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Internationalisation of Indonesian SMEs

Research Archive

Internationalisation of Indonesian SMEs

Revindo, Mohamad Dian
Type: Thesis
Permalink: https://hdl.handle.net/10182/8608
Originally published: 2017-04-12 by Lincoln University
Keywords: SMEs; Indonesia; internationalization; export barriers; export strategy; networks; export; export performance; Small and Medium-Sized Enterprises (SMEs); export industry
Fields of Research: 140210 International Economics and International Finance; 140202 Economic Development and Growth; 150308 International Business; 150314 Small Business Management

Abstract:

Indonesia faces rapid changes in its international trade policies and environment owing to its engagement in various bilateral, regional and multilateral free trade agreements. Free trade escalates business competition for small and medium-sized enterprises (SMEs) in the domestic market through cheap imported products and the increasing operation of foreign enterprises, but offers enormous opportunities for SMEs to export and venture abroad. However, Indonesian SMEs are less able to take advantage of foreign market opportunities than their large counterparts and only account for a small share of Indonesia’s non-oil and gas exports, contradicting their important contribution to business establishment, employment provision and value added creation. This study analyses the internationalisation of Indonesian SMEs, with focus on their direct-export activities. In particular, the study examines the characteristics of exporting and non-exporting SMEs in terms of export stimuli, export barriers, network relationships and participation in government’s export assistance programmes. The study investigates the strategies and processes undertaken by SMEs to become exporters along with the factors influencing SMEs’ export engagement, the determinants of SMEs’ export intensity and the factors influencing SMEs’ performance improvement due to export engagement. The policy measures to foster SMEs’ exports are formulated based on the research results. Primary data was obtained from survey questionnaires administered in April-August 2014 to SMEs in seven provinces in Java, Madura and Bali regions and central government agencies whose policies are related to SMEs and/or international trade. The survey yielded a response rate of 53.76% and 497 usable responses, including 271 exporting SMEs and 226 non-exporting SMEs. Descriptive statistics were used to distinguish the characteristics of exporting and non-exporting SMEs. Principal component analysis was used to reduce the dimensions of export stimuli and export barriers. The empirical frameworks include binary logistic regression to estimate the determinants of SMEs’ export engagement and fractional logit regression to estimate the determinants of SMEs’ export intensity and exporting SMEs’ performances. The descriptive statistics results show that SMEs are stimulated to export because they aspire to find new markets, but they initiate export activities because of the presence of foreign buyers. SMEs plan to begin exporting to neighbouring countries but they, in reality, initiate export to large and high income countries. SMEs’ timing to become exporters varies across provinces. Exporting SMEs in Bali and Yogyakarta, two main tourist destination provinces, on average take less time to internationalise from the outset, indicating a born global firm phenomenon probably due to high exposure to foreigners. The estimation results show that SMEs’ propensity to engage in export activities is influenced by the international work experience of the owners/managers, product, location, firm age, firm size, central government assistance, network relationships with non-government actors and their perceptions of export barriers. SMEs’ export intensity is affected by the international work experience of the owners/managers, location, firm age, firm size, export experience, export market, central government assistance, network relationships with non-government actors and their perceptions of export barriers. Engaging in export activities may improve SMEs’ performances, but the performances are influenced by owners/managers’ education level, firm size, export experience, export intensity, the presence of foreign investors and SMEs’ participation in central government’s export assistance programmes. SMEs encounter various export barriers at pre-exporting and exporting stages. At the pre-exporting stage, SMEs are less likely to engage in export activities if they perceive difficulties in tariff and non-tariff barriers, informational and human resource barriers, distribution, logistics and promotional barriers, business environment barriers in host countries, procedural barriers, and foreign customer and competitor barriers. At the exporting stage, SMEs are prevented from sustaining and developing their exports mainly by informational and human resources barriers, distribution, logistics and promotional barriers, financial barriers, foreign government barriers, procedural barriers and price barriers. However, the policy makers and the SMEs have different perceptions on the severities of each type of export barrier. The results provide new evidence on firm internationalisation theories, namely the Uppsala Model, the Network Model, the Resource-Based View and the International New Venture Theory. The results give insight for the policy makers seeking to identify potential exporters, develop effective assistance to remove the main export barriers and strengthen the function of internationalisation networks. The results also provide insights for SMEs’ managerial teams to enable the speeding up of their internationalisation process.

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