The Role Of Small Medium Enterprises (Sme) In The Development Processs Of Developing Countries.
THE ROLE OF SMALL MEDIUM ENTERPRISES (SME)
IN THE DEVELOPMENT PROCESSS
OF DEVELOPING COUNTRIES
DR.Hj.Aelina Surya, Dra
ABSTRACT
In facing Economy Openness, developing countries must have economy strategy that
defence from any changes especially from globalization impact. As developing countries
have an interdependency from world’s economy (labours, technologies, etc).Small
Medium Enterprise (SME) one of economic sector is proved which does not influence by
economic crisis. Otherwise, government in developing countries must have a economy
policy to support SME development. SME has the essential contributions for economy
strategy in developing countries. They are as an accelerator for county’s economy
wheels and can be a solution for social and economic problems in developing countries.
Even though, SME still has limitations and restrictions related to be a economic base
sector and to overcome those, partnership between SME and big companies can reduce
the weakness of SME. There are three principles for partnership between both. They are
interdependency, strengthening and mutualism.
INTRODUCTION
In the present time, developing countries is facing significant changes as an effect of
globalization. Therefore, developing countries must be able to be more active in
anticipating every changes and at the same time to continuously protect its economy
openness. By continuously improving domestic economy base and tightening the
natural bounding attached among developing countries, the prospect of their economy
performance will be brighter.
In this competitive era, where every country strive to consolidate their economy in
facing new challenges, the economy of developing countries in 21st century will face
strategic environment that has fundamentally changed. Developing countries can no
longer disregard new dynamics of the world.
Globalization has shaped world’s economy with all of its consequences, including
economy integration that increases interdependency among countries and among
economic regions. Economic development process in developing countries can not be
1
separated from the effect of globalization where labors in developing countries are
getting more advance and able to operate more complicated machineries and
technologies. Thus, economic power and competition among economic regions are
increasing.
The economic crisis that happened in developing countries several years ago, proved
that they are not ready to face globalization era. This indications could be seen in
policies issued by governments in those countries. In this case, what becomes the
question is whether government’s policy to priorities big companies and neglect SME
is the right policy to make?
THE ESENTIAL CONTRIBUTIIONS OF SME IN ECONOMIC STRATEGY
FOR DEVELOPING COUNTRIES
Based on experience, we saw that in liberalization era big companies were susceptible
to external influences. On the other hand, SME has high rate flexibility towards
economics’ flux. During the crisis, SME were able to absorb employment. Another fact
is that SME’s dependency on imported goods is very low. Based on that, developing
countries have to realize the strategic role of SME for national economy and make
SME’s development as one of important priorities in economic development.
SME’s Role As One of The Accelarator of The Countries Economic Wheels
The economic development process in developing countries is related to sustainable
partnership and cooperation among big business and small and middle enterprises
(SME). However, mainly in developing countries, their economies are mainly supported
by SME’s role as one of the accelerators of the countries’ economic wheels. In the
business perspective, either in developed or developing countries there are production
supply chains where SME plays an important role in every supply chains since most of
the products were produced and handled by the SME. The presence of SME is led and
being reactive to the needs of the society, so SME is able to create economic basic of a
country and at the same time gives contributions to country’s GNP.
2
SME’s Roles Can be A Solution for Social and Economic Problems in Developing
Countries
The attention paid to SME’s role in the development strategy of developing countries
has been related to some social and economic problems faced by those countries. In
recent years, many governments in developing countries have faced some problems,
such as poverty, social economic unfairness within and inter regions, high
unemployment and migration pattern. Those problems force the governments to
improve the absorption capability of their ever increasing-labor population, especially in
non-agriculture sectors. Thus, the existence of SME can benefit country’s development
due to SME’s advantages:
1. There are many SMEs throughout the country
2. SME is very sensitive in term of the labor usage.
3. SME uses effective technology
4. Generally, SME’s capital comes from personal money
These SME’s values added are based on the study by Asian Development Bank (ADB)
about Technical Assistance Grant for Studying the Rule of Small and Medium
Enterprises in Selective SMEs, which resulted:
1. Small industry with intensive labor usage, basically more compatible in creating
employment within an economy that has many untrained labors.
2. The low requirement of capital value in the appropriate market environtment can
stimulate the development of local companies with more vast territory coverage.
The importance of SME’s role as a country’s economic supporter of was proven by the
study of Dr. Philippe Regnier (Thee Kian Wie, 1992 : 73), indicated that The Newly
Industrialized Countries (NICs) rely their industrial capability on SME. From the study,
there was an average of more than 95% SME from the total number of companies.
These SME absorbed 65% of total labors working in processing industry sector, and
produced an average of 45% value-added from the total values-added in processing
industry sector. In Taiwan, SME are the biggest exporter from total industry (66%),
South Korea, 32%, and the lowest is Singapore, 15% (Thee Kian Wie : 76-77).Based on
3
NICs experiences, the role of SME is very essential and this can be applied in
developing countries’ economic development process.
THE LIMITATIONS AND RESTRICTIONS OF SME
Such SME empowerment has produced enormous advantages to the economic
development of a country. But on the other side, compare to big industries, SME’s
capability is very weak especially in sectors like salary compensation, availability of
appropriate work condition, and inability to employ trained and expert labors. In
general, the existence of SME in several countries is facing some limitations and
restrictions such as:
1. The incapability of SME to obtain sufficient capital credit and accessed technology
information and the experts’ suggestions in several business and production field.
2. SME does not have appropriate research and experiment facility
3. SME is very weak in facing competitive and unbalance competition with big
enterprises.
4. The lack of SME’s promotion capability of their products.
5. The lack of support and sympathy from political leaders and bureaucracy people
because of the unawareness of SME to the challenges and problems they encounter,
such as the excessive rule enforcement, SME bureaucracy administration, the lack
of SME businessmen integrity, and favoritism culture in each administration levels.
6. SME access to the market is very limited.
7. The suspension of a claim payment of good and service supplied by SME in big
enterprises.
8. The lack of cooperation among scholars, research institute, economic social
institution, government and NGO in the SME’s improvement effort.
Another obstacle that seems to affect SME’s development in developing countries is the
absence of SME’s association group or non-governmental SME organization that have
vast, efficient, professional and competence membership and sufficient resources.
4
PARTNERSHIP BETWEEN SME AND BIG COMPANIES CAN REDUCE THE
LIMITATIONS AND RESTRICTIONS OF SME
To overcome above obstacles, development of SME’s role in developing countries can
be achieved through sustainable partnership and cooperation between big companies
and SME based on three principle: (1) interdependency; (2) strengthening (3)
mutualism.
Parentship can improve SME’s Capability in Production Process
Partnership and cooperation program can be implemented through parentship system.
Parentship is big enterprises that have market access and play a role in solving problems
of small industry’s products and giving assistance in the field of:
1. Improving SME’s capability through assistance in managerial, production
technology, capital, providing raw materials and marketing.
2. Credit guarantor for banking institution
In other word, industrial assistance is based on commodities development or varieties of
industry that have apparent prospect and market opportunity with the support of
materials availability and effective technology. The industrial assistance is developed
through SME’s entrepreneur within cooperation program in parentship system.
The Three Principles for SME and Big Companies Partnership
The attainment of the above three cooperation and partnership principles is influenced
by :
1. Interdependency principle
a. Partnership motivation
b. Variety of the products
c. Management system of the partnership relation
2. Strengthening
a. Types and requirements of assistance
b. The impact of assistance
3. Mutualism
a. Development of economic aspect and disparity
5
b. Development of cultural aspect
In other word, partnership and cooperation relation between parentship and strategic
partner is a business cooperation between big companies and SME by mainly emphasize
on problem solving of marketing issues along with technical assistance (technology and
management aspects) and financing.
There are three motivations of parentship :
a. Fulfilling law obligation
b. Business; interdependency and market opportunity
c. Social responsibility, especially to make positive image of the company within
the society and government
The motivations of small industries include: (1) Market assurance for their
products; (2) Material availability; (3) Expectation of assistances.
Partnership Can Trigger Social And Political Problems
Partnership and cooperation between big enterprises and SME can also be seen from
political, social, and morality aspects. The three aspects have become main concerned
because of the gap between big and small enterprises which can trigger social and
political problems. Partnership is necessary in development process of SME in
developing countries for several reasons:
a. It is a way to reduce production cost
b. Specific transfer of technology to advance production quality
c. Direct market transaction which can prevent supply and demand fluctuation
d. Building business partners in research and development
e. Interdependency especially in home industry
By above economic motivation, partnership and cooperation principle can be based on
interdependency, strengthening and mutualism. Cooperation between big enterprises
and SME can include financing, management, technology, and marketing aspects.
Specific financing mechanism is needed the development of SME’s partnership and
cooperation. For that reason, in addition to banking financing, the concept of venture’s
financing in US, Europe, and NIC in improving SME can be used as an example. SMEs
6
that qualify for an assistance are young potential entrepreneur in start up business, new
innovations, etc. The concepts of protégé , incubator, initiation program are in need of
big entrepreneurs’ assistance which can be achieved through venture’s financing
scheme.
Eventually, to create SME as one of developing countries’ back-bone, SME’s
development has to be supported by activities:
1. Seeking aids from developed countries
2. Training for trainers
3. Annual workshop among SME entrepreneur on match-making
4. Compiling and publishing of developing countries’ policy on SME
5. Promotion of information network among institutions related with SME in
developing countries
6. Enhancement of interaction between government’s institutions and private
sectors
7. Making global information network by implementing information technology
(internet) for the purpose of business partnership
8. Joint promotion and trade exhibition
9. Creating a forum to share experiences and knowledge
CONCLUSION
This paper has a conclusion that making priority for SME can be an economy strategy
for developing countries. Since it has many advantages than the other sector. Proved as
the most defense sector in economic crisis. In the other hand, SME’s is facing limitation
and restrictions to implement in developing countries especially in technologies,
uncompetitive ness, and research capability. To solve them, partnership between big
companies is a solution. Throughout partnership, big companies can be assistance in
managerial, production, technology, capital, providing raw materials for SME.
Eventually, to make SME as one of developing country’s back bone, SME must
supported by activities such as aids from developed countries, training and exhibition
and many more.
7
IN THE DEVELOPMENT PROCESSS
OF DEVELOPING COUNTRIES
DR.Hj.Aelina Surya, Dra
ABSTRACT
In facing Economy Openness, developing countries must have economy strategy that
defence from any changes especially from globalization impact. As developing countries
have an interdependency from world’s economy (labours, technologies, etc).Small
Medium Enterprise (SME) one of economic sector is proved which does not influence by
economic crisis. Otherwise, government in developing countries must have a economy
policy to support SME development. SME has the essential contributions for economy
strategy in developing countries. They are as an accelerator for county’s economy
wheels and can be a solution for social and economic problems in developing countries.
Even though, SME still has limitations and restrictions related to be a economic base
sector and to overcome those, partnership between SME and big companies can reduce
the weakness of SME. There are three principles for partnership between both. They are
interdependency, strengthening and mutualism.
INTRODUCTION
In the present time, developing countries is facing significant changes as an effect of
globalization. Therefore, developing countries must be able to be more active in
anticipating every changes and at the same time to continuously protect its economy
openness. By continuously improving domestic economy base and tightening the
natural bounding attached among developing countries, the prospect of their economy
performance will be brighter.
In this competitive era, where every country strive to consolidate their economy in
facing new challenges, the economy of developing countries in 21st century will face
strategic environment that has fundamentally changed. Developing countries can no
longer disregard new dynamics of the world.
Globalization has shaped world’s economy with all of its consequences, including
economy integration that increases interdependency among countries and among
economic regions. Economic development process in developing countries can not be
1
separated from the effect of globalization where labors in developing countries are
getting more advance and able to operate more complicated machineries and
technologies. Thus, economic power and competition among economic regions are
increasing.
The economic crisis that happened in developing countries several years ago, proved
that they are not ready to face globalization era. This indications could be seen in
policies issued by governments in those countries. In this case, what becomes the
question is whether government’s policy to priorities big companies and neglect SME
is the right policy to make?
THE ESENTIAL CONTRIBUTIIONS OF SME IN ECONOMIC STRATEGY
FOR DEVELOPING COUNTRIES
Based on experience, we saw that in liberalization era big companies were susceptible
to external influences. On the other hand, SME has high rate flexibility towards
economics’ flux. During the crisis, SME were able to absorb employment. Another fact
is that SME’s dependency on imported goods is very low. Based on that, developing
countries have to realize the strategic role of SME for national economy and make
SME’s development as one of important priorities in economic development.
SME’s Role As One of The Accelarator of The Countries Economic Wheels
The economic development process in developing countries is related to sustainable
partnership and cooperation among big business and small and middle enterprises
(SME). However, mainly in developing countries, their economies are mainly supported
by SME’s role as one of the accelerators of the countries’ economic wheels. In the
business perspective, either in developed or developing countries there are production
supply chains where SME plays an important role in every supply chains since most of
the products were produced and handled by the SME. The presence of SME is led and
being reactive to the needs of the society, so SME is able to create economic basic of a
country and at the same time gives contributions to country’s GNP.
2
SME’s Roles Can be A Solution for Social and Economic Problems in Developing
Countries
The attention paid to SME’s role in the development strategy of developing countries
has been related to some social and economic problems faced by those countries. In
recent years, many governments in developing countries have faced some problems,
such as poverty, social economic unfairness within and inter regions, high
unemployment and migration pattern. Those problems force the governments to
improve the absorption capability of their ever increasing-labor population, especially in
non-agriculture sectors. Thus, the existence of SME can benefit country’s development
due to SME’s advantages:
1. There are many SMEs throughout the country
2. SME is very sensitive in term of the labor usage.
3. SME uses effective technology
4. Generally, SME’s capital comes from personal money
These SME’s values added are based on the study by Asian Development Bank (ADB)
about Technical Assistance Grant for Studying the Rule of Small and Medium
Enterprises in Selective SMEs, which resulted:
1. Small industry with intensive labor usage, basically more compatible in creating
employment within an economy that has many untrained labors.
2. The low requirement of capital value in the appropriate market environtment can
stimulate the development of local companies with more vast territory coverage.
The importance of SME’s role as a country’s economic supporter of was proven by the
study of Dr. Philippe Regnier (Thee Kian Wie, 1992 : 73), indicated that The Newly
Industrialized Countries (NICs) rely their industrial capability on SME. From the study,
there was an average of more than 95% SME from the total number of companies.
These SME absorbed 65% of total labors working in processing industry sector, and
produced an average of 45% value-added from the total values-added in processing
industry sector. In Taiwan, SME are the biggest exporter from total industry (66%),
South Korea, 32%, and the lowest is Singapore, 15% (Thee Kian Wie : 76-77).Based on
3
NICs experiences, the role of SME is very essential and this can be applied in
developing countries’ economic development process.
THE LIMITATIONS AND RESTRICTIONS OF SME
Such SME empowerment has produced enormous advantages to the economic
development of a country. But on the other side, compare to big industries, SME’s
capability is very weak especially in sectors like salary compensation, availability of
appropriate work condition, and inability to employ trained and expert labors. In
general, the existence of SME in several countries is facing some limitations and
restrictions such as:
1. The incapability of SME to obtain sufficient capital credit and accessed technology
information and the experts’ suggestions in several business and production field.
2. SME does not have appropriate research and experiment facility
3. SME is very weak in facing competitive and unbalance competition with big
enterprises.
4. The lack of SME’s promotion capability of their products.
5. The lack of support and sympathy from political leaders and bureaucracy people
because of the unawareness of SME to the challenges and problems they encounter,
such as the excessive rule enforcement, SME bureaucracy administration, the lack
of SME businessmen integrity, and favoritism culture in each administration levels.
6. SME access to the market is very limited.
7. The suspension of a claim payment of good and service supplied by SME in big
enterprises.
8. The lack of cooperation among scholars, research institute, economic social
institution, government and NGO in the SME’s improvement effort.
Another obstacle that seems to affect SME’s development in developing countries is the
absence of SME’s association group or non-governmental SME organization that have
vast, efficient, professional and competence membership and sufficient resources.
4
PARTNERSHIP BETWEEN SME AND BIG COMPANIES CAN REDUCE THE
LIMITATIONS AND RESTRICTIONS OF SME
To overcome above obstacles, development of SME’s role in developing countries can
be achieved through sustainable partnership and cooperation between big companies
and SME based on three principle: (1) interdependency; (2) strengthening (3)
mutualism.
Parentship can improve SME’s Capability in Production Process
Partnership and cooperation program can be implemented through parentship system.
Parentship is big enterprises that have market access and play a role in solving problems
of small industry’s products and giving assistance in the field of:
1. Improving SME’s capability through assistance in managerial, production
technology, capital, providing raw materials and marketing.
2. Credit guarantor for banking institution
In other word, industrial assistance is based on commodities development or varieties of
industry that have apparent prospect and market opportunity with the support of
materials availability and effective technology. The industrial assistance is developed
through SME’s entrepreneur within cooperation program in parentship system.
The Three Principles for SME and Big Companies Partnership
The attainment of the above three cooperation and partnership principles is influenced
by :
1. Interdependency principle
a. Partnership motivation
b. Variety of the products
c. Management system of the partnership relation
2. Strengthening
a. Types and requirements of assistance
b. The impact of assistance
3. Mutualism
a. Development of economic aspect and disparity
5
b. Development of cultural aspect
In other word, partnership and cooperation relation between parentship and strategic
partner is a business cooperation between big companies and SME by mainly emphasize
on problem solving of marketing issues along with technical assistance (technology and
management aspects) and financing.
There are three motivations of parentship :
a. Fulfilling law obligation
b. Business; interdependency and market opportunity
c. Social responsibility, especially to make positive image of the company within
the society and government
The motivations of small industries include: (1) Market assurance for their
products; (2) Material availability; (3) Expectation of assistances.
Partnership Can Trigger Social And Political Problems
Partnership and cooperation between big enterprises and SME can also be seen from
political, social, and morality aspects. The three aspects have become main concerned
because of the gap between big and small enterprises which can trigger social and
political problems. Partnership is necessary in development process of SME in
developing countries for several reasons:
a. It is a way to reduce production cost
b. Specific transfer of technology to advance production quality
c. Direct market transaction which can prevent supply and demand fluctuation
d. Building business partners in research and development
e. Interdependency especially in home industry
By above economic motivation, partnership and cooperation principle can be based on
interdependency, strengthening and mutualism. Cooperation between big enterprises
and SME can include financing, management, technology, and marketing aspects.
Specific financing mechanism is needed the development of SME’s partnership and
cooperation. For that reason, in addition to banking financing, the concept of venture’s
financing in US, Europe, and NIC in improving SME can be used as an example. SMEs
6
that qualify for an assistance are young potential entrepreneur in start up business, new
innovations, etc. The concepts of protégé , incubator, initiation program are in need of
big entrepreneurs’ assistance which can be achieved through venture’s financing
scheme.
Eventually, to create SME as one of developing countries’ back-bone, SME’s
development has to be supported by activities:
1. Seeking aids from developed countries
2. Training for trainers
3. Annual workshop among SME entrepreneur on match-making
4. Compiling and publishing of developing countries’ policy on SME
5. Promotion of information network among institutions related with SME in
developing countries
6. Enhancement of interaction between government’s institutions and private
sectors
7. Making global information network by implementing information technology
(internet) for the purpose of business partnership
8. Joint promotion and trade exhibition
9. Creating a forum to share experiences and knowledge
CONCLUSION
This paper has a conclusion that making priority for SME can be an economy strategy
for developing countries. Since it has many advantages than the other sector. Proved as
the most defense sector in economic crisis. In the other hand, SME’s is facing limitation
and restrictions to implement in developing countries especially in technologies,
uncompetitive ness, and research capability. To solve them, partnership between big
companies is a solution. Throughout partnership, big companies can be assistance in
managerial, production, technology, capital, providing raw materials for SME.
Eventually, to make SME as one of developing country’s back bone, SME must
supported by activities such as aids from developed countries, training and exhibition
and many more.
7