Spatial Dynamic Modeling for Increasing the Competitiveness of Small Medium Enterprises: Case Study of Bogor City, West Java, Indonesia

Background

The role of Small and Medium Enterprises (SMEs) in supporting economic activities in Indonesia's national real sector is very important. Within the framework of the national economy, SMEs have contributed to the recruitment of workers, increasing the Gross Domestic Product (GDP) as well as increasing the value of exports and national investment. SMEs has shown their performance at the economic crisis situation became the locomotive of the national economic movement since the raw materials used came from within the country. At present there are 56 534 591 SMEs units throughout Indonesia representing 99.9% of the total number of industries / businesses in Indonesia (Ministry of Cooperatives and SMEs, 2013 and 2015).

The ASEAN Free Trade Area (AFTA) implemented since 2015 should be used optimally to provide the equitable economic benefits for industry especially SMEs in the country. Indonesia as one of the ASEAN members has prepared facing AFTA by developing the important infrastructure, such as airports and ports in various places in Indonesia. Reform of procedures and bureaucracy has been done also to provide better social and economic services. This is a step to build a basis for the country's economic resilience facing the free market. A large number of Indonesian SMEs should be able to take advantage of the AFTA market opportunities so as to increase the country's foreign exchange and public welfare by producing products that have competitive and comparative advantages.

The facts show that although the number of SMEs is dominant, in general they face various obstacles in developing their businesses. Some of the obstacles include: capital, marketing, raw materials, technology, management, bureaucracy, infrastructure and partnerships. In this government and related agencies should take the role to solve the problems. Ministry of Cooperatives and SMEs has made policies and programs that can help the development and maintenance of SMEs. The policies of the Ministry of Cooperatives and MSMEs in 2015-2019 are aimed to: increasing productivity, feasibility and added value of Cooperatives and SMEs so that they are able to grow to a larger scale (“grade up”) and be competitive. The policy direction implemented through five strategies as outlined in the 2015-2019 National Medium-Term Development Plan (RPJMN), namely: improving the quality of human resources, increasing access to finance and expanding financing schemes, increasing product value added and marketing reach, strengthening business institutions and ease, certainty and business protection. Meanwhile the challenges that need to be addressed in the development of SMEs are particularly related to the improvement of SME conditions, including: (1) Improvement of business formalization with better business governance; (2) Increasing productivity supported by skilled workforce and applying technology; (3) Capacity building to build partnerships and join global production and marketing networks; (4) Utilizing increasingly open opportunities from the application of the ASEAN Economic Community (AEC) and bilateral economic cooperation agreements and other regions and (5) Improving policies and regulations that are responsive to improving the performance and competitiveness of MSMEs. The various problems and challenges, especially for micro and small business actors mentioned above, direct efforts to empower MSMEs in the future need to be focused on handling two strategic issues, namely business growth and competitiveness.

The use of information technology in this era could be integrated in the modeling stage in order to present more clearly the simulation result of different scenarios. Spatial form can be used to present location about SMEs included basic information needed by other parties in order to know better about the SMEs or to take opportunities to collaborate with the SMEs.

A dynamic spatial model for enhancing MSME competitiveness needs to be developed in order to help decision makers make policies related to increasing product competitiveness both nationally and internationally for the improvement of people's welfare.