.622

ebp2 0.932 0.744 0.674

ebp3 0.956 0.732 0.623

ecp1 0.941 0.786 0.591

ecp2 0.911 0.742 0.542

ecp3 0.836 0.611 0.511

sma2 0.562 0.525 0.809

sma3 0.448 0.515 0.802

sma4 0.547 0.452 0.787

The third discriminant validity test is

heterotrait-monotraits ratio (HTMT). The HTMT

ratio is the mean heterotropy-heteromethod

correlation to mean single heteromethod correlations

(Hair Jr et al., 2016; Henseler et al., 2015). The

HTMT value near 1 indicates a lack of discriminatory

validity. The HTMT value of more than 0.85

indicates a insufﬁciency of discriminant validity

(Kline, 2005)(Kline, 2011). As can be seen from the

Table 4, all value of HTMT is lesser than 0.85. The

measurement model is shown in Figure 1.

Table 4: Discriminant validity-HTMT

construct

Environmental

factors

business

performance

social media

adoption

Environmental factors

business performance 0.814

social media adoption 0.779 0.745

ICoSEEH 2019 - The Second International Conference on Social, Economy, Education, and Humanity

4.3 Structural Model Assessment

Based on the measurement model assessment, the

measurement model is valid. Therefore, it continues

to the structural model assessment. This assessment is

for hypothesis testing and is related to the relationship

between latent variables. we use the bootstrapping

technique. In addition, bootstrapping is a test that

indication whether the relationship is signiﬁcant.

SEM-PLS aims at maximizing R2 of endogenous

variable in a path model. R2 measure a predictive

power of model and predictive relevance is measured

by Q2. The value of Q2 for business performance

and social media adoption is 0.481 and 0.234

respectively. In addition, business performance has

a large predictive relevance and medium predictive

relevance (Henseler et al., 2009) for social media

adoption construct.

Table 5: Discriminant validity-HTMT

endogenous construct

square

decision

square

decision

business performance 0.481 large 0.645 moderate

social media adoption 0.234 medium 0.425 moderate

relationship

path

coef.

statistic

p-value decision

Environmental factors ->

business performance

0.669 3.558 0.000 supported

Environmental factors ->

social media adoption

0.652 6.984 0.000 supported

social media adoption ->

business performance

0.186 1.015 0.311

not

supported

for both endogenous constructs are 0.654 and

0.425 respectively. Both constructs have moderate

predictive power due to their value around 0.50

(F. Hair Jr et al., 2014). The ﬁrst assumption

is that there is a positive relationship between the

environmental factor and the company’s performance

because the p value (0.000) is below 0.05. In addition,

its path coefﬁcient is positive (0.669). The second

hypothesis is developed as follow: environmental

factor has a positive inﬂuence on the acceptance of

social media. The result show that this hypothesis

is supported because of its p-value lower than 0.010

(0.000) and positive path coefﬁcient (0.652).

Table 6: Assessment of mediation

relationship

Indirect effect

(p-value)

direct effect

(p-value)

conclusion decision

Environmental factors ->

social media adoption ->

business performance

0.351 0.000

mediation

not

supported

The third hypothesis is not supported because the

value p is greater than 0.050 (0.311). As a result, there

is no link between social media adoption and business

performance. The fourth hypothesis is analyzed using

the evaluation approach of mediation proposed by

(Zhao et al., 2010). (Zhao et al., 2010) argue that

there should be a precondition for the establishment

of mediation (the indirect effect (axb) is signiﬁcant

and it is not necessary that an ”effect is mediated”

(path c) The Sobel test compares to a low bootstrap

test (Zhao et al., 2010). According to the result of the

indirect effect its p-value is greater than 0.050 (see

Table 6) and therefore there is no mediating effect.

Thus, the fourth hypothesis is not supported. The

ﬁgure below shows the mediation analysis.

Contrary to expectation, the inﬂuence of social

media adoption on business performance of SME

is not signiﬁcant. Although, this ﬁnding diverge

from some published studies (Ahmad et al., 2018;

Ainin et al., 2015; McCann and Barlow, 2015), it is

consistent with those of (Ahmad et al., 2018; Bakri,

2017). It is difﬁcult to explain this result, but it may

be related to the sample size of this study is small.

Other possible explanation is that the low level of

social media adoption among SME and its customer,

suppliers and other stakeholders are less familiar with

social media or technology. Even though, SME has

adopted the social media for promotion (for example),

its customers don’t use the social media. Therefore,

they don’t know about SME product or service and

they would not buy the product or service. Finally,

marketing or ﬁnancial performance as measure of

business performance would not increase. Second

hypothesis is the effect of environmental factor

is positively related to social media adoption and

hypothesis is supported (β=0.652, p-value=0.000).

This ﬁnding conﬁrm the previous studies (Ahmad

et al., 2018; Ahmad et al., 2015; Scupola and

Nicolajsen, 2013). However, the reason why SME

adopted the social media in this case is bandwagon

pressure and competitive pressure.

Adoption of social media among SME is due

to psychological phenomena or SME adopted the

social media because of others doing so (Ahmad

et al., 2018). Second reason why SME adopt

SME is because of its business, such as supplier

or customers, use the social media (Lertwongsatien

and Wongpinunwatana, 2003). If they do not use

the social media, they would lose the opportunities

and lose the competitive advantages. The third

hypothesis is also supported which means that

there is a positive effect of environmental factors

on business performance (β=0.669, p-value=0.000).

This ﬁnding is conformable with those of other

studies (Aziz and Yassin, 2010; Gaur et al., 2011)

and suggest the higher the environmental factors,

the higher of SME business performance. Last

hypothesis state that social media adoption mediated

the relationship between environmental factors and

business performance of SME. The result show that

The Role of Social Media Adoption as Mediating Variable between Environment Context and SME Performance

there is no role of social media adoption as mediator.

The possible explanation why this happened is

because of small sample size, social media adoption

level, and other stakeholders might not familiar with

technology or social media.

5 CONCLUSION AND

RECOMMENDATION

Social media usage among SME has been critical

and discussed by practitioners and academician

recently. However, there is limited previous studies

investigating this subject matter, especially using an

Indonesia’s SME. This study investigates the role

of social media adoption among SME as mediating

variable between environmental factors and business

performance of SME. Besides, this study also

analyses the effect of environmental factors on social

media adoption and business performance. SME

which is familiar with and adopter of social media

is research object. Business operation of SME is

in west Sumatra, Indonesia. Using smart-pls, we

conclude that there is a positive relationship between

environmental factors and adoption of social media

between SMEs and business performance. However,

the effect of social media adoption on business

performance of SME is not supported. Further,

the role of social media adoption as mediating

variable between environmental factors and business

performance is also not supported. Theoretically,

this ﬁnding partially contributes to TOE in the

sense that social media adoption among SME is

also pressured by external factors, such as business

partner. Practically, the positive effect of the

environment factors on social media adoption and

business performance of SME imply that the local

government can improve the adoption of social media

among SME by educating the society in order to

be familiar with social media and other technology

break-through. Finally, number of limitations need

to be considered. First, this study uses a limited

number of small-medium enterprise. Second, this

study applies a limited number of independent

variables as factor affecting social media adoption

and business performance. ﬁnally, detail investigation

need to be conducted asking why SME adopt social

media. Future research in regarding to role of social

media adoption in mediating the relationship between

environmental factors and business performance

would be of great help by adding the number of

sample size. Further investigation into social media

adoption is strongly recommended by adding other

independent variables from other perspective, such as

technology context. Finally, more research is needed

to better understand by using other approach, such as

qualitative approach.

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