JAKARTA, Indonesia, Oct. 27, 2021 /PRNewswire/ — The role of SMEs is increasingly significant amid the volatile Indonesian economic conditions. Indonesia has 62.9 million registered enterprises, and Small Medium Enterprises (SMEs) contribute up to 60% of the nation’s GDP. However, out of these registered businesses, close to 99% of them are considered micro enterprises. Yet even with these numbers, our SMEs are labor-intensive, employing in total 97% of the Indonesian population. They absorb most of the workforce, especially low-skill workers, and reduce unemployment rate especially in Indonesia which has a high proportion of active age.
Bagus is a business owner, for months his sales have been stagnant, but the cost of his production continues to go up resulting in losses — if this continues for another month, he knows that his business can no longer survive. Yet, Bagus has 20 employees on payroll, and he is worried about what will happen to his employees and their families if his business does not survive.
Bagus is just a pseudonym, but he is every business owner, no matter what size. Business owners often struggle with maintaining let alone growing their business. Knowing that a step into the wrong direction will impact not just their business, but also the people whose livelihood depends on them. One business can impact so many lives, directly or indirectly. It is a multiplier effect further down the value chain and the local economy, and a good business owner is aware of this.
Supporting SMEs growth is a crucial step. Micro enterprises cannot provide a prolonged safety net to all their employees as they are more easily affected by a change in the economy. Moreover, the number of SMEs is not always positively related to productivity; the SME sector still needs much improvement to optimize its potential to transform the Indonesian economy and to elevate the population’s quality of life. The main problem is that there are just too many micro enterprises that don’t grow into bigger companies. How can businesses grow from their small-micro impact to become large reliable sources of income for many and contribute to Indonesia’s economy?
Evermos, the largest social commerce platform in Indonesia which empowers and supports local SMEs, answers the question in their article published in the World Economic Forum. After a study and interview with SME players with various stages, Evermos reclassifies SMEs based on the mindset and skill that they need to attain at any given stage.
- Newcomer: A newly started business or a business that has been stuck in identifying the right market fit and fails to grow the business further.
- Artisan: A business that has found a niche market segment to target and focuses only on the product deliverance, not on scalability of business.
- Emerging: A business that has built a system that employs the fundamentals of business including its value chain but has yet reached a significant market penetration.
- Challenger: A business that is at a national/regional level, has a significant portion of the market but struggles to become the dominant player and/or top of mind in their industry.
- Mainstream: A business that has become the “top of mind” in their industry, but now has to maintain or grow its market share to stay on the top.
The Newcomer is a newly started business. It is a group that makes up the majority of the Indonesian SME scene with sales only less than 1 billion IDR or 70K USD per year. Up to 99% of the Indonesian SMEs are in this category, and many will always remain there.
There is an inherent problem that many stuck Newcomers are facing, and they seem not to grasp their own problem, that is identifying the right target market, what type of product/service that needs to be delivered to that target market and the strategy breaking down on how the company will fulfill it effectively and efficiently.
In this stage, businesses have mastered what their customers want. Artisans focus mainly on product deliverance, but not yet on scalability. With sales between 1-5 billion IDR or between 70K–50K USD per year, it is estimated that about 0.5% of the business in Indonesia are artisans. Cash Flow and Inventory issues hinder the growth of Artisans. To overcome their challenges, it requires a mindset shift.
The focus here is on scalability in terms of both resources and processes. They should enable the business system to deliver products at a larger scale, whether in the form of employing professionals or investing in the right production tools and changing from one man show to a team effort.
Once businesses reach the Emerging stage, they have both mastered their market fit and their products’ scalability. With annual sales between 5-100 billion IDR or 350K–7 million USD, it is estimated that about 0.35% of businesses are at this stage.
At the emerging stage, business owners have already proven to be able to grow the business and the business starts to get recognized by its peers. But many business owners at this stage are greeted with stagnation, which they take as a false signal of having reached an optimum but alas it is only a local optimum. Local optimum as it is only a mirage, validated by their small business circles among which they see the business as already a winner. It is the ultimate plight of the false peak.
Many businesses then take the false conclusion that the market is inundated, and that there is no longer room for growth. Some business owners then look for new challenges by going wide instead of deeper into their products, they expand their business into a new category or make new business, sometimes even outside their own initial industry. However, in the emerging stage, the main way to cross the next chasm is by having focus — by expanding productive sales channels and building trust among their customers and their retailers.
As Challengers, business owners now have reached the level where they compete head-to-head with the Mainstream brand. Their products have a wide area coverage within the country, but they might not be the first choice for customers. With sales between 100-500 billion IDR per year or 7-35 Million USD per year, it is estimated that about 0.14% of businesses are at this stage.
The sole focus now is to gain more market share so that they can become the top brand on their customers’ minds. Now more than ever, the business needs to invest in branding and developing better/cheaper products. Finding smart ways to connect with their potential customers and build relationships with their existing customer base. At this stage also, every increase in production is accompanied by more and more risk, so the business needs to plan their operation wisely and effectively to take on the competition.
Mainstream companies are the top of mind of their industry, with sales above 500 billion IDR or more than 35 Million USD per year, it is estimated that only 0.01% of the companies are in this stage. For many, this is the final goal of the entrepreneurial path. But they should be aware that there is always a chance of losing out to the new Challengers of their industry, or to their peer competitors. Even at the highest level, companies need to always innovate to maintain their position.
Ilham Taufiq, Co-Founder and Chief Partnership & Strategy Evermos said, “This categorization is not the typical way in which Indonesian SMEs are seen, oftentimes when we are looking at SMEs, we categorize them in clusters that are not always practical to their growth.” Evermos is also active in assisting to SMEs that are onboarded in its platform using the results of this study. “The categorization shows that at each stage, the problems of SMEs differ, meaning that interventions whether in the form of workshops or other types of support need to be fine-tuned in accordance with the stages of the business. Now, all SMEs are treated the same, with curriculums that are similar no matter what stage they are in, there is an urgent need to reform,” he added.
As business owners deal with their day-to-day struggles, it is important to give them a blueprint of mindset and skills that they need to attain so they can plan their growth accordingly. This will not only help the business, but it will also impact the whole economy at large. By having more business at either the Emerging or Challenger stage, more values will be created by the SMEs sector, which will in turn increase Indonesia’s welfare and help us get out of the middle-income trap.
Evermos is a social commerce startup with a vision to build a collaborative economy to improve the welfare of Indonesia. We want to provide opportunities and support to MSMEs, individuals who want to become entrepreneurs, and the wider community to have mutual awareness and help each other through our digital ecosystem.
Evermos provides an ecosystem that supports individuals, even without capital, access, and experience, to become entrepreneurs by becoming an Evermos reseller. Resellers sell curated products from local brands so besides doing business, they also support our local MSMEs to grow together. Meanwhile, the wider community has a better shopping experience to purchase local brands in a more convenient way and at the best prices, assisted by resellers. To learn more, visit www.evermos.com.
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