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.