Developing SMEs in the digital era
Developing SMEs in the digital era
By Daniel Kingsley
This is the second of two articles on advancing small and
medium enterprises.
JAKARTA (JP): The next issue is comparative advantages and a
level playing field. New e-trade companies are beginning to enter
the rural market. Trade Management Indonesia is aware of several
e-trade start-ups that have very sophisticated marketing plans;
they have recently identified the rural market as having strong
potential.
These firms have chosen their target market based on careful
market research, which shows that: 1. Information is not freely
available at the SME level; 2. There is a clear demand; 3. Public
information and facilities for its distribution exist in most
areas where SMEs operate, but are inadequate in terms of service
and technology.
Commercial e-trade will only benefit those who can afford to
buy the information, and many of the smaller enterprises cannot
afford this luxury.
It is important that comparative disadvantages do not develop
and that those who cannot afford to access information through
the free market have the system to access market information. It
is equally important that the system has the resources and
management to function efficiently, maximize the quality of its
information and reach as many SMEs as possible.
Since e-trade companies are starting up, and demand for
information exists, it is crucial to establish fluid lines of
information to those who cannot afford it through the market to
create a system of fair competition.
If a level playing field is to be established within the SME
hierarchy, the most efficient correction measure is to balance
information constraints across socioeconomic borders by utilizing
existing public services and allowing them to be useful for those
who choose to use them.
What about business alliances? Such alliances are extremely
successful tactics for big business but are not common in the SME
economy. Few use the concept and they are in a competitive
disadvantage to those that do.
Alliances will be one of the major advantages that develop
from an expanding information system, changing the way many firms
operate.
Strategic business alliances are a mutual coordination of
planning, managing, operating and purchasing between businesses
that offer mutual benefits. They differ from traditional business
partnerships, which exist for a fixed time and/or for specific
projects and purposes.
Joint ventures or contractual arrangements between partners
are limited in respect to future long-term expectations.
Strategic alliances in business can be more fluid and lead to
longer-term relationships and greater payoffs because they can
maximize resource and distribution flows over time; they are more
stable relationships.
With the introduction of e-business to SMEs, especially the
smallest, there is an incredible amount of growth potential
through mutually beneficial alliances with the larger SMEs and
with other ASEAN manufacturers, especially in Singapore.
The information/communication infrastructure does not
necessarily need to be physically available to these smaller
firms, as long as they are capable of receiving e-business
information.
This can be accomplished in areas beyond the reach of
facilities at the provincial and regional levels through hard
copy distribution.
A small industrious supplier of a simple component has the
potential to position himself as an export supplier. This type of
opportunity has never existed in Indonesia before. The potential
is there, but the infrastructure of information dissemination
must be changed.
The next point is dissemination strategy. Micro strategy which
focuses on disseminating information on employment, export trade,
interprovince trade, export exposure, investor exposure and
pricing will have an immediate impact on SMEs.
Information infrastructure is being built as we speak by many
of the e-trade firms. They can bring to their customers all of
the above and more at a competitive market price. But we must be
aware that the lowest levels in the SME hierarchy will not be
able to afford such services, either due to a lack of access to
communication lines or because of financial constraints.
On the issue of structural reform, Indonesia's economy must
concentrate on labor intensive industries. This is something that
any developing economy with some 210 million people to support
must accept.
The strategic business alliances will play an important role
in this development. The development of these alliances is a
major structural change for the SME economy and the most
important types of information to be disseminated and made
available are management and logistical information, market
information and technical information.
The two most important conditions are trust between potential
partners and reducing unnecessary costs of entering into these
alliances.
There should be a minimum level of government intervention at
the SME level, beyond providing services, which will be the best
avenue the government could follow in encouraging the above
conditions.
Government intervention can include overly aggressive tax
officials, licensing bodies and legal officials (police/justice
department), as well as intimidation of potential foreign
investors by immigration officials.
The government and the SMEs must work together to initiate
policy that will create structural changes in the economy.
The players in this economy, at any socioeconomic level, have
a great opportunity to grow and attract investors, and to become
active in the national and world economy. Indonesia cannot afford
to lose any competitive advantage it presently holds.
In conclusion, it is critical for the government to prioritize
the development of an electronic information access system that
will allow SMEs to compete with each other and in the world
economies, or risk isolation and limited growth potential as the
world economies become united through information technology.
The writer is managing director of PT Bumi Trade Management
Indonesia and a consultant on the development of small and medium
enterprises.