The Greatest Potential to Strengthen the SME Ecosystem in Indonesia

As we know there are 62 million SMEs in Indonesia with its own unique set of problems. There have been many partial efforts that have been made to help empower SMEs, but if we consider the Pareto principle, there are dominant factors that have a much greater influence on the SMs empowerment and there are less dominant factors in that, if that was improved, it will have small effect for improving the business power and competitiveness of SMEs.

Based on some research we have conducted, we advocate for three things that are considered to be dominant factors that will greatly empower SMEs in Indonesia. Three factors are shown below:


Issue 1: The vicious circle of cheap imports results in the inability of SMEs to grow their businesses.


Based on discussions with many SMEs and SME parties, it’s known that several entities/ institutions have ability to observe the movement of products that are often transacted in Indonesia. Unfortunately, this information is mostly utilized by foreign parties. These foreign parties are indeed engaged not only in Indonesia but also globally (Global Players).

Global Players observe which products are in high demand in Indonesia, and within six months, they flood the market with similar but cheaper products. To compete, an SME must come up with a superior new product to increase their sales, when that happens, they only have six months to capitalize.

Global Players use the intelligence market to gain unfair advantage and shorten the life cycle of SMEs’ flagship products, but SMEs have no strategic plan to respond. Due to limited time to capitalize on any investment or innovation, SMEs are very reluctant to expand their business.

This process is the beginning of a vicious circle common among small and medium-sized enterprises (SMEs) in Indonesia: cheaper imported products in the market result in SMEs’ reluctance to invest in medium and long term initiatives, which in turn results in low productivity and production inefficiencies (limiting growth) and makes them less competitive with global players. This vicious circle at the SMEs level creates another smaller vicious circle for individual workers: The low productivity of SMEs lowers household income, which in turn results in less household spending on their children’s education, thus creating more low-skilled workers who will be heavily dependent on SMEs to provide income.

From the description of the phenomenon above, it can be concluded that the main factor is a way that needed to provide time for Indonesian SME owners to learn and “upgrade” so that they can eventually break the chain of this vicious circle. The solution we have described in this article is as follows:

1. Go local or go home.

Inspire Indonesians to buy local products even when there are other cheaper alternative products.

2. Invest for the long run. 

Stimulate SMEs to invest in medium to long term initiatives despite getting bombarded by global products.

3. Productivity is the engine of growth.

Focus on skills training and technology adoption to drive productivity up.

4. Defense is the best offense.

Create a local ecosystem with effective trade policies that can protect SMEs and employ a more data-driven, market-intelligent approach.


Issue 2: Imers potential to create a symbiotic relationship with MSMEs and enable MSMEs to compete with Global Players.


One of the problems of Indonesian SMEs is the inability to use data to understand what the market wants and also to create trends. Even if there is an increase in local production, much of it is driven by trends that are not created in Indonesia. Global Players can also control the market systematically because they control market data (either through control of various social media applications or e-commerce), and they also have a very brave character to take risks.

Imers can be an interesting and powerful subset and collaborator of SMEs, due to their ability to read the market, their persistence, and courage in taking risks that are more or less as competitive as Global Players.

Departing from the description of the issues that revolve around SMEs, nothing wrong if SMEs want to reflect on Imers in the market reading space. However, the intervention of other parties is needed so that SMEs dare to get out of their comfort zones and try things that feel unfamiliar but can be very telling in winning market competition. Various things that should be appreciated from Imers and can be used as lessons for SMEs include:

  1. Willing to learn different ways of marketing and advertising.
  2. Ready for digitalization and maximize the use of digital technology.
  3. Highly motivated to find a winning product or formulate a winning product.
  4. Able to develop networks/acquaintances and cooperate with suppliers, fellow actors, and supporting businesses such as logistics, warehousing, production, marketing, and others.
  5. Dare to allocate a measured budget for advertising purposes.


Issue 3: Focus on Value Creation, not just Love local products


In practice, we should also not fall into the jargon, “Love Local Products (Cintai Produk Lokal)“, but need to focus more on the impact of product value creation through creation (impact creation). We raise this issue as a commentary on policies and movements that need to be appreciated and have been very good, but as the time goes by it turns out that implementation in the field does not always meet initial expectations. Mainly because many merchants, although claiming to be produced in Indonesia actually are not, they even imported. Secondly, even though a product is produced in Indonesia, the supply chain may be from overseas, so the impact on the local industry is minimal. A simple example: Local products marked with local brands but produced abroad, or local products produced domestically but from foreign investors so again the players are not the native citizens.

For the reasons stated in above, the role of the government is very important, especially in terms of regulation and facilitation. Regarding regulations, the effectiveness of import regulations is needed because they directly affect the competitiveness of local production. Regarding facilitation, the government needs to stimulate demand consolidation, and increase product value through creative economy approaches, closer access to markets, and access to local supply chains. With government facilitation and stimulation, SMEs will become more empowered, and able to plan on a massive scale at a lower price.

Cosmos holds the belief that SMEs will continue to play a pivotal role in the economic development of Indonesia and become a key factor in society’s independence and welfare. Conversely, SME issues will persist and fluctuate, but let us not lose focus on the factors that will affect Indonesian SMEs in the medium and long term. The development of the SME ecosystem is an annual process and cannot be fully left to SMEs, so it needs active participation from various parties that can directly and indirectly support the independence of Indonesian SMEs and carry outstanding SMEs to become Global Players.


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