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