Abstract
There is an ongoing debate in the literature on the development of small and medium enterprises (SMEs) in less developed countries (LDCs) on two issues: the survival of SMEs in the course of economic development and the importance of government promotion programs for SME development. This research paper aims to examine those issues empirically with Indonesian data. For this purpose, it develops and tests a set of hypotheses. It shows that both real gross domestic product per capita and government development expenditure (especially that used to finance SME development promotion programs) have positive impacts on SME growth. With this finding, the research argues that SMEs in LDCs can survive, and even grow in the long-run, for three main reasons: (a) they create a niche market for themselves, (b) they act as a “last resort” for the poor, and (c) they will grow along with large enterprises (LEs) because of their increasingly important production linkages with LEs in the form of subcontracting.
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Notes
Unfortunately, evidence on constraints faced by LEs is very rare, and there are no data from BPS. Some reports on competitiveness and business environment may give an idea about business constraints faced by LEs (e.g., distorted market, labor disputes, red tape, burdensome tax system, lack of infrastructure, too many retributions, etc.). However, there are data on the constraints on technology acquisition.
Unfortunately, since no data are available on the proportion of women-led MEs and LEs in Indonesia, there is no indication on whether the percentage of women owners relative to men decreases or increases as firm size increases. Also, no data exist on the number of women starting enterprises each year, or on their growth rates into the next firm-size category. However, it is probably safe to say that very few women-led SEs grow into MEs and LEs.
For more detailed information about each program from each institution, including the name of the program, type of assistance, program executor, timeframe, fund used, area, beneficiaries, status, problems, and potential, see SMERU at www.smeru.or.id.
In their interpretation, the first industrial divide occurred during the nineteenth century with the emergence of mass production, and the second industrial divide has occurred in the late twentieth century with the reemergence of craft industries (Piore and Sabel 1984).
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The author would like to express his appreciation to two anonymous revivers and the editor of this journal for their comments on the early draft of this paper.
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Tambunan, T. SME development, economic growth, and government intervention in a developing country: The Indonesian story. J Int Entrepr 6, 147–167 (2008). https://doi.org/10.1007/s10843-008-0025-7
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DOI: https://doi.org/10.1007/s10843-008-0025-7