SOEs not well-served by existing markets, institutions

SOEs not well-served by existing markets, institutions

In conjunction with the launch of the 2005 International Year of
Microcredit and the recent meeting on microfinance in Bali, The
Jakarta Post's Rita A. Widiadana interviewed Carl Dagenhart and
Feraldi W. Loeis from the International Finance Corporation's
(IFC) Program for Eastern Indonesia Small Medium Enterprises
Assistance (PENSA), a member of the World Bank Group, on the
potential and handicaps faced by local SMEs. The following is an
excerpt from the interview.
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Question: What is the current situation of small and medium
enterprises (SMEs) in Bali?
Feraldi W.Loeis (FWL): Bali has been heavily relying on the
tourism and hospitality industry for many years and has been
neglecting its small, medium businesses. When the bomb tragedy
occurred in 2002, it crippled the island's economy and it was
also proven that tourism businesses are vulnerable due to
internal and external factors. SMEs, on the other hand, were
able to survive despite many weaknesses and handicaps. This group
has the stability and the flexibility to adjust to the nation's
volatile economic, political and business climate. However, they
are not well-served by existing markets and institutions.
So what's the most serious problems faced by SMEs in Bali?

FWL: In addition to tourism, Bali has an abundance of small
and medium businesses producing good handicraft, furniture,
garments and other products. The problem is that not many buyers
have been coming to the island in the post-bombing era and thus
Bali products have lost their easy access to international
markets. Other problems include limited access to financial
resources and market information, but these are quite typical
problems faced by most SMEs world-wide, not only in Indonesia.
Could you elaborate on the IFC-PENSA program to boost the
island's economic condition?

Carl Dagenhart (CD): In Bali, Pensa's program focuses its
effort on promoting handicraft exports. The approach is to assist
local handicraft producers in establishing links to international
buyers and developing skills and capacity necessary to satisfy
buyers' requirements. For that latter purpose, the program will
endeavor to provide accessible business development services to
SMEs, mainly in the area of training and consulting..

We expect that once SMEs are provided with accessible and
quality business development services, they will be able to run
their businesses effectively and sustainably. We are not working
alone. We've set up cooperation with local service providers,
non-governmental organizations, the government, and other donor-
funded programs.

Another complementary program run out of Bali supports and
links forests, saw mills, furniture manufacturers and buyers to
help them gain business advantage from using responsibly sourced
timber.
How competitive are Bali's products in the international market?

CD: Bali's products used to be well-known for their unique
designs, good quality and competitive prices. But other countries
such as Malaysia, the Philippines, Vietnam, Cambodia, Taiwan and
China are also producing goods of similar quality. The last
economic crisis, followed by the bombing, has prevented Balinese
producers from expanding their businesses.

At the same time, competitors from other Asian countries have
improved significantly. The handicraft sector in those countries
is more diversified and comprises small, medium, and large
enterprises, domestic private companies, foreign-investment
companies, and sometimes-large state-owned companies.

In Indonesia, by contrast, the handicraft sector is still
mainly a cottage industry, and as such does not have sufficient
financial and human resources to be able to produce sufficient
volume to attract larger buyers. High transportation costs are
yet another handicap that the Bali producers have to face when
competing with producers from other countries.

Finally, Balinese handicraft producers must understand the
market trends and be able to improve the design of their
products. Bali original designs may sell well to tourists
however, international wholesale buyers are interested in buying
not handicraft but home furnishings and therefore require more
modern, contemporary designs.

After the bomb, the capability of Balinese producers to
maintain their businesses has been diminishing. One producer said
he never received any orders for the last two years. The other
complained that he once had 1,300 artisans working to produce
exported goods, now he has none to help him running the business.
What are the urgent steps needed to help SMEs reoperate their
dying businesses?

FWL: To give them more opportunity to learn about the market
needs, to assist them in producing marketable goods, to improve
their business skills. The most important point is to change
their attitudes towards their businesses. It is urgent for them
to reach out the market rather than wait for the orders to come.
It is also significant to raise their sense of urgency.

It is expected that the program will help the handicraft
producers become more sustainable and profitable. This, we hope,
will make a significant contribution to revitalizing the island's
economy, and it is also a way to gradually decrease the island's
strong dependence on the fragile tourism industry.