SMEs, The Key To Indonesia’s Growth 

5 mins read

10 February 2023

As more Indonesians seek to remain competitive in a world filled with disruptions, SMEs that are able to adapt and embrace digitalization will undoubtedly prosper.

The current state of Indonesia is unparalleled. A new middle class is emerging, and the advent of digital technology has created chances for business startups. SMEs (Small and Medium-sized Enterprises) currently number over 62 million, or one SME for every five Indonesians and  61.5 million of these are microbusinesses. The growth of these small businesses into larger ones will be a key factor in the future prosperity of the nation.

Many SMEs in their early stages lack a strategic growth plan. A roadmap must be created immediately to assist more SMEs in scaling up effectively. The last few years, digital transformation has been the key emphasis. However, even with digital assistance, this is not necessarily the solution for micro-enterprises because they lack the management or operational capabilities to expand. So what is hindering Indonesian SMEs from growing into well-established businesses?

Lack Of Business Knowledge In Scaling Up & Becoming Established Companies

Unfortunately, a lot of firms in Indonesia are unsure of their real position in terms of growth. What’s more, they lack a clear understanding of their own potential. Most SME owners, especially those who are in the beginning phases, are unable to respond when asked what attitudes and talents they would need to advance.

These companies frequently lack the resources necessary to adopt a strategic strategy to growth because they are SMEs. Many new firms struggle to expand because they can’t figure out who their ideal customers are, what kind of goods or services they require, or how to provide those demands profitably.

When SMEs are able to find their product-market fit, scalability becomes a problem. They must develop a scalable system for crucial resources and processes in order to deliver their items to their target market. Therefore, the benefits of digital transformation will be minimal for both categories. When it comes to customer value proposition, team development, manufacturing, sourcing materials, and other areas, it is evident that SMEs require fundamental training in these areas as they are still lacking direction and vision towards their business objective. 

Emerging businesses have different issues to deal with. Owners of businesses at the emerging stage feel successful since they have already experienced some growth. Owners have established themselves and are frequently obtaining affirmation from their industry peers. However, despite their efforts, a lot of business owners at this point experience stagnation, which they mistake for a sign that they have achieved their pinnacle. Following this, many business owners assume that there is no longer room for growth in their particular market segment. Some people risk losing their concentration by growing their firm and taking on new tasks, sometimes even outside of their original field.

The key issue in the emerging stage is to stay focused while delving deeply into their product, knocking on doors, and creating new sales channels along the way. Businesses right now require assistance in developing a strong sales channel across the nation’s regions in order to increase their sales coverage. Another thing that is preventing businesses from growing is simply their inability to digitize processes. 

Inability To Digitalize

It is well known that Indonesia continues to struggle with a lack of financial literacy, which regrettably also affects SME owners. A major barrier to firms digitalizing their operations is a lack of understanding on how to acquire technologies or software and, more importantly, how to use it. Because of this gap, they are actually unable to fully benefit from participation in the changing economy and realize their full potential.

Even if business owners are aware of the benefits of digitalizing their operations and have a plan in place, they might not have qualified staff to implement it. Such workers are not equipped to actively participate in and support digitalization efforts. Unfortunately, there is no quick fix for this problem. To motivate their staff to propose and carry out digitalization procedures, Indonesian businesses must foster a long-term innovation culture and existing workers must also receive training to make this possible. Due to the fear of rationalization or their comfort with the status quo, many employees today have deep-seated apprehensions regarding automating their business operations.

However, if SME owners want to expand their firm and weather the economic storm, they must recognize the importance of providing their staff with the training and skills they need to support the company’s digitalization objectives. In order to tackle skill shortages, the Indonesian government should make more and more efforts to promote this initiative and develop more skilled workers.

Helping SME Growth In Indonesia 

The Indonesian government is actively supporting the growth of these enterprises by upskilling their citizens and providing training programs. These were efforts put in place by the Ministry of Industry and the Ministry of Trade in response to these problems. Additionally, the government is constructing new IT infrastructure to improve connection, boost competition, and support the ongoing development of Indonesia’s digital economy.

Players in the private sector also have a special chance to fill market shortages. It is  observed that fintech is an emerging market trend in Indonesia for start-ups and may offer chances to support SME growth through distinctive and innovative solutions. In fact, a large number of online payment channels, many of which are already active in Singapore and Malaysia, have recently announced their intentions to enter new ASEAN markets, especially Indonesia, in order to aid SMEs in their digital financial expansion by providing a SME-facing platform. With international companies opening doors for SMEs in Indonesia, many are hopeful that their local economy will continue to flourish and grow in the next few years. 

Scaling Up SMEs

Digitalization is the key focus point for SME growth in 2023 and with these six key areas, Indonesia’s SMEs will thrive: 

  • Increase sales by utilizing fresh marketing avenues and creating product and service releases that are informed by market knowledge.
  • Manage operations to increase profitability by streamlining the procurement process, improving the supply chain, and keeping an eye on prices.
  • Organize cash by anticipating liquidity issues, budgeting for costs and cash flow, and investigating digital financing options.
  • Banking may be made simpler by using data-based funding decisions.
  • Manage Staff by developing talent, simplifying and automating payroll, and streamlining employee management
  • Obtain finance from abroad and establish contacts with customers and suppliers to expand internationally

It will take a comprehensive strategy that prioritizes integrating digital transformation throughout the entire process to assist SMEs in expanding their operations and pursuing growth. As more Indonesians seek to remain competitive in a world filled with disruptions, SMEs that are able to adapt and embrace digitalization will undoubtedly prosper.

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