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.