Colleges

Essay on Micro, Small, and Medium Enterprises in Indonesia

Assignment on South East Asia Economy

Sungging Haryo Wicaksono

M10119803

Graduate Institute of Electro-optical Engineering

National Taiwan University of Science and Technology

ESSAY ON MICRO, SMALL, AND MEDIUM ENTERPRISES IN INDONESIA

Indonesia the 4th most populous country in the world (248 million) suffered a lot during Asian Financial Crisis in 1997-1998. Gross Domestic Product (GDP) dropped 13% and rupiah (IDR) exchange rate fallen up to 14,000 per USD [1]. However, it triggered an economic reform which transferred Indonesia become a potential emerging market in the following decade. Indonesia now is one of G-20 member, together with G-7 country, India, China, Brazil, Russia represent 90% of economy in the world [2]. Indonesia also able to perform amazing economic growth during global financial crisis, during 2008-2012 period, Annual economic growth reach 6.0%, 4.6%, 6.2%,6.5 %, and 6.3% respectively. In the other hand, Euro Zone and United States suffered unstable annual growth. Indonesia’s Gross Domestic Product (GDP) nominal in 2011 is USD 846 billions, surpass Netherland, Finland, Sweden, and Norway (ranked 16th in the world).

Table 1 Annual economic growth in Indonesia and selected countries[3]

Country

Economic growth

2008

2009

2010

2011

France

-0.1

-3.1

1.7

1.7

Germany

1.1

-5.1

4.2

3.0

Greece

-0.2

-3.1

-4.9

-7.1

New Zealand

-1.5

-0.5

0.2

1.0

Russian Federation

5.2

-7.8

4.3

4.3

United Kingdom

-1.0

-4.0

1.8

0.8

United States

-0.4

-3.5

3.0

1.7

Indonesia

6.0

4.6

6.2

6.5

Japan

-1.0

-5.5

4.4

-0.7

Small-Medium Enterprise in Indonesia plays an important role in economy sector. During Asian Financial Crisis, Indonesian Stock Exchange (IDX) collapsed, but informal economic sector (dominated by Small Medium enterprises) did not significantly affected by crisis and could survive well. In Indonesia the Enterpriseclassified in three major groups, i.e. (1) Micro Enterprises, (2) Small Enterprises, (3) and Medium Enterprises or MSMEs. MSMEs made up to 99% of total Indonesian firms and companies. MSMEs classification is based on the company asset. Micro company have asset up to IDR 50,000,000 (USD 5,000). While categories of small company is based on net asset more than IDR 50,000,000  (USD 5,000) but less than IDR 500,000,000 (USD 50,000) as seen on Table 2.

Table 2

Categories of MSME’s in Indonesia [4]

Categories Net Asset Annual revenue
Micro company <IDR 50,000,000 (USD 5,000) <IDR 300,000,000 (USD 30,000)
Small company IDR 50,000,000- 500,000,000

(USD 5,000-50,000

IDR 300,000,000 2,500,000,000 (USD 30,000-250,000)
Medium company >IDR500,000,000- 10,000,000,000 >IDR 2,500,000,000- 50,000,000,000 (USD 250,000-5,000,000)

As South East Asia biggest economy, unemployment rate in Indonesia is still high, about 6.4% or second rank after The Philippines [5]. Existence of SMSE’s plays an important role in utilize the labor force. About 99 million people in productive age works in SMSE’s.Industries contribution in total GDP is about 47% and the rest are from agriculture and services. It is should be notewhorty that contribution of the number of big companies is only 0.1% from overall industries in Indonesia.

Based on estimation data in 2011 from Kementrian Koperasi dan Usaha Kecil dan Menengah (Ministry of Cooperative and Small and Medium Enterprises), number of MSME’s are 55.211.396. Very large compared with big companies which is only 4.952 units. The unique fact is, MSME’s in Indonesia is highly dominated by microscales company. About 90.77 % of total MSME’s or 54.559.969 is microscale companies.

Table 3

MSME’s in Indonesia [6]

Enterprises type

2010

2011

No. of enterprises

Market share (%)

No. of enterprises

Market share (%)
MSME 53,823,732 99,99 55,206,444 99,99
Micro 53,207,500 98,85 54,559,969 99
Small 573,601 1,07 602,195 1,09
Medium 42,631 0,08 44,280 0,08
Others 4,838 0,01 4,952 0,01

Although MSME’s is very high in quantity, there are some obstacles. Many of MSME’s industry (especially Micro and Small size) are based on traditional industry, their production process are not changed from many generations. Therefore, it is not easy to develop the company while they are not able for mass production. In fact, many of MSME’s owners do not have high education background. Based on survey from Asia Foundation in 2009, only 20.3 % of MSME’s owners are graduated from Diploma 3 or higher level (Master or Ph.D). The rest are from Senior High School background or lower education level. Educational background of MSME’s owner dominated by senior high school background, where contribute about 42% of all owner. Then, owner from elementary school and junior high school is in second and third position, about 16.7 % and 16.6 % respectively. Even about 4.4 % of owners do not have any formal education background, they are probably not able to write and read. Because of the Low educational background from MSME’s owners, it will difficult for MSME’s to create many innovations in their product. Some of them do not know how about National Standard certificate, International Standard Organization (ISO), Standard Operational Procedure (SOP), how to export their product to overseas, or about intellectual properties. Only about 47.8 % of MSME’s owners have registered their company, while the rest do not have permit at all, because of the lack of knowledge.

Bureaucracy is another important issue to start business in Indonesia, especially for MSME’s. Many overlapping regulation between central government and in each province, it is not as easy as in other country to get a license for opening a company, it will take a complex process and a long time. In addition, corruption can be found in many bureaucracies process.

Indonesian government support MSME’s in financial by providing loans in Public Bank (for examples in Bank Rakyat Indonesia or BRI). BRI provide a loan start from IDR 5,000,000 (USD 500) with easy requirements for MSME’s. In 2011, total loan for MSME’s is IDR 2,134.4 trillion (USD 21,34 billion). Only 439.850 of MSME’s receive the loans, from the total 55,206,444 MSME’s, due to the lack loan access and minimum knowledge from the owners. Loan distributions to MSME’s is shown in table 4

Table 4

Loan distributions to MSME’s in Indonesia [7]

no.

Debtor

Loans (IDR)

%

1

Micro company

105.1 trillion

23

2

Small company

145.4 trillion

31.7

3

Medium company

207.3 trillion

45.3

In order to increase the quality of MSME’s, many programs have been implemented for this purpose, including in University. Some public universities in Indonesia have required course about entrepreneurship, especially for undergraduate students. In each year, Ministry of education and culture held Program Kreativitas Mahasiswa (Student Creativity Programs) to develop universities student’s creativity in many fields, including in MSME’s. Undergraduate student write a proposal project about the enterprise that they want to start. When their proposal accepted, they will receive financial support up to IDR 10,000,000 (USD 1,000) to start their business. Another program is Program MahasiswaWirausaha or PMW (Student Entrepreneur Programs or SEP), central government provide financial support about IDR 40,000,000 (USD 4,000) to undergraduate student to start their own business. Through this program, hundreds of new company owned by students has been opened and they will continue their business when graduated. As a result of the programs, there are many new, young, and educated company owners. It also helps government to reduce unemployment rate in Indonesia because it open many new job vacancies.

One of the success story of MSME’s owner from Indonesia is “Kebab Turki”, founded by Hendy Setiono in 2003, when he was an undergraduate students, inspired from qatar’s traditional snack named “Kebab”, he started to sell Kebab in Indonesia, by his innovation and transform his MSME’s in to a franchise. In 2012 he owned about 750 branches in Indonesia, including 1 branch in Kuala Lumpur, Malaysia. Kebab Turki employs more than 2000 workers. In his 30th years old, Hendy get IDR 2,25 billion (USD 225,000) in each month [8]. Another one is Sego Njamoer owned by Mahendra Ega Higuitta (23 years old), Sego Njamoer literally means “Mushroom rice” already opened the 36th branch. This business started in 2009 from Student Creativity Program. Since it opened, Sego Njamoer wins 9 awards, including Shell Livewire competitions in Malaysia [9]. With annual income more than hundreds million rupiahs in the 4th anniversary, the business still continue to grow. There are also many another success story in MSME’s owned by universities student, although still struggling with many obstacles, MSME’s in Indonesia is continuing to develop and grow. Sooner or later, MSME’s become more and more important, MSME’s owners will be more educated and increasing in significant number and still the Indonesia’s economic backbone.

References

[1]     D K Nanto, “The 1997-1998 Asian Financial Crisis”, CRS Report on Congress [html]

(url:http://www.fas.org/man/crs/crs-asia2.htm, accessed on March 17th 2013)

[2]     “What is G20” [html]

(url:http://www.g20.org/docs/about/about_G20.html acessed on March 14th 2013)

[3]     The World Bank, “GDP growth % (annual)”, World Bank National Account Data, and OECD National Account Data Files[html]

(url:http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, accessed on March 14th 2013)

[4]     A. Mourougane, “Promoting SME Development in Indonesia”, Organization for Economic Cooperation and Development, Economic Department Working Papers No. 995 (2012) pp 6.

[5]     “Unemployment Rate: Country List”, Trading Economics [html]

[6]     “Perkembangan Data Usaha Mikro, Kecil, Menengah (UMKM) dan Usaha Besar (UB) Tahun 2010-2011”, Ministry of Cooperation and Small Enterprises and Medium Enterprises [pdf]

(url:http://www.depkop.go.id/index.php accessed on March 15th 2013)

[7]     D. Bellefleur, Z. Murad, and P. Tangkau, “A Snapshot of Indonesian Entrepreneurship and Micro, Small, and Medium Sized Enterprise Development”, United States Agency International Development,  pp 12.

[8]     “Kesuksesan Hendy bisnis Kebab Turki baba Rafi”, March 04 2012 [html]

(url: http://sukses-kerja-usaha.blogspot.tw/2012/03/kesuksesan-hendy-bisnis-kebab-turki.html, accessed on March 14th 2013)

[9]     “Kesuksesan Hendy bisnis Kebab Turki baba Rafi”, March 04 2012 [html]

[10]  “Prestasi Sego Njamoer” [html]

(url: http://www.segonjamoer.com, accessed on march 14th )

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