President year 2025. Figure 1.1. SME Digital Technology

President
Joko Widodo, the Indonesian government has focused its efforts on boosting the
country’s digital economy. To continue the trajectory, the government’s plan includes supporting eight million Small and Medium
Enterprises (SMEs) to be “digitally empowered” by year 2020. The attention of special government
is how this SMEs being a foremost contributor to Indonesian Gross Domestic
Product (GDP) and also open employment. Based on the Cooperatives and SME
Ministry in 2014, Indonesia had 57.9 million SMEs which contributed to about
58.92% of the country’s GDP and absorbed 97.30% of the country’s workforce.

 

Deloitte Access
Economics commissioned reported that reveals that boosting digital engagement
among Indonesia’s SMEs could increase annual economic growth of the country by
2%. Such a jump would have Indonesia on track to becoming a middle-income class
country by year 2025.

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Figure 1.1. SME Digital Technology
Opportunity and Challenge

Source: Deloitte Financial Advisory

 

 

The report is finding that greater use of
digital technologies such as social media, broadband and also e-commerce can
deliver significant benefits for SMEs segment, including:

Up to 80% higher in revenue
growthBeing one-and-a-half times
more likely to increase the employmentBeing 17 times more likely
to be more innovative  

 Figure 1.2. SME Online Financing and
ChallengeSource: Deloitte Financial Advisory  The key directions for
government policy to support digital local SMEs, including:

Increasing broadband access. The internet access in Indonesia still remains
relatively expensive and quite slow. Increasing a broadband access and the
quality of service is an urgency and alternative solution that will
encourage digital technology adoption by SMEs and also improve the
performance of existing technologies.
Helping the SMEs to be proactive
in digital businesses. The Indonesia government Government has to provide SME support
programs, including how to make a target at increasing SME digital
engagement.
Expanding e-payments. Improving trust in the platform of e-commerce
payment will increasing bankability of Indonesian consumers, businesses
and also expanding alternative payment systems will increase the volume of
digital transactions.
Expanding access to finance. Digital SMEs model need a
mix of international also domestic sources of finance which are currently
barriers that reduce their potential for growth.
Expanding e-government services. Government services delivered through online
platforms are more cost-effective and efficient. More online government
services would build consumer confidence in online activities and services.

 

John O’Mahony as the
research co-author and Deloitte Access Economics partner at the report’s launch
said that “Indonesian businesses accelerating their adoption of digital will
not only drive growth and profitability. It will help achieve important
national objectives for higher employment, improved living standards and
greater international competitiveness.” Digital needs to be an important agenda
item for the Indonesian Government.

 

 

1.2. SME in Indonesia

1.2.1.   Definition of SME and Its Basis

The definition
of ‘Small & Medium Enterprises’ (SME) under Indonesian law differs from the
generally accepted definition defined by turnover
and net assets.

 

 

 

Figure 1.3.
Indonesian SME Definitions

Source:
SME Act No.20/2008; Indonesia Ministry of Cooperative and SME; Deloitte
Analysis

 

 

 

Table 1.1.
SME Contributions to GDP and Employment

Source:
Digital Banking for Small and Medium-sized Enterprises, Deloitte 2015

 

 

From the data
explained that across the five countries, SME contribution in Indonesia is at
least a third GDP and approximately 70% of employment with its share being the
highest and contribution to a GDP stands at 59%, and also to employment stands
at 97%.

 

 

 

1.2.2. Ministry of Cooperatives and Small & Medium
Enterprises of the Republic of Indonesia and Authorities

In SMEs segment the jurisdiction of policies is not
only limited to the Ministry of Cooperatives and SME, but also involves the
Finance Ministry, the Industry Ministry, the Commerce Ministry, etc., and since
each of these Ministries individually administer policies for SME.

 

In
addition to the Indonesia SMEs Law, there is technical regulation namely Indonesia
SMEs Government Regulation. This regulation stipulates about business
development (facilities, priority,
activity, intensity, deadline,
and implementation) of SMEs, types of partnership of SMEs, government role in
partnership of SME and licensing (type, requirements and licensing fee).