The Challenges for ‘MSMEs Go-Digital Movement’ Amidst the Covid-19 Pandemic in Indonesia
Introduction
The coronavirus pandemic has resulted in unprecedented health crises across the globe. The year 2020 has had incredible challenges on the economy. In addition, the pandemic has had unmatched and stern effects on all elements of how people interconnect, work, produce, consume and live. The economic consequences of the pandemic have rapidly become apparent, with small and medium-sized enterprises (SMEs) being affected the most. According to AHK Indonesia, the effects of the pandemic have been felt with 162,884 people being confirmed along with 7,064 deaths as of August 27th. The government has taken several measures to prevent the spread of the virus while helping improve its economy. There has been a need to practice business digitally with the government launching the ‘go-digital’ movement for MSMEs. This essay will discuss in details the challenges that the government will face launching the ‘go-digital’ movement for MSMEs in Indonesia amidst the pandemic and whether or not this movement will be beneficial to SMEs.
Effects of the Pandemic on SMEs
The coronavirus pandemic has caused and is still causing several large scale losses not only of life but also extensive human suffering on a global scale. The economic crises that have been experienced have had a significant toll on production and consumption, resulting in the collapse of many businesses with some experiencing uncertainty. In Indonesia, the effects of the pandemic on SMEs has equally been felt. For starters, the transmission channels have been affected. As a result, both the supply and demand side has been affected. For the supply side, for instance, most companies have experienced a lessening of workers resulting in low supply of labour. With most people sick and unable to move around, the demand side has been affected as fewer people are making purchases. Consequently, there has been a shortage of parts and intermediate goods.
Notably, there has been a dramatic reduction in revenue for SMEs with many experiencing the inability to function, resulting in a severe liquidity shortage. According to the Organization for Economic Co-operation and Development, due to loss of income, fear of infection and increased economic uncertainties, there has been a reduction in both spending and consumption. The most affected sectors in Indonesia are transport and tourism due to social distancing that has restricted travel and interaction. The potential spill-over into the financial markets has been experienced in Indonesia, with many SMEs experiencing reduced credit. The SMEs are experiencing these effects more severely due to their high level of vulnerability and lower level of resilience. SMEs in Indonesia account for the majority of companies, employment and value-added, especially in tourism and transport. SMEs who depend on external supplies have been affected more with disruption of the supply chains.
The lack of resilience and flexibility in dealing with cost ruptures in SMEs is more visible. For example, the cost prevention and mitigation programs for SMEs is higher, including their ability to shift and go digital. Considering the small size in which they operate, it is difficult for SMEs to be highly digitalised or adapt technological advancement due to the cost of installation. Moreover, the cost of underutilised labour and capital that comes as a result of responding to development is higher on SMEs compared to more extensive and established businesses. It is equally difficult to acquire not only information but also utilise strategies that would lower the economic effects of the virus or initiatives that are meant to support businesses.
Benefits and Opportunities Created by MSMEs Go-Digital Movement
The above-elaborated effects make the survival of SMEs slimmer amidst the pandemic compared to larger businesses. With the impact of the virus still ongoing, the Indonesian government is developing more critical measures that will help SMEs. It is essential, however, to acknowledge the opportunities that SMEs can take advantage of during this economically straining period. According to the United Cities and Local Governments Asia-Pacific, digital platforms can be used to offer training for Micro, Small and Medium Enterprises (MSMEs). In such training, individuals can be taught how to improve welfare or start businesses despite a low level of education or finance.
Digital marketing has been recognised by United Cities and Local Governments Asia-Pacific as one advantage of going digital for Indonesian communities. Most MSMEs are faced with the challenge of communicating with customers in their target markets. Digital platforms can be used to not only engage with customers faster and easier but also to acquire information regarding competitors and other similar businesses. The government of Indonesia has been vital in establishing digital platforms where MSMEs can access and use information and communication technology optimally. For example, AHK Indonesia explains that Government Goods/Services Procurement Policy Institute e-catalogue (shorten as LKPP in Bahasa Indonesia) is a government program that is trying to create opportunities for MSMEs by including their products on digital platforms. The government is targeting over 2 million MSMEs with such programs, including those started by students.
For traditional MSMEs, the government of Indonesia is trying to bring forth their digital presence through the provision of such platforms. Besides, they are encouraged to network with other MSMEs and cooperate as a way of expanding their economic margins. International Trade Center explains the use of Go-JEK and Go-SHOP application in this scenario for traditional Indonesian markets to digitalise. These businesses are advised to register and partner with GO-SHOP. Further, there is an allocation of around IDR 40 billion to support meetings that train such MSMEs to operate digitally (International Trade Center). Moreover, digital operations are encouraged through social media platforms like Instagram, where entrepreneurs interact. According to the International Monetary Fund, the Indonesian government has designed a program known as e-warung (e-stall/store) that allows MSMEs that focus on selling vegetables and fish to have a ready online market. Moreover, Rp. 20,534,000,000 (approx. USD 1,402,021.03) has been set aside to empower groceries traders as a way of enhancing food security and dealing with economic effects experienced by MSMEs (International Monetary Fund).
International Trade Center further explains that the go-digital movement by the Indonesian government will allow the development of the digital economy along with synergising MSMEs as a technique of developing the ecosystem. Partnering with such programs will result in higher turnover after partnering with GO-Food, another digitally based government program. The government partners with MSMEs in distributing social assistance as a way of recognising the locals through small and medium businesses. It is important to note that this digital movement will bring forth a good ecosystem where MSMEs are recognised by the government at a similar degree as larger businesses. Research by Tambunan concluded that SMEs form more than 99 per cent of the total businesses in Indonesia (Tambunan). Taking advantage of this statistic means that there is a need to develop digital economic equity by balancing MSMEs and larger enterprises. As a result, there will be an enhancement on the “Buy Local Products” campaign that is fueled by the Indonesia National Government.
Challenges for MSMEs Go-Digital Movement
Many governments in the world have recognised the devastating effects of the virus and have been looking into preventing further economic destruction. Despite the government of Indonesia adopting the Go-Digital movement, there are several challenges it is expected to experience. Even though the campaign is focused on MSMEs and is concentrating on encouraging investment with the hopes of bettering the economy, the larger companies are still a challenge. According to the International Trade Center, large companies get more government support compared to medium and small businesses in Indonesia. While temporary tax relief, tax waivers and financial programmes are the most appropriate ways for the Indonesian government to intervene, most larger businesses will benefit from this measure compared to MSMEs making it harder for MSMEs to invest and participate in the digital options elaborated above.
The larger companies and MSMEs further have contrasting viewpoints regarding how they can survive the effects of the pandemic. According to the International Trade Center, MSMEs believe that cash transfers are the most appropriate way for the government to show its concern and involvement. At the same time, larger companies considered employment programmes as the most appropriate as it supported the income of their workers. These choices of government support are based on the effects of the pandemic on the individual sectors. For MSMEs, most opted to lay off their employees, sell off their assets or to take in new debts. These steps are expected to hurt their long term viability, as explained by the International Trade Center. For these reasons, therefore, cash transfers seem like the most suitable intervention by the government for MSMEs. While larger businesses adjusted their businesses to embrace resilience, MSMEs succumbed due to their vulnerability, as explained earlier. Many of these government programs aim to push MSMEs at risk overlooking those who succumbed to the devastating economic effects, making it more difficult for MSMEs to commit to the programs.
Most MSMEs lack information and technological know-how to make it through their target market successfully. The research by Tambunan indicates that most MSMEs lack access to information and mostly rely on local support. Therefore, most MSMEs lack enough information regarding the coronavirus. Hence, it is crucial for the government to start at explaining the pandemic, its effects and its preventive measures before embarking on the journey of teaching them how to be resilient during these uncertain times. While the programs create room to share procurement while developing economies of scale and access to new opportunities, it is vital to assess the knowledge and resources currently present for the surviving MSMEs in Indonesia. Good government support should begin from creating a platform on which MSMEs can benefit from their business knowledge and expand through frequent digital interactions. These are determined by expertise and resources which, therefore, creates a concern for policymakers and funders.
While introducing ‘new normal’, the government needs to address the roots of economic problems for MSMEs in Indonesia. For starters, while larger companies were resilient, MSMEs were succumbing to the effects of the pandemic. For instance, the government should build financial buffers as a way of boosting MSMEs resilience as the International Trade Center explain. Government initiatives need to create lessons and training that would allow MSMEs to strengthen their resilience during more challenging times, like offering more support to MSMEs rather than larger companies. This support will be integral in preventing bankruptcy and ride outs of MSMEs, therefore improving the state of the economy. For MSMEs that have active international supply chains, the resilience is needed to enhance the relationship between the MSMEs and the buyers and suppliers.
Going digital creates a new normal in which Indonesians MSMEs are expected to be fluent in technological and digital terms and way of conducting business. According to United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and The United Nations Resident Coordinator Office (RCO), this poses a challenge due to the level of education that might determine the ability to grasp the concept and proficiency expressed through expertise in using digital platforms, access to resources and knowledge to interpret digital information to be beneficial at both a financial and business level. There has been a tremendous shift to digital platform characterised by remote learning, teleworking, online health services, teleconferencing, digital payments and e-commerce which require technological know-how by the respective MSMEs to be achieved. Thus, the future will create an obligation for a business to operate digitally and not just an option that MSMEs will consider when starting their business as explained by the report by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and The United Nations Resident Coordinator Office (RCO). Therefore, the Indonesian government must invest in digital education from the grass root before offering initiatives that are beneficial but limited to businesses that can not only access the internet but also know how to operate it excellently.
Conclusion
It is essential to acknowledge the effects that the coronavirus has left
behind and how these effects are being channelled beyond 2020. For Indonesian MSMEs, they have been affected in several ways in which people interconnect, work, produce, consume and live. The economic effects have been devastating with the government designing measures that would allow it to be involved in improving the economic consequences of the pandemic that have been rapid and obvious globally, especially for the MSMEs. The government has launched the ‘go-digital’ movement for MSMEs as a way of allowing economic progression amidst the pandemic. This essay has established the opportunities this movement has created for MSMEs in Indonesia along with the challenges the government will experience putting this movement in place amidst the pandemic.
Works Cited
AHK Indonesia. “COVID-19 Developments in Indonesia.” AHK Indonesien, 2020, indonesien.ahk.de/en/infocenter/news/news-details/covid-19-developments-in-indonesia.
International Monetary Fund. “Policy Responses to COVID19.” IMF, 2020, www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#I.
International Trade Center. SME Competitive Outlook: COVID-19: The Great Lockdown and Its Impact on Small Business. 2020.
Organisation for Economic Co-operation and Development. “OECD Policy Responses to Coronavirus (COVID-19): Coronavirus (COVID-19): SME Policy Responses.” OECD, 2020, www.oecd.org/coronavirus/policy-responses/coronavirus-covid-19-sme-policy-responses-04440101/.
Tambunan, Tulus. T. H. “Evidence on the Use of Internet for Businesses by MSEs in a Developing Country. The Indonesian Case.” Anais Da Academia Brasileira de Ciências, vol. 92, no. 1, 2020, 10.1590/0001-3765202020180555. Accessed 29 Aug. 2020.
United Cities and Local Governments Asia-Pacific. “Digital Economic Opportunity in Indonesia amid COVID-19 Pandemic.” UCLG ASPAC, 29 May 2020, uclg-aspac.org/en/digital-economic-opportunity-in-indonesia-amid-covid-19-pandemic/. Accessed August 29th, 2020.
United Nations Office for the Coordination of Humanitarian Affairs (OCHA) and The United Nations Resident Coordinator Office (RCO). “INDONESIA MULTI-SECTORAL RESPONSE PLAN TO COVID-19. ‘A Health Worker Distributes a Brochure on COVID-19 to Areas around Jakarta’ – Credit: Lembaga Penanggulangan Bencana Dan Perubahan Iklim Nahdlatul Ulama (LPBI NU)/2020.” 2020.