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Indonesian SME participation in ASEAN economic integration.

This study examines the extent and nature of Indonesia's SMEs 'participation in ASEAN economic integration based on a survey of 200 SMEs in the manufacturing sector. The survey shows that 79 per cent of respondents demonstrated awareness of the AEC. However, only 18 per cent of them were aware of the ASEAN Blueprint for SMEs. We found that 39 per cent of respondents think the AEC will increase domestic sales and the other 15 per cent believed it will decrease them. In terms of exports, 39 per cent of respondents expected their exports to increase in contrast to the 3 per cent who believed it they will decrease. Concerning their profits, 45 per cent of the respondents felt optimistic that their profits will increase, in contrast to the 13 per cent who felt they will decline. A large proportion of respondents were of the opinion that the AEC will affect them through: lower import duties (42 per cent of respondents); lower export tariffs (47 per cent of respondents); better custom procedures (42 per cent of respondents); better standard regulations (49.5 per cent of respondents); and improved recognition of professional qualifications (46 per cent of respondents). Our survey found a larger percentage of firms that did not utilize FTA forms (63 per cent) even though they were actively exporting, predominantly because of the lack of knowledge regarding their use. The Probit model showed a significant correlation between FTA use and export activities. There is also a significant positive relationship between FTA use and the probability of import. Furthermore, larger firms are more likely to utilize FTA forms.

Keywords: Indonesia, SMEs, regional economic integration, ASEAN Economic Community.

1. Introduction

ASEAN considers small and medium enterprises (SMEs) to be an important element in the economic development of member countries. SME development is a major component of the third pillar of the ASEAN Economic Community (AEC) Blueprint--equitable economic development. The 2004-14 SME Blueprint, which detailed ASEAN policies to develop competitive ASEAN SMEs, was followed by the 2010-15 ASEAN Strategic Action Plan for SME Development, which outlined specific activities to implement SME policies. Small enterprises ought to take advantage of the establishment of the AEC, as access to ASEAN markets not only expands the pool of potential consumers but also provides more options to outsource production inputs. The latter promotes larger firms to obtain input materials from SMEs. In the long run, interconnected production stages will create mutual benefits to the parties involved. This promises to accelerate economic growth.

This study aims to examine the extent and nature of Indonesian SME participation in ASEAN economic integration. It sheds light on the current conditions and opinions on how to benefit from economic integration. This article is based on a survey of 200 SMEs in Indonesia funded by ERIA and ISEAS to gather their comments and opinions about the impacts of ASEAN regionalism on their business activities. The field survey covers firms in the manufacturing sector with more than 10 employees in 9 out of the 22 main industries where SMEs most commonly exist: (1) food products; (2) beverages; (3) wearing apparel; (4) leather and related products (focus on footwear); (5) wood and wood and cork products; (6) furniture; (7) manufacture of electrical; (8) computer, electronics, and optical products; and (9) motor, vehicles, trailer, and semi trailers.

This paper is organized as follows: after the introduction, section 2 provides the background to Indonesia's SMEs through a comparison with other ASEAN Economies; section 3 shows the results of the survey and provides an econometric analysis; and section 4 concludes.

2. Background to Indonesian MSMEs

2.1 Definitions, Numbers and Impact on the Economy

To provide some context, we highlight important differences of Indonesia's definition of SMEs with other definitions in the region (see Appendix 1 for the full list of definitions in other countries in ASEAN). Indonesia differentiates micro, small and medium enterprises (MSMEs) based on the number of workers (Board of Statistics definition) and sales or assets (definition based on Law No. 20/2008).

Micro enterprises are defined as enterprises with employees of less than 5 people, assets below Rp50 million (US$5,500), or sales below Rp300 million (US$33,000). Small enterprises are defined as firms with employees between 5-19 people, with assets of Rp50 to Rp500 million or with sales between Rp300 million to Rp2.5 billion. Medium enterprises are firms with employees between 20 and 99 people, assets between Rp500 million to Rp5 billion, or sales between Rp2.5 to Rp50 billion. Crucially, the term "SMEs" also includes micro enterprises in Indonesia. In fact, the Indonesian government's SME policy prioritizes micro enterprises, since they are relatively more abundant. Hence, we will include micro enterprises when discussing SMEs.

MSMEs are relatively abundant in Indonesia's economy. Figure 1 shows the relative size of MSMEs with regard to GDP, employment, exports and number of enterprises. MSMEs contributed about 57.6 per cent of GDP in 2013: 30.3 per cent of which are from micro enterprises; 12.8 per cent from small enterprises; and 14.5 per cent from medium-scale enterprises. MSMEs absorbed 96.7 per cent of total employment in 2014, 87 per cent of which (about 105 million workers) are in micro enterprises. MSMEs constitute 99 per cent of all enterprises, of which 98.7 per cent are micro enterprises. However, it is large enterprises (LEs) which drive exports, at 84.3 per cent of exports are of this size. By contrast, 11.5 per cent are from medium enterprises. Small and micro firms contributed about 4 per cent.

The contributions of MSMEs to GDP have declined in recent times (Figure 2). From 2008 to 2013, MSMEs' contributions to GDP declined from 58.3 per cent to 57.6 per cent. This is due to the decline in the growth of micro enterprises, from 32.8 per cent in 2008 to 30 per cent in 2013. Moreover, employment growth in MSMEs was about 4.6 per cent, which is lower than national employment growth of 4.7 per cent. By contrast, employment growth in LEs was at 7.45 per cent. MSMEs also exhibit much lower productivity than LEs. During the 2006-08 period, MSME productivity was about 4 per cent that of large enterprises. Micro enterprises show a significantly lower average productivity compared to other enterprises. For 2009-13, the average productivity of MSMEs remained 4 per cent of LEs (Table 1). That said, business entities in the MSME category increased during 2008-14, from 51.4 million in 2008 to 59.3 million in 2014 (Figure 4). Micro enterprises increased by 2.3 per cent per annum while medium enterprises increased by 6.2 per cent.

2.2 SME Policies in Indonesia

Although Indonesia's MSMEs are relatively smaller in size compared to other MSMEs in the region, Indonesia's MSMEs play a larger role in the economy. For example, Malaysia's micro enterprise are firms with sales up to US$91,645, more than ten times the size of micro enterprises in Indonesia. Singapore's SMEs are enterprises with annual sales turnover of not more than US$73.5 million. However, Indonesia's MSMEs contributed about 57.6 per cent to GDP while SMEs in other countries contributed less to their GDP. Similarly, Indonesia's MSMEs contributed more to employment than other countries (Table 2). However, in terms of exports, Indonesia's MSMEs contributed less than Thailand's and Malaysia's SMEs. SMEs in Thailand contributed about 25.5 per cent of total exports while Malaysia's SMEs contributed about 19 per cent of their total exports. By contrast, Indonesia's SMEs's contributed 15.7 per cent of total exports.

FIGURE 3
MSMEs Contribution to Employment 2008-14 (per cent)

      Micro       Small       Medium      Large
      Enterprise  Enterprise  Enterprise  Enterprise

2008  91          4           3           3
2009  91          4           3           3
2010  91          4           3           3
2011  91          4           3           3
2012  90          4           3           3
2013  89          5           3           3
2014  87          6           4           3

SOURCE: SMES Statistic, Ministry of Cooperatives and SME.


The salient difference between Indonesia's MSMEs compared to other ASEAN SMEs concerns their sectoral distribution (Figure 5). Indonesia's MSMEs are mainly in primary sectors--48.9 per cent. MSMEs in trade and industries are about 28.8 per cent and 6.4 per cent respectively. In other ASEAN countries, more SMEs are in trade, services and manufacturing. More than 40 per cent of SMEs in Malaysia, Thailand and Philippines are in the services sector. In Cambodia, Laos and Vietnam, SMEs are mainly in the trade sector, with shares of 59.6 per cent, 62.9 per cent and 39.8 per cent respectively.

SMEs are strategically important in Indonesia's economy. The development of SMEs is consistently amongst the top priorities of the government and tends to be framed in the form of social welfare. Hill's (2001) outline of Indonesia's SME development policies suggests that the policies from the 1970s up to 1998 were ineffective due to limited resources allocated, the lack of a clear policy rationale as well as a supply-driven orientation. Hill also noted that the government rarely engaged large firms and commercial services in supporting its SME development programmes. Table 3 lists Indonesia's SME development policies from 1970 to 2000.

After the Asian Financial Crisis, SMEs continued to be a top priority. The policies continued to be framed in a social welfare approach with excessive protectionism reflected in its policies, such as partnerships with SMEs, business sectors reserved for SMEs and other programme to shield SMEs from competition.

In 2008, Law No. 20/2008 regarding micro, small and medium enterprises was enacted to lay the foundation of MSME development policies. In contrast to Law No. 9/1995, the new law covers micro and medium enterprises in addition to small enterprises. The law continues to carry the mandate for the development of MSME as the agent of development, equity distribution and poverty alleviation (Article 5, Law No. 20/2008).

Table 4 lists MSMEs policies since 2008.

The role of the central and local goverment in SMEs development is defined in Law No. 23/2014 regarding local government. The law re-emphasizes the focus of goverment concerning SME development on empowerment and upgrading. Particularly, the goverment enacted Law No. 1/2013 to provide financial assistance for microfinance institutions.

Subsequently, the government also established LPEI (Indonesia Export Funding Agency). Although its main role is to facilitate exports, export financing for SMEs are included in its mandate as outlined in the reform package the government introduced in 2015.

Regarding SME protection, in 2014 the goverment enacted Presidential Regulation No. 39/2014 concerning the investment reservation list. According to this regulation, ninety-three business activities are reserved for micro, small, and medium enterprises as well as cooperatives. In addition, there are fifty-one business activities open for investment which required partnership with micro, small, and medium enterprises and cooperatives.

To contextualize Indonesia's SME policy vis-a-vis other ASEAN economies, ERIA (2014) evaluated SME policies across ASEAN member countries, including Indonesia, based on eight factors: the institutional framework; access to support services; the cost and speed to start a business; access to finance; technology and technology transfer; international market expansion; promotion of entrepreneurial education; and representation of SME's interests. The evaluation is presented in an index value starting from 1 (poor) to 6 (good practice). Indonesia scored 4.1 out of 6.0.

Indonesia's institutional framework scored 4.4 out of 6.0 as it possesses a clear definition and provides institutions for SME development. For Indonesia, the definition of SMEs is stated in Law No. 20/2008. The coordination of SME policy formulation and implementations is under the Ministry of Cooperatives and SMEs (MoCSME). Indonesia also states its SME development stategies on its National Medium Development Plan with the detailed initiatives outlined in the plans of the respective implementing ministries and agencies.

FIGURE 5
Distribution of SMEs across ASEAN (%)
Philippines, 2012

Service           35.7
Manufacturing     16.6
Trade and repair  42.5
Others             5.2

Thailand, 2013
Service           31.7
Manufacturing     23.7
Trade             44.7

Indonesia, 2011

Service           48.8
Manufacturing     28.8
Trade              6.4
Primary Industry   6.9
Transportation     2.1
Others             6.9

Malaysia, 2010
Service           93.1
Manufacturing      1
Agriculture        5.9

Cambodia, 2014

Service           59.6
Manufacturing     13.9
Trade             26.5

Lao PDR, 2013

Service           62.9
Manufacturing     12.4
Trade             18.3
Others             6.4

Vietnam, 2012

Service           39.8
Manufacturing     15.7
Trade             20.5
Construction      10.1
Others            13.8

SOURCE: Asia SME Finance Monitor 2014, ADB.
Note: Table made from pie chart


Regarding access to support services, Indonesia scored 4.0 out of 6.0. To support SMEs, the government action plan includes business incubators, business development services (BDS) and centres for integrated commercial services known as PLUT (Pusat Layanan Usaha Terpadu). There are 1,096 BDS located in almost all regencies through out the country. Notably however, the centres are no longer operating. The assistance for e-commerce, such as the online portal for SMEs, also cannot be accessed by SMEs.

The government supported start-up companies by making business registration cheaper and faster, and through providing financial assistance. Based on regulations, it takes only takes three days to obtain a company registration certificate and it is free of charge. The government also established KPPT (One-Stop Licensing Office) so that firms no longer have to visit different local agencies to obtain a business permit. However, it takes three to seven days to issue a business registration certificate. Meanwhile the performance of KPPT varies across local governments. In terms of financial assistance for start-up companies, the government introduced working capital assistance for start-ups for new entrepreneurs under the Government's Social Assistance Programme. It targets new graduates from vocational schools, academies, and universities who are still unemployed. The working capital assistance can be up to Rp25 million (US$2,500), and new enterpreneurs are not required to pay back the grant/loan. As of 2014, around 2,160 graduates had participated in the programme. Because of Indonesia's legislation and regulations to make start-ups cheaper and faster, Indonesia scored 4.4 out of 6.0. For access to finance, Indonesia scored 4.3 out of 6.0. Although Indonesia has a good banking system, only a small number of SMEs have access to financial assistance from banks. Moreover, non-bank financial institutions are limited. In addition, Indonesia has not provided SMEs access to obtain capital from capital markets.

Related to technology and technology transfer, every ministry has its own plan and there is no system to syncronize all the existing regulations. Moreover, most of the initiatives are still at an early stage. The necessary infrastructure for technological development such as broadband internet and protection of intellectual property has not been sufficient. Hence for technology and technology transfer, Indonesia only scored 3.8 out of 6.0.

For international market expansion, Indonesia scored 4.2 out of 6.0. This is because of the overlapping policies and lack of coordination across relevant SMEs ministries/agencies. In addition, the lack of resources and capacity of the Indonesian Trade Promotion Centre (ITPC) also contributed to the low capacity of market expansion. Although there is an internal monitoring and evaluation process for this programme, it is unclear whether there has been a significant number of participating SMEs which have started to export. The goverment also allocated financial assistance for SMEs to export under the LPEI. In 2011, the share of export credit that was allocated to SMEs was only 8.47 per cent. Limited regional coverage--LPEI is only available in five cities, namely, Jakarta, Medan, Surabaya, Makassar, and Solo--and the lack of funding source has impeded them in distributing export credits.

In terms of entrepreneurship education, Indonesia scored 3.9 out of 6.0. Entrepreneurship education has not been a major feature in the education curriculum. For the effective representation of SME's interests, Indonesia scores the lowest of the eight aspects, namely 3.0 out of 6.0.

Compared to other countries in ASEAN, SMEs in Indonesia remain less competitive due to their low productivity and innovation. Ineffective government policies towards SMEs contributed to this outcome. The continued increase in minimum wages was not followed by a significant increase in output, as skills upgrading is not part of SME development. In addition, the low productivity is also associated with the inefficiency of business operations. Company culture has also been a major weakness hindering innovation. While training for workers is often provided in big companies, it is rarely provided in SMEs. There is a perception that training is a merely a costly burden which provides no returns.

Access to finance is another major obstacle for SMEs in Indonesia. While other ASEAN countries have provided alternative ways to obtain credit with less costly requirements, the banking sector is still the main source of external funding. The Government of Indonesia has addressed the problem of high interest rates by providing small business credit (KUR). However, the prudential practices in the banking sector require collateral or at least a decent financial history to be considered for this credit. With the absence or limited alternative sources of funding (such as, from venture capital, angel investors, or crowd-funding institutions), start-ups find it very difficult to get external funds.

Moreover, doing business in Indonesia is costly and tedious. The World Bank Doing Business Survey 2016 estimates that a person needs to spend 46 days for 13 procedures to start a business in Indonesia. The cost of which is relatively high compared to other countries. One incentive for SMEs to remain unregistered is that they can avoid the cumbersome tax administration. Hence, most SMEs, especially micro and small enterprises, choose to stay as informal business, being unaware of the other benefits from registering as a formal legal entity.

Additionally, it can be challenging for SMEs in Indonesia to find the correct market for their products. The government has developed and implemented a number of programmes to improve access for SMEs to markets. For example, the Ministry of Trade has a number of programmes, such as: establishing a local trade forum aimed at facilitating SME expansion across the region; partnering SMEs with modern retail business to promote their products; and supporting the implementation of online sales systems through e-catalogues and e-marketing. However, the programme only has a limited impact as its scale is relatively small. It was also found that technical ministries have overlapping SMEs programmes among them.

Indeed, the government of Indonesia has no grand strategy to develop and has no political will to improve the competitiveness of SMEs.

3. Survey Results

3.1 Characteristics of Survey Samples

We approached 1,000 SMEs by telephone, letters and direct emails as well as via business associations and local governments. We successfully interviewed 200 firms in three major locations: the greater Jakarta area; the greater Bandung area; and the greater Surabaya area. We interviewed owners or managers of small (11-49 workers), medium (50-249 workers), and large enterprise (more than 250 workers). This included 52 firms in food products: 20 firms in beverages; 71 firms in apparel; 14 firms in leather and related products; 14 firms in wood products; 21 firms in furniture; 3 firms in computer, electronic, and optical goods; 4 firms in electrical products; and 1 firm in the motor, vehicles, trailer, and semi trailer sub-sector (Figure 6).

The majority of our respondents were small enterprises (51 per cent). The remaining 30.5 per cent were medium and 18.5 per cent were large enterprises. Most have been in the business for at least 15 years (46.5 per cent) and 29 per cent of the total sample have been in the business for 6-14 years. The remaining 24.5 per cent were in the business for 5 years or less. A majority of firms were sole proprietors--55.5 per cent of the total sample. The remaining firms were either private limited (34 per cent) or partnerships (7 per cent). More than 90 per cent of the sample are 100 per cent locally owned. The other 4 per cent were 100 per cent foreign owned and 5 per cent were joint ventures. Table 6 presents the full sample characteristics.

Table 6 also reports that 56.5 per cent of the samples were family-run businesses. 98.2 per cent of these are family businesses and were managed by the founder or a family member. Of these, 63 per cent were university graduates, 10 per cent held diploma certificates, 22 per cent were secondary/high school graduates, while the remaining were primary school graduates. The proportion of family-run businesses is higher in SMEs than large enterprises (LEs). Table 6 also shows that only 38 per cent of the respondents were a subsidiary of larger companies.

FIGURE 6
The Distribution of Survey Samples

Food          26%
products
Beverages     10%
Wearing       36%
apparel
Leather and    7%
related
products
Wood           7%
products
Furniture     11%
Computer,      2%
electronic,
and optical
Electrical     2%
product
Motor,         1%
vehicles,
trailer, and
semi
trailers

SOURCE: ERIA-ISEAS Enterprise Survey 2015.


Sales, Production Costs, Employment, and Innovation (1)

The average sales of the interviewed firms was Rp450 billion in 2013, with a 10 per cent increase in 2014. The average sales of SMEs was Rp21.9 billion in 2013 with a 3 per cent increase in 2014. By contrast, the average sales of LEs increased by 10 per cent. Among the 200 firms sampled, 33 per cent of firms export, with average export sales of 11.6 per cent. The export share of SMEs was lower, about 8.2 per cent. In constrast, the export share of LEs was 26.1 per cent. Table 7 summarizes the interview results regarding sales.

For intermediate outputs, 0.5 per cent of respondents sold their product to the parent company, 1.5 per cent to sister companies, 2 per cent to subsidiary companies, 1 per cent to state-owned companies, and 9.5 per cent to other companies. As for final products, 77 per cent of respondents sold their final products directly to consumers, 43 per cent to other companies, 7 per cent to state owned companies, 4 per cent to sister companies, 3 per cent to parent companies, and 2 per cent to subsidiary companies. In addition, there were also companies that sold both intermediate and final goods, of which 0.5 per cent of the total sample sold them to parent companies, 0.5 per cent to sister companies, 0.5 per cent to subsidiary companies, and 4 per cent to other companies.

Specifically for SMEs, 11 per cent of SMEs sold intermediate outputs to other companies, 0.6 per cent to parent companies, 1.2 per cent to sister companies, 1.2 per cent to subsidiary companies, and 1.2 per cent to state owned companies. As for final goods, most SMEs sold their products directly to consumers and other companies--78 per cent directly to consumers, 40 per cent to other companies, 5.5 per cent to state owned companies, 3.7 per cent to sister companies, 2.5 per cent to parent companies, and 1.2 per cent to subsidiary companies. About 4 per cent of these SMEs also sold their product as intermediate and final goods to other companies.

For LEs, the survey results show that 5.4 per cent of LEs sold intermediate outputs to subsidiary companies, 2.7 per cent to sister companies and 2.7 per cent to other companies. Among the group, 73 per cent of them sold their product as final goods to consumers directly, 57 per cent to other companies, 10.8 per cent to state owned companies, and 5.4 per cent each to parent companies, sister companies, and subsidiary companies.

In summary, 77 per cent of the respondents sold their products directly to customers, 57 per cent to other unrelated companies, 8 per cent to state owned companies, 6 per cent to sister companies, 5 per cent to subsidiary companies, and 4 per cent to parent companies (Table 8). With regard to the types of outputs sold, 83 per cent of respondents sold only final goods, 4 per cent sold only intermediate goods, and 13 per cent of respondents sold both final and intermediate goods (Table 9). Regarding goods destinations, it can be concluded that 54 per cent of respondents sent their outputs to only one kind of firms, while 46 per cent distributed the products to multiple destinations (Table 10).

The respondent's production process and input characteristics are summarized in Table 11. 69.5 per cent of the respondents had their production process completely in-house, while 22.5 per cent had both in-house and outsourced production processes. The remaining 8 per cent had their production processes completely outsourced. Similarly, 69 per cent of SMEs respondents also had their production completely in-house, 22 per cent both in-house and outsourced, and the remaining 9 per cent had it completely outsourced. Among LEs, 70 per cent of them processed their products in-house, 24 per cent in house and outsourced and 5 per cent completely outsourced. The average production cost was about Rp179 billion in 2013, which increased by 21 per cent in 2014. Among SMEs, however, the average cost only increased by 3 per cent, from Rp8.9 billion to Rp9.17 billion. In contrast, production costs in LEs increased by 22 per cent from Rp929 billion in 2013 to Rpl,130 billion in 2014. The largest component of costs was raw materials--44.4 per cent of total costs in 2013. This was followed by salaries and wages (about 29.1 per cent), and intermediate inputs, about 12.1 per cent of the total cost. The pattern is similar between SMEs and LEs in which raw materials and salaries were a major part of the production cost.

The local market was the major source of inputs. The survey shows that SMEs and LEs differed in procurement. The majority of SMEs sourced their inputs from the local market--85 per cent, while another 10 per cent of respondents sourced more than half of their inputs locally. The remaining 5 per cent obtained all or most of their inputs from foreign markets. By contrast, only 38 per cent of LEs sourced all their inputs from the local market, another 38 per cent obtained more than half of their inputs from the local market, and 32 per cent sourced all or most of their inputs from abroad.

Employment patterns were also slightly different between SMEs and LEs (Table 12), where the proportion of full-time workers is higher in LEs than SMEs. The share of full-time workers to total workers in SMEs and LEs were 79 per cent and 91 per cent respectively. SMEs employ less female workers than LEs. The share of female workers in SMEs and LEs was about 27 per cent and 46 per cent respectively. Foreign workers were very limited, only 2 per cent in 2013 and declined to 1 per cent in 2014. The survey shows a large number of workers were plant and machine operators or assemblers. The other 18 per cent were supervisors or clerical staff, 15 per cent were engineers and technicians, 13 per cent were service and sales workers, 5 per cent were managers and professionals, and 1 per cent had other positions (see Table 13). Although managers and professionals made up only 5 per cent of total workers, the share of their salaries to total salaries paid was about 44.1 per cent. The share of plant and machine operators and assemblers was similar between SMEs and LEs. However, LEs had a more even distribution of salaries across job categories than SMEs.

The labour force amongst respondent firms was dominated by secondary/high school graduates--54 per cent of the total (Figure 7). Among SMEs, the proportion of workers with secondary/high school qualifications and below (77 per cent) was higher than other levels of educational attainment. By contrast, this number was 55 per cent for LEs.

Firms also provided trainings. The average training expenditures in 2013 was around Rp400 million (Table 14). For SMEs, the average training expenditure was less than Rp400 million, while training expenditure of LEs was more than Rp600 million.

Table 15 shows the innovation activities and expenditure of respondent firms from 2012 to 2014. Overall, 24 per cent of respondents managed research and development (R&D) activities in-house, while 14 per cent of respondents outsourced their R&D activities. For in-house R&D, the average expenditure of respondents was Rp75.3 billion for 2012-14, while the average cost for outsourcing R&D was Rp123 million. Other than R&D to support innovation activities, 30 per cent of respondents obtained machinery, equipment, and software, with an average expenditure of Rp165 billion, 7 per cent of them acquired knowledge from external resources with an average expenditure of Rp1.8 billion. The proportion of SMEs that performed innovation activities was lower than LEs.

For SMEs, the proportion of respondents involved in in-house R&D was 20 per cent, outsourced R&D was 10 per cent, acquisition of machinery was 28 per cent, and acquisition of external knowledge was 6 per cent, while for LEs the proportion was 43 per cent, 30 per cent, 38 per cent, and 8 per cent for the four innovation activities respectively.

Figure 8 shows whether firms introduced product innovation. Overall, 59 per cent of repondents introduced new or significantly improved goods and 29 per cent of introduced new or significantly improved services. For SMEs, 56 per cent of respondents introduced new or significantly improved goods and 31 per cent introduced new or significantly improved services. In contrast, 70 per cent of LEs introduced new or significantly improved goods, and only 22 per cent of them that launched new or significantly improved services.

Did innovation contribute to sales? The survey shows that the average share of innovation products that were new to the market was 14 per cent of total sales while the share of innovation products that were new to the firm was 11 per cent of total sales (Figure 9). The contribution of new innovation to sales was slightly lower in SMEs, in which the share of innovation products that were new to market and to firms were 11 per cent and 13 per cent of total sales respectively.

FIGURE 7
Academic Qualifications of Workers

         No formal   Primary  Secondary/   Vocation/Diploma  University
         education            High School                    Degree

Overall  14%         12%      22%          13%               11%
SMEs     22%         25%      45%          47%               16%
LEs      18%          7%       3%           3%                1%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

FIGURE 8
Introduction of Product Innovation (2012-14)

         New or significantly  New or significantly
         improved services     improved goods

LEs      22%                   70%
SMEs     31%                   56%
Overall  29%                   59%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

FIGURE 9
Share of New and Improved Product in Sales (in %)

         New to the firm  New to the market

LEs      12%              15%
SMEs     11%              31%
Overall  11%              14%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.


The survey results also show innovation processes, including: innovation in methods of manufacturing or producing goods or services; logistics, delivery or distribution methods; and supporting activities for firms processes (Figure 10). Overall, 44 per cent of respondents innovated on manufacturing methods, 42 per cent introduced innovation on logistic process and 52 per cent brought innovation to the firms' supporting activities.

Total expenditure on innovation activities for all respondents in 2012-14 was Rp48 trillion, making average annual total expenditure on innovation Rp16 trillion. The respondents' share of revenue from new product to total sales in 2014 was 25 per cent of total sales of all respondents, or about Rp25 trillion.

The survey also shows that the majority of respondents were connected to IT. As shown in Table 16, 64 per cent of total respondents used emails for communication in which the rate of IT utilization by SMEs was 61 per cent. This was slightly lower than LEs, which was about 78 per cent. Although not a majority, 45 per cent of respondents had a company website, 41 per cent of which were SMEs and 59 per cent were LEs. Online services for promotion are also used by 38 per cent of respondents. The utilization of other Internet-related services, such as online sales, online purchases, and online payments, as below 30 per cent.

3.2 The ASEAN Economic Community

This part of the survey assesses firms' engagement in the ASEAN region. As indicated in Table 17, only 19 per cent of our respondents had business relations with firms in other ASEAN economies, of which more than half of them engaged in export relations. For SMEs, only 16 per cent of them were engaged in business with other ASEAN economies, mostly via exporting. Meanwhile, 30 per cent of LEs were involved in business relations with major activities, 57 per cent of respondents exported to and 27 per cent imported from ASEAN economies.

FIGURE 10
Introduction of Process Innovation (2012-14)

         New Supporting  New in Logistic     New in Manufacturing
         Activities      or Delivery Method  Method

LEs      59%             49%                 51%
SMEs     50%             40%                 42%
Overall  52%             42%                 44%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.


Table 18 shows the distribution of respondents by exporting/importing activities. 33 per cent of them deal with exports and less than 50 per cent exported to ASEAN. For SMEs, only 26 per cent of respondents export, of which 48 per cent are exported to ASEAN. In contrast, the share of LEs which export was 62 per cent. Meanwhile, 24 per cent of respondents deal with imports, but only 27 per cent of them are imported from ASEAN countries.

We also asked whether respondents know about the AEC and the ASEAN SMEs Policy Blueprint (Figure 11). It turned out that 79 per cent of respondents were aware about the AEC. However, only 18 per cent of them understood the ASEAN Blueprint for SMEs. By contrast, 86 per cent of LEs firms demonstrated an understanding of the AEC and ASEAN Blueprint for SMEs.

What is the perception of respondents regarding the impact of the AEC on their businesses? As shown in Table 19, 39 per cent of respondents expected that the AEC will increase domestic sales, 31 per cent believed the AEC will not affect their businesses, 15 per cent believed that the AEC will result in a decrease in sales, while 15 per cent did not know or did not give an opinion. 39 per cent of respondents perceived that their exports will increase and 22.5 per cent believed that there will be no change. Only 3 per cent of respondents presumed their exports to decrease. 35.5 per cent had no opinion.

In terms of import costs, a large number of respondents (42.5 per cent) had no idea how the AEC affects their import cost. Concerning their profits, 45 per cent of the respondents felt optimistic that their profits will increase, 27 per cent indicated that they expected no change, 13 per cent signalled that they expected a decline, and 15 per cent did not know or expressed no opinion.

On competition in the domestic market, 63 per cent of respondents expected that the AEC will encourage competition in the domestic market, the other 26 per cent believed that there will be no change. The other 8 per cent of respondents had no idea how the AEC would affect competition. As for competition in foreign markets, 46.5 per cent of respondents believed that the AEC will increase competition in foreign markets, 20 per cent expected no change, while the other 33.5 per cent had no idea about how AEC will impact foreign market competition.

With regard to access to intermediate outputs, 41 per cent of respondents believed that the AEC will increase access to intermedite outputs, 31.5 per cent believed that there will be no change, 1.5 per cent expected that access will decrease, while 26 per cent had no idea.

FIGURE 11
Firms' Awareness on AEC and ASEAN SMEs Policy Blueprint

         Aware of ASEAN      Aware of ASEAN Blueprint/Strategic Action
         Economic Community  Plan for SME Development 2004-2014

LEs      86%                 27%
SMEs     77%                 15%
Overall  79%                 18%

NOTES: The data of awareness may overestimate since the awareness
definition in the survey is whether the respondents know the AEC and
ASEAN Blueprint/Strategic action plan for SME Development 2004-14.

SOURCE: ERIA-ISEAS Enterprise Survey 2015.


When we compare the responses from LEs and SMEs, it appears that LEs had a relatively better sense on how the AEC affects their business.

What are the perceptions of specific mechanisms in the AEC? As summarized in Table 20, 42 per cent of respondents perceived that import tariffs/duties will decrease, 15 per cent expected import tariffs/duties to be unchanged, 7 per cent expected them to rise, and 36 per cent expressed no opinion. For export tariffs/duties, 47.5 per cent of respondents indicated they expected them to decrease, 16 per cent expect no change, 3 per cent expected them to rise, and 33.5 per cent gave no opinion. With regard to customs procedures, 42 per cent of respondents were optimistic procedures will improve, 21 per cent expected no change, 8 per cent expected procedures to worsen, and 29 per cent expressed no opinion.

In terms of regulation standards, 49.5 per cent of respondents believed they will get better, 21.5 per cent see no change, 6.5 per cent assumed they will become worse, and 22.5 per cent expressed no opinion. Regarding the recognition of professional qualifications, 46 per cent were optimistic that it will improve, 15.5 per cent see no change, 8.5 per cent perceived that it will get worse, and 30 per cent had no idea.

For investment processes in ASEAN countries, 47.5 per cent of the respondents were optimistic that the process will improve, 13.5 per cent suggested no change, 1 per cent agreed it will worsen, and 38 per cent of them expressed no opinion. About 63 per cent of the respondents believed that connectivity in terms of transport and communications services across ASEAN region will improve, 12.5 per cent of them believed that there will be no change, 1.5 per cent assumed it will worsen, and 23 per cent expressed no opinion.

LEs were more optimistic about the impact of key changes in the AEC than SMEs (listed in Table 20). Overall, 59 per cent of LEs believed that the key changes in the AEC will improve. Only 46 per cent of SMEs thought likewise. This is not surprising given that LEs have a better understanding of the AEC as compared to SMEs. This is demonstrated by the number of respondents in each group who expressed that they did not know what the effect of the AEC was or had no opinion: 10 per cent for LEs and 35 per cent for SMEs.

3.3 Participation in Regional Integration

Regional integration can be promoted through trade, investment, joint business activities and so on. From our survey (Table 21), we found that out of those who were actively exporting and importing, 45 per cent had established business relations with companies in the region. By contrast, only less than 1 per cent of non-exporting/importing respondents had business relations with ASEAN partners. These findings complement with the vision of ASEAN governments to form an integrated ASEAN economy.

Foreign-owned companies were more active in establishing business relations in the region. From our survey, we found that 60 per cent of foreign-owned and actively trading firms had established business relations with partners around the region (Table 22). On the contrary, the domestically owned firms were less likely to establish business relations in the region, as the survey found that 58 per cent of actively trading respondents without foreign ownership did not have business relations in the region. This evidence supports the initiative to promote foreign direct investment in the development of regional economic integration.

Whether integration through the formation of the AEC would promote trade activities in the region is one of the important questions for ASEAN. Tariffs have been lowered in the region for many years and came close to zero in 2016 with the commencement of the AEC. However, in order to utilize the provisions, firms must complete FTA administration processes. Our survey (Table 23) found more firms did not utilize FTA forms (63 per cent) than those who did (37 per cent) even though they were all actively exporting. For firms who were not aware of the AEC, there was an equal number of firms who used FTA forms and those who did not.

Why did firms not utilize the FTA forms? Our survey found that some of the reasons include: very low trade volumes; a lack of knowledge on how to utilize FTA forms; difficulties in getting a certificate of origin; the tariff preferences from FTAs were too small; and an inability to fulfil the ROO requirements. Our survey found the most dominant reason was the lack of knowledge about using FTA forms (Figure 12).

While the government is expected to support business, including the implementation of the AEC, evidence from our survey found that business-to-business relations in ASEAN did not receive government support (Table 24). About 70 per cent of surveyed firms that received government support for their operations did not have established business relations with firms in other ASEAN economies. An even larger proportion had no business relations among companies that did not receive government support--85.2 per cent.

The perception of respondents regarding how FTAs will affect their business is summarized in Table 25. Overall, 29.5 per cent of respondents indicated that FTAs will increase their domestic sales, 32 per cent indicated "no change", 14 per cent believed that they will cause domestic sales to decrease, and 24.5 per cent expressed no opinion. Regarding the impact of FTAs on export sales, 34.5 per cent of respondents believed FTAs will increase their export sales, 22.5 per cent see no change, 3.5 per cent believed that they will decrease, and 39.5 per cent expressed no opinion. With regard to the cost of imports, 13 per cent of respondents believed that they will increase, 23.5 per cent suggested no change, 17.5 per cent believed it will decrease, while 46 per cent have no idea. About 41.5 per cent of respondents agreed that profits will increase, 23.5 per cent believe it will not change, 12 per cent believed it will decrease, and 23 per cent expressed no opinion.

Related to the impact of FTAs, 54.8 per cent of respondents believed that FTAs will increase domestic competition, 23.6 per cent see no change, 2 per cent indicated that competition will decline, and 19.6 per cent expressed no opinion. 40 per cent of respondents expect competition in foreign markets to increase, 15.5 per cent expect no change, 1 per cent expected a decrease, and 43.5 per cent did not have any idea.

FIGURE 12
Proportion of Reason of Not Utilizing FTA Form

Difficult to get CO,      2%
Lack of
Knowledge/do not
know how to use,         37%
other reason,            24%
Trade volume
with countries too
small,                   35%
Difficult ROO
criteria,                 2%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.


The study shows that SMEs' awareness on FTAs is lower than in LEs. This was demonstrated in the responses to issues such as how FTAs affect their export sales, import cost, and competition in foreign market. More than 45 per cent of the SMEs expressed no opinion. On average, 37.7 per cent of SMEs respondents had no idea about the impact of FTAs. This percentage is much higher than LEs, where on average, 9.5 per cent of them expressed no opinion.

3.4 Assessing Impact of FTA to Exports and Imports: Probit Model Approaches

In order to analyse the impact of FTAs on export and import activities more comprehensively, we applied a probit model with a dependent variable of whether the firm conducted export and import activities or not, and independent factors that could promote exporting or importing activities. We developed one probit model for exports and one for imports.

From our econometric analysis, we found a significant correlation between FTA use and export activities. Establishment of FTAs also had a positive impact on the probability of firms in conducting export activities. Predictive margins showed 62.5 per cent of export probability was caused by FTAs. In other words, FTAs encourage firms to export their products. From the export model, we also found significant impact of business relation with ASEAN counterparts and awareness to AEC to probability of exporting.

FTAs has a significant impact on the probability of firms to import products. In the econometric analysis for import data, there was a significant positive relationship between FTAs and the probability that firms would import. However, the impact of FTAs was lesser than in the export model. Import probability increased by 50.3 per cent due to the existence of FTA. The results also suggest that using information technology and having business relations with ASEAN firms were also significantly associated with higher imports.

Our econometric analysis also tried to examine factors that could encourage the usage of FTA forms. We applied a probit model using FTA form usage as the dummy dependent variable and several independent variables. The result showed that company size and export activities were significantly correlated with FTA form usage. The larger the firms, the higher the chance they would utilize the FTA forms. Similarly, the larger the proportion of export from their production, the bigger the chance of utilizing FTA forms. Therefore, we could conclude that the usage of FTA would increase following the development of business entities resulting from regional integration.

3.5 Government Support

As summarized in Table 30, the respondents had been asked to find out whether they ever received support for participation in events abroad, support for organizing meetings with potential partners, financial support, and assistance in business expansion abroad through bilateral FTAs. In terms of support for participation in events in foreign countries, 11 per cent of respondents had received support from the central government, 15 per cent from the provincial government, and 10 per cent from the local government. As for support to organize meetings with potential partners, 5 per cent of respondents claimed that they had received such support from the central government, 5 per cent from the provincial government, and 3 per cent from the local government. Regarding financial support, 4 per cent of respondents had received support from the central government, 4 per cent from the provincial level, and 1 per cent from the local government. In terms of government' assistance in business expansion abroad through country's bilateral FTA, 1 per cent of respondents had received support from the central government and 1 per cent from the provincial level.

The survey results show that government support was received by most SMEs. 11 per cent of SMEs received support from the central government to participate in events in foreign countries, 17 per cent from the provincial government, and 10 per cent from the local government. On the other hand, 11 per cent of LEs had received support from the central government, 5 per cent from the provincial government, and 5 per cent from the local government. In terms of support to organize meetings with potential partners, 6 per cent of SMEs received such support from the central government, 6 per cent from the provincial government, and 4 per cent from the local government, whereas none of the LEs had received such assistance. For financial support, 3 per cent of SMEs had received such support from the central level, 4 per cent from the provincial, and 1 per cent from the local government. As with the LEs, 5 per cent of the respondents had received financial support from the central government. 1 per cent of SMEs admitted that they never received support from the central government to expand business through the country's FTAs, and 1 per cent from the provincial government. LEs revealed that they had never received such support.

4. Conclusion and Policy Recommendations

The study aims to examine the extent and nature of Indonesia's SME participation in ASEAN economic integration based on a survey of 200 SMEs with more than ten employees/workers in the manufacturing sector. The survey suggests that firms in Indonesia only have a superficial understanding of the AEC: 79 per cent of respondents knew about the AEC but only 18 per cent of them knew about the ASEAN Blueprint for SMEs. More LEs knew about the AEC than SMEs. The opinions of the respondents on the impact of AEC was mixed, but most suggested that they expected a positive impact (increased domestic sales, increased export, increased profit and better access to intermediate inputs). Firms were also aware of the more intense competition with the AEC, both in the domestic market and foreign markets. The majority of firms also agreed that the AEC would affect their business through lower import duties, lower export tariffs, better custom procedures, better standard regulations and recognition of professional qualifications.

The survey also showed that firms that actively export and import had established business relations with other firms in the region. Respondents that do not import or export often do not have business relations with ASEAN partners. The survey also showed that foreign-owned companies were more active in establishing business relation in the region. On the contrary, the non-foreign-owned firms were less likely to establish business relation in the region. The evidence supports the initiative to promote foreign direct investment in the development of regional economic integration.

The survey also found that, among firms that were actively exporting, a larger percentage of firms did not utilize FTA forms compared to firms that did. Meanwhile, firms that were not aware of the AEC had an equal rate of form utilization--50 per cent. Our survey found that some the reasons for this were: the low trade volume; a lack of knowledge to utilize FTAs; difficulties in obtaining a Certificate of Origin (COO); tariff preferences from FTA were too small; and an inability to fulfill Rules of Origin (ROO) requirements. Our survey found that the most dominant reason was the lack of knowledge about using FTA forms.

The econometric exercise showed that FTA use is significantly correlated to export activities. The establishment of FTAs increases the probability of firms in conducting export activities. Therefore, FTAs could encourage firms to export their products. Similarly, business relations with ASEAN counterparts and awareness of the AEC were correlated with the probability of exporting and importing. However, the impact of FTAs on imports was less than its impact on exports. The econometric exercise also suggests that company size and export activities were significant factors that affect FTA form usage. The larger the firm, the more likely the firm utilized FTA forms. Similarly, the larger the proportion of exports of their production, the higher the probability the firm utilized FTA forms. Therefore, we can conclude that FTA use is likely to increase following the development of business entities resulting from regional integration.

The survey suggests two main findings. First, FTAs have positive impacts on exports and imports, with a bigger impact on exports. Second, larger firms are more aware and more likely to utilize FTAs more than smaller firms. Given these findings, FTA use is expected to increase following as business entities develop and grow in size. We recommend lowering the transaction cost in utilizing FTAs for smaller firms: better information dissemination about FTAs; simplification of the COO procedure; zero costs for COO; and facilitation for SMEs in arranging COO. More importantly, we recommend that the government assist smaller firms in establishing connections with larger exporting firms and supply chains in the domestic market.

NOTE

(1.) For sales, one firm can have multiple output and sales to different types of buyers.

REFERENCES

Asian Development Bank. Asia SME Finance Monitor 2014. Mandaluyong City: ADB, 2014.

ASEAN. Directory of Outstanding ASEAN SMEs 2015. Jakarta: ASEAN Secretariat, 2015.

ERIA. "ASEAN SME Policy Index: Towards Competitive and Innovative ASEAN SMEs", 2014.

Hill, H. "Small and medium enterprises in Indonesia: Old policy challenges for a new administration". Asian Survey 41, no. 2 (2001): 248-70.

World Economic Forum. The Global Competitiveness Report 2015-2016. Geneva: WEF, 2015.

Titik Anas is a Senior Lecturer at the Department of Economics, Padjadjaran University; and Managing Director of Rumah Riset Persisi Indonesia, Menara BCA 50th Floor, Jl. MH. Thamrin No. 1 Jakarta - 10310, Indonesia; email: tanas@presisi-indonesia.com

Carlos Mangunsong is an Economist at Rumah Riset Persisi Indonesia, Menara BCA 50th Floor, Jl. MH. Thamrin No. 1 Jakarta - 10310, Indonesia; email: cmangunsong@presisi-indonesia.com

Nur Afni Panjaitan is a Junior Economist at Rumah Riset Persisi Indonesia, Menara BCA 50th Floor, Jl. MH. Thamrin No. 1 Jakarta - 10310, Indonesia; email: npanjaitan@presisi-indonesia.com

TABLE 1
Average Employee Productivity by Enterprise Scale (in Rp million)

Indicator          2006-2009   2010-2013

MSME                12.2        13.3
Micro                7.4         7.8
Small               62.0        64.7
Medium             104.5       112.4
Large              309.9       334.8
Ratio Large/MSME    25.3        25.1

SOURCE: SMES Static, Ministry of Cooperatives and SME.

TABLE 2
Comparison of MSME Contribution to the Economy across ASEAN Member
Countries

                    Enterprise  Unit  Employment
Country             Share (%)   Year  Share (%)   Year

Brunei Darussalam   98.2        2010  59          2010
Cambodia            99.8        2014  71.8        2014
Indonesia           99.9        2013  96.9        2013
Lao PDR             99.8        2013  82.9        2013
Malaysia            97.3        2011  57.5        2013
Myanmar             87.4        2014  n/a         n/a
Philippines         99.6        2012  64.9        2012
Singapore           99.4        2012  68          2012
Thailand            97.2        2013  81          2013
Vietnam             97.7        2013  46.8        2012

                    MSME Contribution  to GDP   Export
Country             Share (%)          Year     Share (%)  Year

Brunei Darussalam   24                 2010     n/a        n/a
Cambodia            n/a                n/a      n/a        n/a
Indonesia           57.6               2013     15.7       2013
Lao PDR             n/a                n/a      n/a        n/a
Malaysia            33.1               2013     19         2010
Myanmar             n/a                n/a      n/a        n/a
Philippines         36                 2006     10         2010
Singapore           45                 2012     n/a        n/a
Thailand            37.4               2013     25.5       2013
Vietnam             n/a                n/a      n/a        n/a

SOURCE: Asian Development Bank & SMEs Statistic, Ministry of
Cooperatives and SME.

TABLE 3
SME Policy Initiatives in Indonesia from 1969 to 2000

Technology Initiatives
1969  Establishment of MIDC (Metal Industry Development Center).
1974  Establishment of BIPIK (Small Industries Development
      Program).
1979  As part of BIPIK, LIK (Small-Scale Industry Areas),
      and PIK (Small Industry Estates)
      were established and technical assistance to SMEs
      was intensified through the UPT
      (Technical Service Units), staffed by TPL (Extension
      Field Officers).
1994  BIPIK was replaced by PIKIM (Small-scale Enterprises
      Development Project).
Marketing Initiatives
1979  A reservation scheme was introduced to protect
      certain markets for SMEs.
1999  The anti-monopoly law included explicit provisions in
      support of SMEs.
Finance Initiatives
1971  PT ASKRINDO was established as a state-owned credit
      insurance company.
1973  KIK (Small Investment Credits) and KMKP (Working Capital
      Credits) were introduced to
      provide subsidized credit for SMEs.
1973  PT BAHANA, a state-owned venture capital company,
      was established.
1974  KK (Small Credits), administered by Bank Rakyat
      Indonesia, was launched; subsequently
      (1984) it was changed to the KUPEDES (General
      Rural Saving Program) scheme, aimed
      at promoting small business.
1989  SME loans from state-owned enterprises were mandated.
1990  The subsidized credit programmes (KIK, KMKP) were
      abolished and the unsubsidized
      KUK (Small Business Credits) was introduced.
1999  Directed credit programmes were transferred from the
      Central Bank to PT PNM (a state-owned
      corporation for SMEs) and Bank Ekspor Indonesia.
2000  All government credit programmes for SMEs are to be
      abolished.
General Initiatives
1978  A Directorate General for Small-scale Industry
      was established in the Ministry of
      Industry.
1984  The Bapak Angkat ("foster parent") scheme was
      introduced to support SMEs. It was
      extended nationally in 1991.
1991  SENTRAs (groups of SMEs) in industrial clusters were
      organized under the KOPINKRA
      (Small-scale Handicraft Cooperatives).
1993  The Ministry of Cooperatives was assigned
      responsibility for small business development.
1995  The Basic Law for Promoting Small-scale
      Enterprises was enacted.
1997  The Bapak Angkat programme was changed to become a
      Partnership (Kemitraan)
      programme.
1998  The Ministry of Cooperatives and Small Business
      added medium-scale business to its
      responsibilities.
1998  Under Minister Adi Sasono, the promotion of SMEs
      as part of the People's Economy
      (Ekonomi Rakyat) became a national slogan.

SOURCE: Hill (2001). Based on Thee Kian Wie, "Indonesia", in Industrial
Structures and the Development of Small and Medium Enterprise Linkages:
Examples from East Asia, edited by S.D. Meyanathan, EDI Seminar Series
(Washington, D.C.: World Bank, 1994), p. 121, and Mitsuhiro Hayashi,
"Support Mechanisms for the Development of SMEs in Indonesia, with
Special Reference to Inter-firm Linkages", Australian National
University, Canberra, 2000.

TABLE 4
SME Policy Initiatives in Indonesia since 2008

General Initiatives
2008  Law No. 20/2008 concerns micro, small, and
      medium enterprises, and stipulates:
      * the regulation replaced Law No. 9/1995 concerning
        small enterprise
      * Defined micro, small, and medium enterprises
      * Central and local government to facilitate MSMEs
        through financing; facilities and
        infrastructure; business information; partnership;
        business licenses; business opportunities;
        business opportunities; trade promotion, and
        institutional support.
2009  Goverment regulation No. 24/2009 concerns the
      Industrial Park. The industrial park
      company is obliged to provide land for activities
      micro, small and medium enterprises.
2013  Law No. 1/2013 concerns microfinance institutions
      was launched.
      * Microfinance institutions aim to: (1) increase
        access to micro-scale funding; (2) increase
        economic and productivity empowerment of society;
        and (3) increase the incomes and
        welfare of the poor and/or low income groups.
      * Microfinance institutions have to be locally
        owned and monitored by the OJK (financial
        services authority)
2013    Government Regulation No. 17/2013 regards the
        implementation of Law No. 20/2008 was
        enacted.
      * Regulates MSME development coverage including
        facilitation
      * Government regulation concerning partnerships
        replaced by this regulation
      * KPPU monitoring partnerships between large
        enterprise and MSME
      * States that the licensing fee is free for micro
        enterprise and reduced for small enterprise
      * Demarcates the role of government in MSME development,
        from the central to local levels
      * Coordination between stakeholders at least once
        in a year
      * Data exchanges from local to central government
2014  Government Regulation No. 98 Year 2014 concerns
      licensing for micro and small
      enterprises.
      * regulates RJMK (ijin usaha mikro kecil [micro
        and small enterprise licence])
      * IUMK design in 1 sheet of paper
      * RJMK is free of charge or given reduced price
      * IUMK issued by sub-district head through delegation
        from the regent/mayor. IUMK
        also may be delegated to the urban village head/ village
        head depending on the region's
        characteristic
      * Urban village head/village head to collect micro
        and small enterprise data in their region
        and report it to the sub-district head periodically.
2014  Law No. 23/2014 concerns local government, and states:
      * MSME empowerment implemented through data collection,
        partnership, ease of licensing,
        institutional strengthening and coordination with the
        stakeholders in central, provincial,
        and local level
      * MSME Upgrading: central government to focus on
        upgrading medium enterprises into
        large enterprises; provincial level to focus on
        upgrading small enterprises to become
        medium enterprises; while the district/municipality
        level to focus on upgrading micro into
        small enterprise.
Technology Initiatives
2012  Ministry of Research and Technology Regulation No.
      1/2012 concerns research and
      development technical assistance for business entities.
2013  Presidential Regulation No. 27/2013 concerns the
      development of an entrepreneurship
      incubator
      * The entrepreneurship incubator is an intermediary
        institution that performs the incubation
        process for businesses, especially start-up company.
      * The incubator may be organized by central government,
        local government, business
        entities, and/or the community.
      * The activities include providing a working space,
        guidance and consultancy, supporting
        research and development efforts as well as access
        to the use of technology, training
        and skills development, access to funding, business
        networks and cooperation, and
        management of Intellectual Property Rights
      * Coordinating agency is under the Coordinating
        Economic Ministry
2014  Minister of Industrial Regulation No. 11/2014 concerns
      reorganization of small and medium
      enterprise machinery and/or equipment.
Marketing Initiatives
2008  Ministry of Trade Regulation No. 53/2008
      focuses on partnerships between MSMEs and
      shopping centers/modern markets including the
      provision of areas and product marketing/MSMEs
      as supplier.
2010  Presidential Regulation No. 54/2010 concerns
      procurement of goods/services for the
      government. Goverment procurement needs to expand
      opportunities for micro and small
      enterprises as well as small cooperatives.
2013  Ministry of Trade Regulation No. 53/2008 was
      replaced by Minister of Trade Regulation
      No. 70/2013. Encourages MSME development through
      product marketing, provision of
      areas, for MSMEs suppliers.
2014  Presidential Regulation No. 39/2014 concerns the
      Investment Reservation List
      * 93 business activities reserved for MSMEs and
        cooperatives
      * 51 business activities opened for investment which
        requires partnership with MSMEs and
        cooperatives
2014  Asephi (Asosiasi Eksportir dan Produsen Handicraft
      Indonesia/Indonesia Handicraft
      producer and exporter association) established
      INACRAFT Mall <http://inacraft-mall.com/>
      an online site as market place for SMEs product.
Finance Initiatives
2009  Law No 2/2009 concerns LPEI (LPEI/Indonesia
      Export Funding Agency). One of the focus
      is to stimulate MSMEs and cooperatives to develop
      export-oriented products by providing
      funding. LPEI also may provide assistance and
      consultancy for MSMEs.
2015  Bank central regulation number 17/12/PBI/2015,
      in 2018 banks have to allocate minimum
      20 per cent of their total lendings to SMEs.
2015  Economic package: the government subsidized
      interest rates from 22% to 12%. Through
      LPEI, the goverment also increased support
      for export-oriented SMEs or those involved in
      the production of export products through loans
      or working capital loans with interest rates
      lower than commercial interest rates.

TABLE 5
ASEAN SME Policy Index

No   Indicators                      BRN  CAM  IND   LAO  MMR  MYS

1    Institutional Framework         2.6  2.6  4.4   2.6  2.9  4.6
2    Access to Support Services      3.3  2.4  4.0   2.3  2.7  4.8
3    Cheaper and Faster Start up     3.1  2.1  4.4   2.7  2.9  4.8
4    Access to Finance               3.0  2.5  4.3   2.5  2.1  4.6
5    Technology and Technology       3.2  1.9  3.8   2.0  2.4  4.9
     Transfer
6    International Market Expansion  3.2  3.3  4.2   3.1  3.3  5.0
7    Promotion of Entrepreneurial    3.0  2.1  3.9   2.3  2.9  4.2
     Education
8    Effective representation of     2.3  2.5  3.0   3.0  4.5  5.7
     SME's interest

No   Indicators                      PHL   SGP  THA  VNM  ASEAN

1    Institutional Framework         3.7   5.4  3.9  3.8  3.7
2    Access to Support Services      3.8   5.4  3.8  3.6  3.6
3    Cheaper and Faster Start up     3.0   5.0  4.2  4.1  3.6
4    Access to Finance               3.6   5.6  4.3  3.4  3.6
5    Technology and Technology       3.6   5.6  4.3  3.6  3.5
     Transfer
6    International Market Expansion  4.4   6.0  4.7  4.0  4.1
7    Promotion of Entrepreneurial    3.7   5.0  3.1  2.9  3.3
     Education
8    Effective representation of     4.7   5.0  4.4  4.0  3.8
     SME's interest

SOURCE: ERIA(2014).

TABLE 6
Profile of the Samples

                                    Full     Samples     SMEs
Employment Size                     Number   Share (%)   Number

Small                               102       51.00       102
Medium                               61       30.50        61
Large                                37       18.50
Total                               200      100.00       163
Year of Establishment
<= 5 years                           49       24.50        47
6-10 years                           27       13.50        24
11-15 years                          31       15.50        30
>15 years                            93       46.50        62
Total                               200      100.00       163
Legal Organization
Single Proprietorship               111       55.50       109
Partnership                          14        7.00        13
Private Limited                      68       34.00        39
Public Limited                        4        2.00
Cooperative                           2        1.00         1
State-owned enterprise                1        0.50         1
Total                               200      100.00       163
Ownership Structure
Local                               182       91.00       156
Foreign                               8        4.00         5
Both                                 10        5.00         2
Total                               200      100.00       163
Family Business
Yes                                 113       56.50        96
No                                   87       43.50        67
Total                               200      100.00       163
Managed by Founder/Family
Member
Yes                                 111       98.23        95
No                                    2        1.77         1
Total                               113      100.00        96
Highest Academic Qualification of
Founder/Family Member
No formal education                   3        3.0          3
Primary                               3        3.0          3
Secondary/High School                24       22.0         22
Vocational/Diploma                   11       10.0         11
University                           70       63.0         56
Total                               111      100.0         95
Total Fixed Assets                 2013     2014        2013
Mean (Rp billion)                   696      715          315
Parent Company                      Number   Share (%)   Number
Yes                                  76       38.0         56
No                                  124       62.0        107
Total                               200      100.0        163
Size of Parent Company
11-49 full-time workers              28       36.8         28
50-249 full-time workers             20       26.3         19
more than 250 full-time workers      28       36.8          9
Total                                76      100.0         56
Ownership of Parent Company
Local                                64       84.2         52
Foreign                              12       15.8          4
Total                                76      100.0         56
Membership
Yes                                  88       44.0         63
No                                  112       56.0        100
Total                               200      100.0        163

                                                        LEs
Employment Size                     Share (%)  Number   Share (%)

Small                                63
Medium                               37
Large                                              37       100
Total                               100            37       100
Year of Establishment
<= 5 years                           29             2         5
6-10 years                           15             3         8
11-15 years                          18             1         3
>15 years                            38            31        84
Total                               100            37       100
Legal Organization
Single Proprietorship                66.87          2         5.41
Partnership                           7.98          1         2.70
Private Limited                      23.93         29        78.38
Public Limited                                      4        10.81
Cooperative                           0.61          1         2.70
State-owned enterprise                0.61
Total                               100.00         37       100.00
Ownership Structure
Local                                95.71         26        70.27
Foreign                               3.07          3         8.11
Both                                  1.23          8        21.62
Total                               100.00         37       100.00
Family Business
Yes                                  58.90         17        45.95
No                                   41.10         20        54.05
Total                               100.00         37       100
Managed by Founder/Family
Member
Yes                                  98.96         16        94
No                                    1.04          1         6
Total                               100            17       100
Highest Academic Qualification of
Founder/Family Member
No formal education                   3.0
Primary                               3.0
Secondary/High School                23.0           3       17.7
Vocational/Diploma                   12.0
University                           59.0          14       82.4
Total                               100.0          17      100.0
Total Fixed Assets                 2014         2013     2014
Mean (Rp billion)                   315         2,380    2,480
Parent Company                      Share (%)   Number   Share (%)
Yes                                  34.4          20       54.1
No                                   65.6          17       46.0
Total                               100.0          37      100.0
Size of Parent Company
11-49 full-time workers              50.0
50-249 full-time workers             33.9           1        5.0
more than 250 full-time workers      16.1          19       95.0
Total                               100.0          20      100.0
Ownership of Parent Company
Local                                92.9          12       60.0
Foreign                               7.1           8       40.0
Total                               100.0          20      100.0
Membership
Yes                                  38.7          25       67.6
No                                   61.4          12       32.4
Total                               100.0          37      100.0

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 7
Sales Distribution and Product Type

                             Total     Samples
a. Parent Companies          No Firms   % of total    SMEs

Intermediate Outputs           1         0.5          No Firms
Final Outputs                  6         3.0            1
Both Outputs                   1         0.5            4
Neither                      192        96.0
Total                        200       100.0          158
b. Sister Companies                                   163
Intermediate Outputs           3         1.5
Final Outputs                  8         4.0            2
Both Outputs                   1         0.5            6
Neither                      188        94.0
Total                        200       100.0          155
c. Subsidiary Companies                               163
Intermediate Outputs           4         2.0
Final Outputs                  4         2.0            2
Both Outputs                   1         0.5            2
Neither                      191        95.5
Total                        200       100.0          159
d. Other Companies                                    163
Intermediate Outputs          19         9.5
Final Outputs                 86        43.0           18
Both Outputs                   8         4.0           65
Neither                       87        43.5            6
Total                        200       100.0           74
e. State-owned enterprises                            163
Intermediate Outputs           2         1.0
Final Outputs                 13         6.5            2
Both Outputs                                            9
Neither                      185        92.5
Total                        200       100.0          152
/ Directly to Consumers                               163
Intermediate Outputs
Final Outputs                154        77.0
Both Outputs                                          127
Neither                       46        23.0
Total                        200       100.0           36
                                                      163

                                                      LEs
a. Parent Companies          % of total    No Firms   % of total

Intermediate Outputs           0.6
Final Outputs                  2.5          2           5.4
Both Outputs                                1           2.7
Neither                       96.9         34          91.9
Total                        100.0         37         100.0
b. Sister Companies
Intermediate Outputs           1.2          1           2.7
Final Outputs                  3.7          2           5.4
Both Outputs                                1           2.7
Neither                       95.1         33          89.2
Total                        100.0         37         100.0
c. Subsidiary Companies
Intermediate Outputs           1.2          2           5.4
Final Outputs                  1.2          2           5.4
Both Outputs                                1           2.7
Neither                       97.5         32          86.5
Total                        100.0         37         100.0
d. Other Companies
Intermediate Outputs          11.0          1           2.7
Final Outputs                 39.9         21          56.8
Both Outputs                   3.7          2           5.4
Neither                       45.4         13          35.1
Total                        100.0         37         100.0
e. State-owned enterprises
Intermediate Outputs           1.2
Final Outputs                  5.5          4          10.8
Both Outputs
Neither                       93.3         33          89.2
Total                        100.0         37         100.0
/ Directly to Consumers
Intermediate Outputs
Final Outputs                 77.9         27          73.0
Both Outputs
Neither                       22.1         10          27.0
Total                        100.0         37         100.0

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 8
Overall Sales and Destination

                 Parent    Sister    Subsidiary   Other    State owned
                 Company   Company   Company      Company  Enterprise

Intermediate     1          3        4             19      2
Final            6          8        4             86      13
Both             1          1        1              8
Total            8         12        9            113      15
Share to total   4%         6%       5%            57%      8%
respondents

                  Directly to
                  Consumers    Total

Intermediate                    29
Final             154          271
Both                            11
Total             154          311
Share to total     77%
respondents

NOTES: One firm can have multiple output and sales to different types of
buyers.

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 9
Distribution of Sales Based on Output

               Overall            SMEs                LEs
Output         Number of  Share   Number of   Share   Number of  Share
               Firms      (%)     Firms       (%)     Firms      (%)

Intermediate     8          4       8           5
Final          166         83     135          83     31          84
Both            26         13      20          12      6          16
Total          200        100     163         100     37         100

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 10
Distribution of Sales Activities Based on Destination

                       Overall             SME
Destination            Number of   Share   Number of   Share
                       Firms       (%)     Firms       (%)

Single Destination     108          54      92          56
Multiple Destination    92          46      71          44
Total                  200         100     163         100

                        LEs
Destination             Number of  Share
                        Firms      (%)

Single Destination      16          43
Multiple Destination    21          57
Total                   37         100

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 11
Production and Input Characteristic

                                  Overall Samples         SMEs
Production Activities             2014                    2014
Production                        Number           %      Number

Completely in-house               139               69.5   113
Completely outsourced              16                8      14
Foreign outsourced                  1                        1
Domestic outsourced                15                       13
Both in-house & outsourced         45               22.5    36
Foreign outsourced                  9                        6
Domestic outsourced                36                       30
Total                             200                      163
                                  2013             2014   2013
Production Cost (Rp billion)      179              216       9
% Breakdown
Raw materials                      44.4             44.7    45.0
Intermediate inputs                12.1             12.1    11.8
Utilities (water, gas, and         11.1             11.4    11.4
electricity)
Interest payments                   3.0              3.0     2.6
Salaries and wages                 29.1             28.8    29.0
Total                             100              100     100
Sources of Inputs (2014)          Number           %      Number
Local                             153               77     139
Majority Local (>50% & <100)       26               13      15
Local (Half) (50%)                  5                3       2
Local (Minority) (11-49%)           7                4       4
Partially Local                     2                1       1
Foreign                             7                4       2
Local Source (% of Total Inputs)   89                       94

                                           LEs
Production Activities                      2014
Production                         %       Number   %

Completely in-house                69        26        70
Completely outsourced               9         2         5
Foreign outsourced                            0
Domestic outsourced                           2
Both in-house & outsourced         22         9        24
Foreign outsourced                            1
Domestic outsourced                           8
Total                                        37
                                   2014    2013     2014
Production Cost (Rp billion)        9       929     1,130
% Breakdown
Raw materials                        45.4     41.8     41.7
Intermediate inputs                  11.8     13.7     13.4
Utilities (water, gas, and           11.7      9.7     10.0
electricity)
Interest payments                     2.5      5.0      5.0
Salaries and wages                   28.6     29.7     29.8
Total                               100      100      100
Sources of Inputs (2014)           %       Number  %
Local                                85      14      38
Majority Local (>50% & <100)          9       11      30
Local (Half) (50%)                    1       3       8
Local (Minority) (11-49%)             2       3       8
Partially Local                       1       1       3
Foreign                               1       5       14
Local Source (% of Total Inputs)             68

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 12
Employment Profile

                                  Overall  Sample
                         2013              2014            2013
Employment Profile       Number            Number          Number
                         of       % of     of       % of   of
                         Workers  total    Workers  total  Workers

Full-time Workers        573      90%      587      90%    37
Part-time Workers         61      10%       62      10%    10
                         2013              2014            2013
Composition of Female    31                30              27
Employees (%)
Composition of Foreign   2                 1               2
Employees (%)

                         SMEs                              LEs
                                 2014             2013
Employment Profile               Number           Number
                         % of    of       % of    of       % of
                         total   Workers  total   Workers  total

Full-time Workers        79%       38       79%   2935     91%
Part-time Workers        21%       10       21%    285      9%
                                 2014             2015
Composition of Female              26               At
Employees (%)
Composition of Foreign              1                1
Employees (%)

                          2014
Employment Profile        Number
                          of       % of
                          Workers  total

Full-time Workers         3006     91%
Part-time Workers          288      9%
                          2014
Composition of Female       46
Employees (%)
Composition of Foreign       1
Employees (%)

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 13
Workforce and Salaries in 2014

                                              Overall
Workforce                          Number     %to      %of
                                   of         total    Total
                                   Workers    workers  Salaries

Managers and professionals          28        5        44
Engineers and technicians           90        15       12
Supervisory and clerical           108        18       13
Plant and machine operators, and   278        47       14
assemblers
Service and sales workers           75        13       14
Others                               8         1        3

                                            SMEs
Workforce                          Number   %to      %of       Number
                                   of       total    Total     of
                                   Workers  workers  Salaries  Workers

Managers and professionals          2        5       69          139
Engineers and technicians           1        3        0          485
Supervisory and clerical            3        8       12          569
Plant and machine operators, and   20       50        3        1,414
assemblers
Service and sales workers          14       35       17          342
Others                                                            57

                                   LEs
Workforce                          % to     % of
                                   total    Total
                                   workers  Salaries

Managers and professionals          5       24
Engineers and technicians          16       22
Supervisory and clerical           19       14
Plant and machine operators, and   47       24
assemblers
Service and sales workers          11       12
Others                              2        4

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 14
Average Training Expenditures

                       Overall  Samples  SMEs        LEs
                       2013     2014     2013  2014  2013  2014

Training Expenditures  417      421      373   377   612   617
(Rp million)

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 15
Innovation Activities and Expenditure 2012-14

Innovation               Overall  Samples               SMEs
Activities       Number  %        Average       Number  %
                 of      of       Expenditure   of      of
                 Firms   total    (Rp million)  Firms   total

In-house R&D     48      24        75,300       32      20
activities
Outsourcing of   27      14       123           16      10
R&D activities
Acquisition      59      30       165,000       45      28
of machinery,
equipment and
software
Acquisition      13       7         1,790       10       6
of external
knowledge

Innovation                              Les
Activities        Average       Number  %      Average
                  Expenditure   of      of     Expenditure
                  (Rp million)  Firms   total  (Rp million)

In-house R&D      52            16      43     407,000
activities
Outsourcing of    19            11      30     583
R&D activities
Acquisition       99            14      38     893,000
of machinery,
equipment and
software
Acquisition       13             3       8       9,610
of external
knowledge

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 16
Use of Internet-related Services

                                Overall  Samples  SMEs
Internet Services               Number   Share    Number  Share
                                         (%)              (%)

a. E-mail
Yes                             128      64       99      61
No                               72      36       64      39
b. Company website
Yes                              89      45       67      41
No                              111      56       96      59
c. Online sale
Yes                              49      25        38     23
No                              151      76       125     77
d. Online purchase/procurement
Yes                              34      17        26     16
No                              166      83       137     84
e. Online marketing
Yes                              76      38        59     36
No                              124      62       104     64
f. Online payment
Yes                              57      29        44     27
No                              143      72       119     73

                                 LEs
Internet Services                Number  Share
                                         (%)
a. E-mail
Yes                              29      78
No                               8       22
b. Company website
Yes                              22      59
No                               15      41
c. Online sale
Yes                              11      30
No                               26      70
d. Online purchase/procurement
Yes                              8       22
No                               29      78
e. Online marketing
Yes                              17      46
No                               20      54
f. Online payment
Yes                              13      35
No                               24      65

SOURCE: ERIA-1SEAS Enterprise Survey 2015.

TABLE 17
Business Relation with Firms in ASEAN

                                          Overall  Samples  SMEs
                                          Number   Share    Number
                                                   (%)

Business relations with firms in ASEAN
Yes                                        37      19        26
No                                        163      82       137
Business relations according to activity
Import                                      7      19         4
Export                                     21      57        15
Investment                                  1       3         1
Import and export                           5      14         3
Export and invest                           1       3         1
Other                                       2       5         2

                                                 LEs
                                          Share  Number  Share
                                          (%)            (%)

Business relations with firms in ASEAN
Yes                                       16     11      30
No                                        84     26      70
Business relations according to activity
Import                                    15      3      27
Export                                    58      6      55
Investment                                 4
Import and export                         12      2      18
Export and invest                          4
Other                                      8

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 18
Distribution of Respondents by Exporting/Importing Activities

                                      Overall          SMEs
                                      Number    Share  Number    Share
                                      of Firms  (%)    of Firms  (%)

Exporting                             65        33     42        26
Exporting to ASEAN                    30        46     20        48
Have relation with firms in ASEAN in  27        90     19        95
export activities
Importing                             48        24     25        15
Importing from ASEAN                  13        27      8        32
Have relation with firms in ASEAN in  12        92      7        88
import activities
                                      LEs
                                      Number    Share
                                      of Firms  (%)

Exporting                             23         62
Exporting to ASEAN                    10         43
Have relation with firms in ASEAN in   8         80
export activities
Importing                             23         62
Importing from ASEAN                   5         22
Have relation with firms in ASEAN in   5        100
import activities

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 19
Perceptions of Respondents on Impact of AEC to Business

                              Overall  Samples              SMEs
AEC Impact                    (% of    Firms)               (% of
                        A     B        C        D     A     B

Domestic sales          39.0  31.0     15.0     15.0  39.3  30.7
Export sales            39.0  22.5      3.0     35.5  37.4  19.0
Import cost             13.0  23.5     21.0     42.5  11.0  19.6
Profits                 45.0  27.0     13.0     15.0  41.1  27.6
Competition in local    63.0  26.0      3.0      8.0  63.8  24.5
market
Competition in foreign  46.5  20.0      0.0     33.5  42.9  19.0
market
Greater access to       41.0  31.5      1.5     26.0  39.9  30.7
intermediate outputs

                                            LEs
AEC Impact              firms)              (% of  Firms)
                        C       D     A     B      C       D

Domestic sales          15.3    15.0  37.8  32.4   13.5    16.0
Export sales             2.5    41.1  46.0  37.8    5.4    10.8
Import cost             20.3    49.0  21.6  40.5   24.3    13.5
Profits                 14.1    17.2  62.2  24.3    8.1     5.4
Competition in local     3.1     8.6  59.5  32.4    2.7     5.4
market
Competition in foreign   0.0    38.0  62.2  24.3    0.0    13.5
market
Greater access to        1.8    27.6  46.0  35.1    0.0    18.9
intermediate outputs

NOTES: A: Increase; B: No Change; C: Decrease; D: Do not know/No
opinion.

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 20
AEC Key Changes Affecting Business

                               Overall  Samples
AEC key changes                (% of    Firms)
affecting business
                         A     B        C        D     A

Import tariffs/duties    42.0  15.0     7.0      36.0  39.3
Export tariffs/duties    47.5  16.0     3.0      33.5  44.8
Customs procedure        42.0  21.0     8.0      29.0  41.1
Standards of regulation  49.5  21.5     6.5      22.5  47.9
Recognition of           46.0  15.5     8.5      30.0  41.7
professional
qualifications
Investment process in    47.5  13.5     1.0      38.0  44.2
ASEAN countries
Connectivity in terms    63.0  12.5     1.5      23.0  61.4
of transport and
communications
services

                         SMEs
AEC key changes          (% of  Firms)
affecting business
                         B      C       D     A

Import tariffs/duties    14.1   6.1     40.5  54.1
Export tariffs/duties    13.5   3.7     38.0  59.5
Customs procedure        18.4   7.4     33.1  46.0
Standards of regulation  19.6   5.5     27.0  56.8
Recognition of           14.1   9.8     34.4  64.9
professional
qualifications
Investment process in    11.0   1.2     43.6  62.2
ASEAN countries
Connectivity in terms    9.8    1.2     27.6  70.3
of transport and
communications
services

                         LEs
AEC key changes          (% of  Firms)
affecting business
                         B      C       D

Import tariffs/duties    18.9   10.8    16.2
Export tariffs/duties    27.0    0.0    13.5
Customs procedure        32.4   10.8    10.8
Standards of regulation  29.7   10.8     2.7
Recognition of           21.6    2.7    10.8
professional
qualifications
Investment process in    24.3    0.0    13.5
ASEAN countries
Connectivity in terms    24.3    2.7     2.7
of transport and
communications
services

NOTES: A: Better; B: No Change; C: Worse; D: Do not know/no opinion.

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 21
Cross Tabulation of Export-Import Activity and Business Relation

                                =1 if have  business relation  in ASEAN
= 1 if exporting or  importing    0          1                 Total

0                               119          1                 120
                                 99.17%      0.83%             100.00%
1                                44         36                  80
                                 55.00%     45.00%             100.00%
Total                           163         37                 200
                                 81.50%     18.50%             100.00%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 22
Cross Tabulation of Foreign Ownership and Business Relation for
Actively Trading Firms

                               =1 if have  business relation  in ASEAN
= 1 if have foreign ownership   0           1                 Total

0                              38          27                  65
                               58.46%      41.54%             100.00%
1                               6           9                  15
                               40.00%      60.00%             100.00%
Total                          44          36                  80
                               55.00%      45.00%             100.00%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 23
Cross Tabulation of Usage of FTA Forms and Awareness of AEC for Actively
Exporting Firms

                              =1 if use FTA forms
= 1 if aware  of AEC   0       1                   Total

0                      2       2                     4
                      50.00%  50.00%               100.00%
1                     38      22                    60
                      63.33%  36.67%               100.00%
Total                 40      24                    64
                      62.50%  37.50%               100.00%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 24
Government Support and Business Relation in ASEAN

=1 if received government  =1 if have  business relation  in ASEAN
support for its operation    0          1                  Total

0                          121         21                 142
                            85.21%     14.79%             100.00%
1                           42         16                  60
                            70.00%     26.67%              96.67%
Total                      163         37                 200
                            81.50%     18.50%             100.00%

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 25
Perception of Respondents: How FTAs affect business

                                   Overall  Samples
                                   (% of    Firms)
                             A     B        C        D     A

Domestic sales               29.5  32.0     14.0     24.5  27.8
Export sales                 34.5  22.5      3.5     39.5  29.5
Import cost                  13.0  23.5     17.5     46.0  10.4
Profits                      41.5  23.5     12.0     23.0  36.8
Competition in local market  54.8  23.6      2.0     19.6  53.1
Competition in foreign       40.0  15.5      1.0     43.5  36.8
market

                              SMEs
                              (% of  Firms)
                              B      C       D     A

Domestic sales                31.9   14.1    28.2  46.0
Export sales                  20.9    3.1    46.6  56.8
Import cost                   20.3   15.3    54.0  24.3
Profits                       23.3   13.5    26.4  62.2
Competition in local market   22.8    1.9    22.2  62.2
Competition in foreign        13.5    1.2    48.5  54.1
market

                              LEs
                              (% of  Firms)
                              B      C       D

Domestic sales                32.4   13.5     8.1
Export sales                  29.7    5.4     8.1
Import cost                   37.8   27.0    10.8
Profits                       24.3    5.4     8.1
Competition in local market   27.0    2.7     8.1
Competition in foreign        24.3    8.1     13.5
market

NOTES: A: Increase; B: No Change; C: Decrease; D: Do not know/No
opinion.

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

TABLE 26
Variables Description

Variables       Description

Dexport         Conducting export, 1 = yes; 0 = otherwise
Dimport         Conducting import, 1 = yes; 0 = otherwise
FTA             FTA utilization, 1 = if respondent utilizes
                FTA; 0 = otherwise
Dum_ict         Utilization of internet on business process,
                1 = yes; 0 = otherwise
Dum_Assoc       Engagement in business association, 1 = yes;
                0 = otherwise
Relation_asean  Having business relation with other firms in ASEAN,
                1 = yes; 0 = otherwise
Gov_support     Received goverment support, 1 = yes; 0 = otherwise
AEC_aware       Awareness on AEC, 1 = yes; 0 = otherwise
lassetl4        Log of fix asset in 2014
Foreign         Foreign Ownership, 1 = yes; 0 = otherwise
Age             Firms operational year
export_pct      Share of export
Linnov          Log of innovation expenditure

TABLE 27
Probit Model for Exporting

Independent Variable                                Dependent Variable:
                                                    Conducting Export

FTA utilization                                       1.2708 (***)
                                                     (0.3173)
Utilization of internet on business process           0.5174
                                                     (0.3579)
Engagement in business association                    0.0011
                                                     (0.2351)
Having business relation with other firms in ASEAN    1.5920 (***)
                                                     (0.3060)
Received goverment support                            0.3127
                                                     (0.2478)
Awareness on AEC                                      0.9883 (***)
                                                     (0.3658)
Constant                                             -2.3958 (***)
                                                     (0.4652)
Number of observation                               200
LR chi2(6)                                           89.26
Prob>chi2                                             0.0000
Pseudo R2                                             0.3560
Predictive Margin                                   Number of = 200 obs

Model VCE   OIM
Expression  Pr(dexport), predict
            ( )
1._at       Fta  =  0
2._at       Fta  =  1
               Delta-method
            Margin     Std.Err   Z     P>|z|  [95% Conf.  Interval]
_at
1           0.2659243  0.290278  9.16  0.000  0.2090309   0.3228178
2           0.6256644  0.836457  7.48  0.000  0.4617218   0.7896071

NOTE: Standard errors in parantheses; (***)p < 0.01, (**)p < 0.05,
(*)p < 0.1

TABLE 28
Probit Model for Importing

Independent Variable                                 Dependent Variable:
                                                     Conducting Import

FTA utilization                                        1.0339 (***)
                                                      (0.2764)
Utilization of internet on business process            0.9024 (**)
                                                      (0.3547)
Engagement in business association                    -0.0371
                                                      (0.2411)
Having business relation with other firms in ASEAN     0.8045 (***)
                                                      (0.2758)
Received goverment support                            -0.3514
                                                      (0.2529)
Awareness on AEC                                      -0.4518
                                                      (0.2812)
Constant                                              -1.4234 (***)
                                                      (0.3534)
Number of observation                                200
LR chi2(6)                                            42.8
Prob>chi2                                              0.0000
Pseudo R2                                              0.1963
Predictive Margin                                    Number of = 200
                                                     obs

Model VCE:   OIM
Expression:  Pr(dimport), predict ( )
1. _at:      Fta = 0
2._at:       Fta = 1
             Delta-method
             Margin     Std.Err    Z     p>|z|  [95% Conf.  Interval]
_at
1            0.1798946  0.029151   6.17  0.000  0.1227596   0.2370295
2            0.5031636  0.0882452  5.7   0.000  0.3302061    0.676121

NOTE: Standard errors in parantheses; (***) p < 0.01, (**) p < 0.05,
(*) p < 0.1.

TABLE 29
Probit Model for FTA

Independent variable                   Dependent Variable:
                                       FTA Utilization (FTA)

Awareness on AEC                        -0.5790
                                        (0.4273)
Log of fix asset in 2014                 0.1599 (**)
                                        (0.0635)
Foreign Ownership                       -0.0018
                                        (0.0050)
Firms operational year                   0.0095
                                        (0.0075)
Share of export                          0.0159 (***)
                                        (0.0049)
Log of innovation expenditure           -0.0085
                                        (0.0182)
Engagement in business association       0.3117
                                        (0.3471)
Having business relation with other
firms in ASEAN                           0.5805
                                        (0.3595)
Received goverment support               0.3373
                                        (0.3644)
Constant                                -5.4249 (***)
                                        (1.4162)
Number of observation                  200
LR chi2(6)                              41.26
Prob>chi2                                0.0000
Pseudo R2                                0.3173

NOTE: Standard errors in parentheses; (***) p < 0.01, (**) p < 0.05,
(*) p < 0.1.

TABLE 30
Percentage of Respondents Who Received Government Support (%)

Kind of Support                     Overall
                           Central  Provinces  Local  Central

Support for participation  11       15         10     11
in events in countries
abroad
Support for organizing      5        5          3      6
meetings with potential
partners
Provision of financial      4        4          1      3
support
Assistance in business      1        1                 1
expansion abroad
through your country's
bilateral FTA, AEC

Kind of Support            SMEs                       LEs
                           Provinces  Local  Central  Provinces  Local

Support for participation  17         10     11       5          5
in events in countries
abroad
Support for organizing      6          4
meetings with potential
partners
Provision of financial      4          1      5
support
Assistance in business      1
expansion abroad
through your country's
bilateral FTA, AEC

SOURCE: ERIA-ISEAS Enterprise Survey 2015.

APPENDIX 1
MSMEs across ASEAN

Country      MSME Definition

Indonesia    * Micro: assets (US$5,500); sales
             (US$33,002)
             * Small: assets (US$5,500 - US$55,000);
             sales (US$33,002
             -US$275,014)
             * Medium: assets (US$1.1 million);
             sales (US$275,014 - US$5,500,290)
Malaysia     Manufacture:
             * Micro: sales (< US$91,645); worker
             (< 5 workers)
             * Small: sales (US$91,645 - US$4.5
             million); workers (5-74 workers)
             * Medium: sales (US$4.5 - US$15.3
             million); workers (75-200 workers)

             Service and other sector:
             * Micro: Sales (< US$91,645);
             workers (< 5 workers)
             * Small: sales (US$91,645 - US$916,449);
             workers (5-29 worker)
             * Medium: sales (US$916,449 - US$6.1 million);
             workers (30-75
             workers)
Thailand     SMEs in Thailand are categorized
             into 4 main groups: manufacturing
             (including agricultural business), trade
             (wholesale), trade (retail), and services.
             The definition of Thai SMEs is based
             on 2 criteria namely; the number of
             employees and fixed asset value.
Singapore    Enterprises with annual sales turnover
             of not more than US$73.53 million or
             employment size of not more than 200
             workers.
Country      MSME Definition
Brunei       No detailed definition
Darussalam




Philippines  * Micro: Assets <=US$67,000
             * Small: Assets US$67,000 - US$333,000

             * Medium: Assets US$333,000 - US$2.22 million




Vietnam      Classified into 3 MSME criteria based
             on regional scale:
             * Agriculture, forestry and fishery
             * Industrial and construction
             * Trade and services



Cambodia     * Micro: Workers (< 10 workers);
             Asset < US$50,000
             * Small: Workers (11-50 workers);
             Asset (US$50,000 - US$250,000)
             * Medium: Worker (51-100 workers);
             asset (US$250,000 - US$500,000)
Lao PDR      * Small: workers (<= 19 workers);
             Asset (<= US$30,271); turnover/year
             (<= US$48,433)
             * Medium: (>19 - 99 worker); Asset
             (<= US$145,300)
Myanmar      Criteria by no. of workers:
             * Micro: workers (< 10 workers)
             * Small: workers (10-50 workers)
             * Medium: workers (51-100 workers)

Country      SME Agency            MSME Key Sector
Indonesia    Ministry of           1. Manufacturing
             Cooperative and       2. Trade
             SME (MOCSME).         3. Primary Industry




Malaysia     1. National SME       1. Service
             Development           2. Manufacturing
             Council               3. Agriculture
             (NSDC)
             2. Small and
             Medium
             Industries
             Development
             Corporation
             (SMIDEC)






Thailand     Office of Small       1. Trade and maintenance
             and Medium            2. Service
             Enterprises           3. Manufacturing
             Promotion
             (OSMEP)


Singapore    SPRING (Agency        Almost all sectors
             under the Ministry    (especially services)
             of Trade and
             Industry)
Country      SME Agency            MSME Key Sector
Brunei       1. Ministry
Darussalam   of Industry
             and Primary
             Resources
             2. Brunei
             Economic
             Development
             Board (BEDB)
Philippines  Bureau of Small       1. Wholesale and retail
             and Medium            trade
             Enterprises           2. Repair of motor
             Development           vehicles and motorcycle
             (BSMED)               industries
                                   3. Information and
                                   communication
                                   4. Financial and insurance
                                   activities
Vietnam      1. Central level:     Almost all sectors (trade,
             Agency for            services, manufacturing,
             Enterprise            construction)
             Development
             2. Provincial level:
             Department of
             Planning and
             Investment
Cambodia     The General           1. Services and Trade
             Department of         2. Production sector
             Industry (GDI),       including agricultural
             under Ministry of     processing,
             Industry, Mines,      manufacturing, and
             and Energy            mining
Lao PDR      Department of         1. Trade
             SME Promotion,        2. Services
             Ministry of
             Industry and
             Commerce
Myanmar      Industrial            1. Agriculture, livestock
             Development           and fisheries and
             Committee             forestry
                                   2. the processing and
                                   manufacturing

SOURCE: Directory of Outstanding ASEAN SMEs (2015); conversion of local
currency to U.S. dollar using exchange rate in 2010 (data from Wold
Bank).
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Article Details
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Title Annotation:small and medium sized companies
Author:Anas, Titik; Mangunsong, Carlos; Panjaitan, Nur Afni
Publication:Journal of Southeast Asian Economies
Article Type:Report
Geographic Code:9INDO
Date:Apr 1, 2017
Words:15117
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