Submitted To

An Assignment
On
“Barriers faced by SME in Indonesia”
Course Code: HRM-526
Submitted to:
Saira Banu
Assistant Professor
Department of Management
University of Dhaka
Submitted by:
Group: 17 (Raptors)
Name Id No Remark
Md. Khaled Mahmud Asif 21-226
Nirab Hossain 21-234
Shafiqul Islam 21-235
Md. Shakirul Islam 21-237
Tarikul Islam 21-253
Date of Submission: 01-03-2020

SME
Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs)
are businesses whose personnel numbers fall below certain limits. The abbreviation "SME" is
used by international organizations such as the World Bank, the European Union, the United
Nations and the World Trade Organization (WTO).
SMEs outnumber large companies by a wide margin and also employ many more people. For
example, Australian SMEs make up 98% of all Australian businesses, produce one-third of the
total GDP and employ 4.7 million people. In Chile, in the commercial year 2014, 98.5% of the
firms were classified as SMEs. In Tunisia, the self-employed workers alone account for about
28% of the total non-farm employment and firms with fewer than 100 employees account for
about 62% of total employment.
In developing countries, smaller (micro) and informal firms, have a larger share than in
developed countries. SMEs are also said to be responsible for driving innovation and competition
in many economic sectors. Although they create more jobs, there is also a majority of job
destruction/contraction.
SMEs are important for economic and social reasons, given the sectors role in employment. Due
to their sizes, SME are heavily influenced by their Chief Executive Officers (CEOs). The CEOs
of SMEs often are the founders, owners, and manager of the SMEs. The duties of the CEO in
SME are difficult, and mirror those of the CEO of a large company: the CEO needs to
strategically allocate her/his time, energy, and assets to direct the SMEs. Typically, the CEO is
the strategist, champion and leader for developing the SME or the prime reason for the business
failing.
Indonesia
In Indonesia, the government defines micro, small, and medium enterprises. Indonesian based on
their assets and revenues according to Law No. 20/2008.
Type Maximum assets, Rp Maximum revenue, Rp
Micro 50,000,000 300,000,000
Small 500,000,000 2,500,000,000
Mediu
10,000,000,000 50,000,000,000
m
SME has a large and strategic role in supporting economic growth in Indonesia. SME is a
priority sector in Indonesia as a basis for making economy policy target, but the government still
pay little attention to the obstacles that are faced by SMEs, such as, less supportive policies and
regulations, inadequate infrastructure, high fuel prices. Ironically, Indonesian SME products are
facing strong competition with imported products, even in its own country due to the opening of
markets inside the country from free trade area agreement which become a threat to SME with so
many well-known services in local market. Therefore, the government should seriously consider
SME promotion and develop program that is strongly required as a strategic move to emerge the
economy. SME as a pillar of the country's economy is expected not only to increase household
incomes and employment opportunities, but also the economic prosperity of the country equally.
Nowadays, Indonesian SMEs still have so many obstacles which include capital, lack of
technology, limited knowledge about business management and production. Inadequate
infrastructure was one factor that causes difficulties for SME to open wider market access, to
communicate, and to fulfil commitment to the customer. Infrastructure constraints also affected
the technology adoption because technology requires the readiness of supporting infrastructure
meanwhile technology may be one of the solution that can be taken to solve SME product with
quality standards
In Indonesia, the Ministry of Cooperatives and SMEs admitted that one of the main obstacle of
Indonesian SMEs is capital, this fact is supported by various studies which were stated that
SMEs in developing countries have little access to financing from financial institutions due to
various factors. Difficulties in obtaining raw materials also contributed to one of many obstacles
faced by Indonesian SMEs. Indonesian SMEs do not have sufficient capacity to manage well
management that causing wastes in production process.
Indonesian SME’s still faces other significant obstacles to business continuity. Indonesian SMEs
are lacked of knowledge about markets and global agreement, which is become the reason why
their target market is relatively small. Good SME products will be weak without market
absorption. Bad promotion becomes one of the reasons why Indonesia is defeated by another
brand of other countries.
In this attached article, primary data were collected to examine the various problems faced by
SMEs in Indonesia, through questionnaire from 180 respondents. By the descriptive analysis,
respondents were asked to choose 10 of the 33 reasons that reason considered to be the potential
barriers that the respondent faced in SME business today. Once has been selected and then sorted
by the reasons at the rank of importance, the data result is shown below.
1. Process (expensiveness, difficulties, bad custom arrangement)
2. Long time duration administrative process
3. Geographical location
4. Government policy and regulation
5. Economic factors (fiscal and monetary policies of the government, inflation,
6. interest rates and foreign exchange rates)
7. Competition barriers
8. Political barriers
9. Crime and corruption rate
10. Insufficient information
11. Standard quality
12. Trade agreement
13. Management skill
14. Infrastructure
15. Technology
16. Financial access
17. Raw material
18. Inefficient production cost
19. Low capability in high production
20. Marketing difficulties
21. International market knowledge
22. Lack of knowledge in transaction method
23. Limitation of sales
24. Limitation of buyer
25. Limitation destination
26. Price of energy
27. Transportation
28. High labor cost
29. Lack of good human resources
30. Managerial capacity
31. Low capability
32. Legal barriers
33. Lack of focus
34. Another barrier reasons. Etc.
From the above 33 barriers the most ten potential Barriers are
1. Competition barriers
2. Financial access
3. Price of energy
4. Technology
5. Inefficient production cost 5
6. Economic factors (fiscal and monetary policies of the government, inflation, interest rates
and foreign exchange rates)
7. Management skill
8. Process (expensiveness, difficulties, bad custom arrangement)
9. Limitation of sales
10. Raw material.
Conclusion
These barriers will become challenges for the government program to make the Indonesian
SMEs product overcome the international markets competition. Many SMEs hope that
government would help seriously reduce and prevent their problems. The SMEs expectation can
be achieved if government is committed to improve their people performance in all departments
that would indirectly influence for the SMEs business climate. Through a good governance and
very high value performance, government would support SMEs to eliminate all barriers for
business development. With a high awareness of the SMEs importance, contribution to the
country, Govt. can arrange some opportunities for SMEs growth, such as easy loan application
from formal financial institutions, conducting training programs and skills equally all over area,
technology procurement assistance, and many more. In addition, the well performance of
official’s government will help much to create a stable economic condition, make the needs are
affordable for SMEs, like energy and raw materials, which greatly affects the cost of production.
Strict regulations will help to reduce many SMEs problem that is related to security, process
difficulties, and corruption.

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An Assignment

Date of Submission: 01-03-2020

Type Maximum assets, Rp Maximum revenue, Rp

Micro 50,000,000 300,000,000

Small 500,000,000 2,500,000,000

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