The government's commitment to the small and medium industry sector is evident, aiming to nurture and develop IKM entrepreneurs. This commitment is through various programs and strategic activities, receiving strong support from stakeholders such as state-owned enterprises, regional-owned enterprises, the private sector, academia, and associations. The goal is to enhance the role of IKM in driving the national economy.

"IKM plays a crucial role in strengthening the industrial structure and contributes to the growth of the national economy. This is because the IKM sector contributes to job creation, wealth distribution, and poverty alleviation," said Minister of Industry Agus Gumiwang Kartasasmita at the IKMA 2023 event in Jakarta on Thursday, 14 December 2023.

According to data from the Ministry of Industry, the current population of IKM stands at 4.19 million business units, dominating 99.7% of the total industrial business units in Indonesia. Furthermore, IKM has employed 12.67 million people, contributing 65.52% to the total industrial workforce. IKM also contributes 21.44% to the total industrial output value.

The classification of IKM includes businesses with a minimum of two aspects: the initial investment value (total assets) and the number of employees. According to the Statistics Indonesia (BPS) classification, a business with five to 19 employees is considered small, while businesses with 20 to 99 employees fall into the medium-sized category.

According to Law No. 9/1995, the criteria for small businesses include a net worth of up to Rp200 million (excluding land and business premises) or annual sales of up to Rp1 billion. Medium-sized businesses are further divided into industrial and non-industrial sectors, with the former having assets up to Rp5 billion and the latter having a net worth of up to Rp600 million (excluding land and business premises) or annual sales of up to Rp3 billion.

In addition, there is Presidential Instruction number 10 of 1999, which defines medium-sized businesses as units with net assets ranging from Rp200 million to Rp10 billion, excluding land and business premises. The development and growth of IKM are crucial drivers for economic development in many countries worldwide.

Based on experiences in developed countries, IKM serves as a source of production and technological innovation, fostering the growth of creative and innovative entrepreneurs and creating skilled and flexible labor in the production process to cope with rapid changes in market demand (Tambunan, 2002, Usaha Kecil dan Menengah di Indonesia: Beberapa Isu Penting).

New Energy for IKM

The increase in the IKM population in the country, as outlined by the Ministry of Industry, can be achieved by optimizing the demographic bonus, expected to peak in the 2030s, with 68% of Indonesia's population in the productive age range. This is envisioned to propel Indonesia's economic growth to higher levels and boost the country's entrepreneurship ratio, currently at a relatively low 3.47% of the total population.

Anticipating this golden era, IKM is not without challenges. There are at least five issues faced by IKM, namely financing, technology availability, raw materials, human resources, and the market.

Nevertheless, the Ministry of Industry is not concerned. According to Agus, these five issues can be collectively addressed through various programs, ensuring that IKM can eventually advance to higher levels.

One of the steps taken is to appreciate IKM practitioners through the IKMA 2023 event. This event includes award ceremonies for various IKM competitions, including the Indonesia Food Innovation (IFI) competition, the Indonesia Fashion and Craft Award (IFCA), and Startup for Industry (S4I).

Under the theme "Innovate Locally, Thrive Globally: Building a Sustainable Ecosystem through Small and Medium Industries," the IKMA 2023 event on 12 - 17 December 2023 signifies the commitment and tangible steps of the Directorate General of Small, Medium, and Various Industries (IKMA) at the Ministry of Industry to promote the creation and strengthening of IKM that are not only innovative but also environmentally friendly, adhering to sustainability principles and fostering a conducive business environment.

Director General of Small, Medium, and Various Industries (IKMA) Reni Yanita stated that the implementation of the IKMA 2023 event is expected to provide new energy for IKM practitioners to consistently produce quality, innovative, and competitive domestic products, both in the national and global markets.

In addition to awarding the Food Innovation (IFI), Fashion and Craft Awards (IFCA), and Startup for Industry, the IKMA 2023 event also involves the direct distribution of facilitation to IKM recipients from the Directorate General of IKMA for guidance, assistance, and Hazard Analysis and Critical Control Points (HACCP) certification for IKM in the food and beverage sector.

Furthermore, guidance, assistance, and certification for National Standardization (SNI) of iodized consumption salt, children's toys, and Aayi clothing are provided. There is also guidance, assistance, and certification for Good Cosmetic Manufacturing Practices (CPKB). Additionally, facilitation for technical guidance and certification of domestic component levels (TKDN) for small industries, restructuring of IKM production machinery and equipment, facilitation of packaging and brand design, and facilitation of intellectual property protection registration are included.

IKM Development Strategies

In a study by Kunto Purwo Widagdo, a lecturer at the Ministry of Industry, uploaded on the official Ministry of Industry website (2014), there are four stages that IKM goes through during development: the start-up stage, growth stage, expansion stage, and ultimately going overseas.

The mentoring model for IKM through these four stages has proven successful in Singapore. Therefore, Tiktik Sartika and Soejoedono (2002) propose development strategies for IKM in the country, considering partnerships, funding, and venture capital.

Business Partnerships

Partnerships involve synergistic cooperation among various parties, voluntary in nature, and based on the principles of mutual need, support, and benefit, accompanied by mentoring and development of IKM by large enterprises. One form of business partnership involving IKM and large enterprises is production linkage. IKM acts as a supplier of raw materials and auxiliary materials to reduce dependence on imports, as current import prices tend to be very high due to the depreciation of the rupiah.

Funding for IKM

In general, the funding for IKM is very weak, both in terms of mobilizing start-up capital and accessing long-term working capital for investment. To mobilize initial capital, three aspects need to be combined: financial assistance, technical assistance, and guarantee programs. Meanwhile, to improve access to funding, the role of banks and microfinance institutions for IKM needs to be optimized.

The absorption of IKM towards bank credit is still very low. Over 80 percent of bank credit is concentrated in the corporate segment, while the credit portion for IKM ranges only between 15-21 percent of total bank credit. To optimize the reach of credit to IKM, credit schemes with integrated partnership programs have been developed, such as the State-Owned Enterprises and Environmental Partnership Program (PKBL), Partnership Program with Rural Banks, Cooperatives, and Associations, as well as credit programs.

Venture Capital

Generally, IKM may not fully understand or like the procedures or requirements imposed by banking institutions. Conversely, banks sometimes have an inferior perception of IKM potential. This creates distortions in IKM financing.

Therefore, venture capital can be considered an alternative source of IKM financing. According to Presidential Decree 61/1998, a venture capital company is a business entity engaged in development by participating in the capital of a company receiving financing assistance for a certain period.

Financing with venture capital differs from banks providing financing in the form of loans or credit. Venture capital enterprises provide financing by directly participating in the capital of the financed company. The financed company is referred to as the investee company, while the investor providing financing is referred to as the investment company or venture capitalist.

Furthermore, the strategy for IKM development can be based on internal resources (resource-based strategy). This strategy utilizes superior local resources to create core capabilities in adding value to achieve comparative and competitive advantages. Consequently, small companies are no longer dependent on market power such as monopolies and government facilities.

In this strategy, IKM focuses on special skills that internally create superior core products to expand manufacturing share (Suryana, 2001). One highly effective IKM development strategy to be applied in developing countries is clustering.

Collaboration and competition among IKM within the same subsector in a group (cluster) will enhance collective efficiency in the production process, flexible specialization, and high growth (Tambunan, 2002).

Writer: Dwitri Waluyo
Editors: Ratna Nuraini/Elvira Inda Sari/Wilda Stiana
Translator: Irvina Falah