Developing SMEs in digital era

Developing SMEs in digital era

By Daniel Kingsley

This is the first of two articles on advancing small and
medium enterprises.

JAKARTA (JP): Private sector small enterprises will have a
major impact on the overall development and growth potential of
the economy during the latter stages of the present economic
crisis, and during the postcrisis period. The sectors' ability to
create employment will make a valuable contribution in
stabilizing social structures, which should help to ensure social
stability.

Structural changes in the economy of small and medium
enterprises (SME) as the government becomes more free market
oriented, decentralized and democratic, will have an impact on
each sectors' ability to grow and expand.

Some sectors will benefit from these changes more than others,
but as the market distortions begin to melt, the opportunities
will grow. Of all the components that make up the economy's
infrastructure, information and communication access will have
the biggest impact on the pace of SME growth and development in
the coming years.

SMEs have suffered since the rapid development of corporate
business from the mid-1980s. The problems escalated as corporate
business became more monopolistic, and oligopolies, barriers to
entry, overregulation, market protection and corrupt legal
practices, became more prominent.

Business infrastructure at the SME level also became weak
during this period as many public works, transportation access
and government services were diverted to regions being developed
by large conglomerates. Manpower quality suffered at all levels
of the SME business hierarchy, as owners and employees had little
access to training programs.

Given that the world economy is beginning to unite all levels
of national economies through the proliferation of digital
technology and multilateral agreements such as the World Trade
Organization, it is critical that the Indonesian SME economy keep
pace with structural changes.

In 2010 all economies of the Association of Southeast Asian
Nations (ASEAN) will be competing without barriers to trade, and
it is vital to SME development, and the Indonesian economy, that
local sectors are competitive and prepared for a free market
economy.

Growth and export potential will be lost if the access to
information is not developed.

The development of the facsimile and Internet became a
standard for communication in urban areas during the 1980s, but
the lack of telephone lines in rural areas prevented access to
information and a comparative disadvantage to the SMEs in these
regions. Investment potential will be lost to competing ASEAN
nations without a stronger information access system.

This writer's company, Trade Management Indonesia (TMI), deals
with Indonesia SMEs and foreign investors exclusively, and our
experience over the past two years has shown us that:

o SMEs have extreme growth potential.

o Current infrastructure is not yet conditional to foreign
investment or extensive growth.

o There are a lack of business alliances in Indonesia to
attain growth potential demanded by investors, who usually
require a maximum of seven years for return on investment.

o There is a lack of investor awareness about SMEs.

The company's principle activity has consisted of an ongoing
program to survey SMEs for general and quantifiable information,
which is entered into a database for investor access. The
database contains a cross section of manufacturing sectors. We
see the import replacement and export-oriented sectors as having
the best potential.

Most investors are waiting for legal changes as well as more
direct information access to SME activities from their home
countries. They are not prepared to get on a plane yet, but they
are willing to learn about investment potential through the
Internet.

To empower SMEs does not require huge subsidies or elaborate
and expensive programs that the government cannot afford at the
present time.

Indonesians are creative, entrepreneurial and hardworking.
They understand how to utilize their skills; provide them with as
close to perfect information as possible, and they will do the
rest. Information access will lead to legal reform; a competitive
environment, including access to price information, technical and
managerial competence, financing, skills and manpower, training,
investment, inter- and intra-provincial markets, export markets
and complementary business alliances.

Most SMEs have never had access to these vital ingredients for
growth. SMEs that have survived since 1997 have done so for
various reasons, including product line, flexibility in product
redesign, financial exposure and access to information.

In the case of the smallest enterprises, many of those with
access to information during this period were able to reinvent
their product lines. It is unfortunate that those with limited
communication line access were at a comparative disadvantage.

E-business is usually associated with big business, and it is
now a permanent component in big business infrastructure.

But e-business is part of the SME business infrastructure as
well. In Singapore, the Singapore Productivity and Standards
Board has a sophisticated website that SMEs can use to access sub
contractors and, indirectly, manpower from other ASEAN countries.
Indonesia must position itself to take advantage of this
opportunity.

E-business is about redefining business models, reinventing
business processes and enhancing relationships with customers,
suppliers and employees through collaboration.

E-business delivers great payoff potential by extending the
benefits of market information into the small enterprise or
cooperative, and extending critical company data from them to
potential markets, customers, and business alliance partners.

The writer is managing director of PT Bumi Trade Management
Indonesia and a consultant on the development of small and medium
enterprises.