Study by Indonesian social commerce platform Evermos shows SMEs are important to Indonesia’s future economy
Jakarta, Indonesia, October 27, 2021 / PRNewswire / – The role of SMEs is increasingly important amid volatile Indonesian economic conditions. Indonesia a 62.9 million registered businesses and small and medium-sized enterprises (SMEs) contribute up to 60% of the country’s GDP. However, of these registered businesses, almost 99% of them are considered micro businesses. Yet even with these numbers, our SMEs are labor intensive, employing a total of 97% of Indonesia’s population. They absorb most of the workforce, especially low-skilled workers, and reduce the unemployment rate, especially in Indonesia which has a high proportion of working age.
Bagus owns a business, his sales have stagnated for months, but the cost of his production continues to rise, resulting in losses – if this continues for a month, he knows his business can no longer survive. Still, Bagus has 20 employees on the payroll, and he worries about what will happen to his employees and their families if his business does not survive.
Bagus is just a pseudonym, but he is the owner of every business, regardless of size. Business owners often struggle to maintain, let alone grow, their business. Knowing that a step in the wrong direction will impact not only their business, but also the people whose livelihoods depend on them. One business can impact so many lives, directly or indirectly. This is a multiplier effect down the value chain and the local economy, and a good business leader is aware of it.
Supporting the growth of SMEs is a crucial step. Microenterprises cannot provide an extended safety net for all of their employees because they are more easily affected by a change in the economy. In addition, the number of SMEs is not always positively related to productivity; The SME sector still needs a lot of improvement to maximize its potential to transform the Indonesian economy and improve the quality of life of the people. The main problem is that there are just too many micro businesses that don’t grow into bigger businesses. How can businesses move from their impact on small microenterprises to becoming large, reliable sources of income for many and contributing to indonesia economy?
Evermos, the largest social commerce platform in Indonesia which empowers and supports local SMEs, answers the question by their article published in the World Economic Forum. After a study and an interview with SME players at different stages, Evermos reclassifies SMEs according to the state of mind and the skills they must achieve at a given stage.
Newcomer: A newly started business or a business that has been stuck in identifying the right fit for the market and is failing to develop the business further.
Artisan: A business that has found a niche market segment to target and is focused only on delivering the product, not on scaling the business.
Emerging: A company that has built a system that uses the fundamentals of the business, including its value chain, but has yet achieved significant market penetration.
Challenger: A company that is located at the national / regional level, has a significant market share, but struggles to become the dominant player and / or priority in its industry.
Main stream: A company which has become the “top of mind” in its industry, but which must now maintain or increase its market share to stay ahead.
The newcomer is a newly started business. It is a group that constitutes the majority of the Indonesian SME scene with sales only below IDR 1 billion Where 70K USD per year. Up to 99% of Indonesian SMEs fall into this category, and many will stay there forever.
There is an inherent problem that many stranded newcomers face, and they seem to fail to grasp their own problem, namely identifying the right target market, what type of product / service needs to be provided to that target market, and the strategy that goes with it. decomposed. on how the company will comply effectively and efficiently.
At this point, companies have mastered what their customers want. Craftsmen focus primarily on product delivery, but not yet on scalability. With sales between 1-IDR 5 billion or between 70K–50K USD per year, it is estimated that about 0.5% of the activity in Indonesia are craftsmen. Cash flow and inventory problems hamper the growth of artisans. To overcome their challenges, it requires a change of mindset.
The emphasis here is on scalability in terms of resources and processes. They should enable the business system to deliver products on a larger scale, whether by employing professionals or investing in the right production tools and moving from a one man show to a team effort.
Once companies have reached the emerging stage, they have both mastered their suitability for the market and the scalability of their products. With annual sales between 5IDR 100 billion Where 350K–$ 7 million, it is estimated that approximately 0.35% companies are at this stage.
At the emerging stage, business owners have already proven themselves capable of growing the business and the business is starting to gain recognition from its peers. But many business leaders at this stage are greeted with stagnation, which they take as a false signal to have reached an optimum, but unfortunately it is only a local optimum. The local optimum because it is only a mirage, validated by their business circles among which they see the company as already winning. This is the ultimate fate of the false peak.
Many companies then draw the wrong conclusion that the market is flooded and there is no room for growth. Some business owners then look for new challenges by going deeper instead of deepening their products, they expand their business into a new category or start new businesses, sometimes even outside their own initial industry. However, at the emerging stage, the main way to cross the next chasm is to focus – expanding productive sales channels and building trust between their customers and their retailers.
As Challengers, business owners have now reached the level where they are in direct competition with the Mainstream brand. Their products cover a large area in the country, but they might not be the first choice of customers. With sales between 100-IDR 500 billion per year or 7-$ 35 million per year, it is estimated that around 0.14% companies are at this stage.
The only goal now is to gain more market share so that they can become the number one brand in the minds of their customers. Today more than ever, the company must invest in branding and the development of better / cheaper products. Find smart ways to connect with their potential customers and build relationships with their existing customers. Also at this stage, with every increase in production comes more and more risk, so the company must plan its operations wisely and efficiently to face the competition.
Consumer companies lead their industry, with sales exceeding IDR 500 billion or more than $ 35 million per year, it is estimated that only 0.01% companies are at this stage. For many, this is the end goal of the entrepreneurial journey. But they should be aware that there is always a chance of losing to new challengers in their industry or to their competition. Even at the highest level, companies must always innovate to maintain their position.
Ilham Taufiq, co-founder and head of partnership and strategy of Evermos, said: “This categorization is not the usual way Indonesian SMEs are viewed. Evermos is also active in assisting SMEs that are integrated into its platform using the results of this study. “The categorization shows that at each stage, the problems of SMEs differ, which means that the interventions, whether in the form of workshops or other types of support need to be refined according to the stages of the activity. Now all SMEs are treated the same, with programs that are similar no matter what stage they are at, there is an urgent need for reform ”, a- he added.
As business owners face their day-to-day challenges, it’s important to give them insight into the mindset and skills they need to acquire so they can plan their growth accordingly. This will not only help the business, but will also have an impact on the whole economy as a whole. By having more business at the Emergent or Challenger stage, more value will be created by the SME sector, which in turn will increase indonesia social assistance 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 well-being of Indonesia. We want to provide opportunities and support for MSMEs, individuals who wish to become entrepreneurs and the wider community to become aware of each other and help each other through our digital ecosystem.
Evermos provides an ecosystem that helps individuals, even without capital, access and experience, to become entrepreneurs by becoming an Evermos reseller. Resellers sell selected products from local brands. Besides doing business, they also help our local MSMEs to grow together. Meanwhile, the wider community has a better shopping experience to buy local brands more conveniently and at the best prices, assisted by resellers. To learn more, visit www.evermos.com.