Potential Barriers for Indonesia SMEs and How to Find the Solutions on that Matters

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 Research Questions;

1. Should University Role enterprisesprovide Assistances to Small and Medium Enterprises?

The Micro, Small, and Medium Enterprise (MSME) is one of the sectors affected by the Covid-19 Pandemic. The impact was in the form of an 84.20% decline in income. At the same time, the Medium-Large Enterprise also experienced an 82.29% decline in its revenue. This phenomenon makes MSME reduces its workforce to maintain production.

A Faculty Member of the Faculty of Economics and Business (FEB) UNS, Nurul Istiqomah stated that based on the data, the level of layoffs in Micro and Small Enterprise is 33.23%, while in Medium-Large Enterprise is 46.64%. Besides, Indonesia Statistics (BPS) in August 2020 reported that Indonesia’s unemployment rate increased by 2.67 million people. The increase in unemployment leads to a fall in Indonesia’s economic growth, which reached 3.49% in the third quarter.

“To move the MSME amid the Covid-19 pandemic, there are phases that need to deal with. First, rescue, a phase where economic assistance must be provided to the community and people affected by Covid-19. In this phase, the government must consider the trade-off between health and economy,” Nurul Istiqomah explained to uns.ac.id on Thursday (31/12/2020).

Nurul continued with the explanation on the second phase. In this stage, the community can work as usual by implementing health protocols. There is a shift from fear into awareness in this phase and marked by increased technology-assisted activities. The next phase is recovery when the community reconciled with Covid-19 and performed all their activities with the new normal pattern. “Therefore, there is an important point that needs to be built by MSME and related stakeholders,” she added.

The first important point that needs to be performed by MSME is building a strong institutional system as the primary foundation. This point can be implemented by joining an association or business group. The affiliation of MSMEs in a group can facilitate information acquisition from the upstream to downstream. The second point is to be adaptive to technology. Based on her observation in several regions, MSME that marketed their products online tends not to experience a significant decline in their income and maintain their market share. “This is because the potential of internet users in Indonesia has reached 196.7 million people,” Nurul explained. The last point is product diversification to make their product get absorbed into the market, especially for products to increase body immunity.

The active role of stakeholders is needed to realize these points. It is starting from the government by assisting MSMEs is an essential step in reviving the MSMEs. The aspect that needs to be evaluated in the future regarding the distribution of governmental aid is its speed, accuracy, and priority of assistance. Nurul also stated that the community has a role in improving MSME immunity through the supervision of the distribution of the aid to prevent fraud. On the other hand, MSMEs also need assistance to develop a strategy in facing the pandemic. MSMEs’ basic strategy is waiting for the market to move and produce after receiving the order. “This is different from the condition before the pandemic in which they keep running the production process without waiting for orders,” Nurul said.

The business world, represented by the financial institution, also has a role in increasing economic inclusion for MSMEs. According to OJK, financial inclusion benefits improve people’s welfare, encourage national economic recovery, and support the community’s economic resilience in every condition. The last stakeholder that has a vital role in this process is the media. The media can improve economic passion by reporting news concerning MSMEs. “Media also can inform the community that MSMEs are still producing and operating during the pandemic,” Nurul explained.

Therefore, MSMEs and the economy can achieve the development stage. The economy is recovering through various community activities; economic activities, health activities, education, and cultural and social activities. If the development stage has been achieved, the growth stage in which the economy continues to grow and Indonesia can reach recovery, so that Indonesia can be revived from the pandemic. HUMAS  UNS

Reporter: Bayu Aji Prasetya
Editor: Dwi Hastuti

2. If SMEs agree to receive mentoring, what kinds of assistance are that forces?

Self-reported constraint data have been used in empirical research on firms in developing countries but they have their limitations. Across multiple self-reported surveys about constraints, the questions are asked slightly differently and this can affect the interpretation of results. More importantly, many firms may not have sufficient understanding of the market or of their firm’s growth potential to recognize what the real problems are in conducting their business operations. Despite these issues, table 16 presents data on self-reported constraints to doing business for micro, small and medium-sized firms. In panel A, we report results from the IMK 2013 data, which covers micro and small firms, while in panel B, we report results from the WBES 2009 data, covering small and medium-sized firms. These two surveys asked firms to name the most important constraint or problem associated with conducting their business operations but these two surveys gave firms different answer options, so the data cannot be compared directly. Responses to a similar question, asked again slightly differently in our survey of SMEs, appear in table 17.

Facts that Indonesian SMEs have a great potency related with the ability to survive in crisis times do not lead to products capability. Moreover, several factors became reasons why the image of Indonesian SMEs does not emerge significantly; inability in competing in global market and the outcome will be obtained in measurement form consisting several barrier factors faced by SMEs. The methodology adopted in this research is critical literature reviews, quantitative and qualitative data collection through questionnaires to 200 respondents and in-depth interviews with each of them. The research showed there are ten major barriers faced by SMEs: competition barriers; financial access; price of energy; technology; inefficient production cost; economic factors; management skill; process; limitation of sales; and raw material. Most SMEs agreed that government should dedicate more efforts in certain actions to eliminate SMEs barriers, like security standards improvement, development programmes, good financing policy, rational energy policy, continuous performance evaluation, commitment of corruption termination, and many supporting program needed by SMEs. Hereinafter, this research could contribute government programmes for empowering SMEs as the pillars of Indonesian economy

) Capital 28.0 28.0 27.8 Raw materials 18.4 18.3 19.1 Marketing 15.7 15.4 17.0 Other problems 7.8 7.5 9.5 Worker skills 2.4 2.0 4.7 Fuel/energy 1.4 1.4 1.4 Transportation 1.2 1.2 0.7 Ability to pay wages 0.6 0.5 0.7 No problems 24.6 25.6 19.1

3. If SMEs do not agree with the Assistances what kinds of  the obstacles occur in campus assistance to SMEs

SMEs expected many solutions which government and another stakeholders should corcern if they intend to develop SMEs in order to increase their competitive advantages in global market. SMEs respondents agree that government should concern to improve security standards while goods was delivering from the company to the market since Indonesian crime really become a serious threat for SMEs. Government should maintain the SMEs sustainability by creating more programs spreaded all over the area, civil servants should go to the SMEs market and see how the SMEs conditions to create an effective program to solve SMEs development problem. One solution provides a separate institution that works specifically to foster SMEs potencies. This program can be represented by creating special institution in each region in Indonesia as a place for SMEs to conduct consultations and find solutions for their problems, or regularly send their people to check SMEs conditions to reduce constraints faced by SME. Furthermore, they should regularly evaluate programs to measure performance and effectiveness of their program in helping SMEs. SMEs in Indonesia faced financial problem so they need more soft loans with simple requirements of SME credit scheme applications. Government should protect the prices of primary goods, because it also influences another material price. SMEs agree that government should eliminate permit fees for opening new business, because many of them thought that the price quite expensive for their first time to run business. This licensing is costing significantly for SME and respondents found this factor as another threat to achieve their goals. Government should revised this policy and creates supporting determination to prevent SMEs from people who take advantage from their business. To eliminate financial barrier government is obligated to preserve rupiah currency, and seriously keep energy prices like electricity, fuel, and other energy costs affordable for SME. Government should facilitate SME with technology through soft loan to buy supporting technology for their business. Since many SMEs have problem with the land cost, they expected that government could provide land leasing for businesses with a very affordable price for SMEs, or provide viable and strategic location for SME. Indonesia is facing corruption problem and this fact also influence SMEs sustainability. Government should give the best effort to eradicate corruption. SMEs need a supporting policy to help them survive. There should be a strict punishment for bureaucrats who collect illegal fees from SMEs. The other thing is SMEs expect government to conduct serious programs to develop SMEs in global market without any significant charges, for instances, training for overseas marketing, skill and knowledge development, and entrepreuneurial motivation training.

References;

https://uns.ac.id/en/the-opportunity-and-challenges-for-indonesian-msmes-to-recover-amid-the-pandemic/

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/263226/demand_for_mentoring_among_SMEs.pdf

https://media.neliti.com/media/publications/456-EN-reforming-policies-for-small-and-medium-sized-enterprises-in-indonesia.pdf

Yin Jh, Song Hy, Zeng Kx (2022) Does a smart business environment promote corporate investment? a case study of Hangzhou. PLOS ONE 17(7): e0269089. https://doi.org/10.1371/journal.pone.0269089