Building Back Better: On Sustaining Business Growth for Indonesian SMEs in 2023

December 29, 2022

Despite global headwinds of an impending global recession, the trend of economic recovery may stabilise, particularly in Indonesia.1 Bank Indonesia forecasts strong national economic growth in Indonesia in 2023 in the range of 4.5-5.3 percent before rising to 4.7-5.5 percent in 2024 due to a rise in private consumption, investments, and favourable export performance.2 However, despite the fact that the outlook for Indonesia's economy in 2023 is promising, there is still a need for caution.

Indonesia's business landscape might face some challenges in 2023—owing to factors like inflation, higher interest rates, disrupted global supply chains and the effects of the continued Russia-Ukraine war.

Under these volatile and uncertain economic climates, how can SMEs and enterprises in Indonesia brace and prepare themselves for a resilient new year? Let’s examine the emerging trends in Indonesia’s business landscape, best business practices for sustenance and growth and the scope of Indonesian businesses in 2023 and beyond.

A Booming Big Picture but Gaps in The Microeconomy Persist: How to Boost Sales in 2023

In contrast to the previous quarter's rise of 5.44 percent, Indonesia's GDP increased by 5.72 percent from July to September.3 For the third quarter of 2022, the Indonesian economy grew at its fastest rate in more than a year, but economists have warned that given the impending global economic uncertainties, this "may be as good as it gets" for the Southeast Asian country. The factors responsible for this year’s economic performance include greater export demands and a rise in public consumption. Disruptions to global supply chains that raised prices for Indonesia's basic commodities have boosted exports. In addition, the national holiday and the easing of mobility restrictions have encouraged both an increase in demand and a rise in supply.

While risks to growth are being dealt with at the macroeconomic level, the microeconomy is currently experiencing unrest.4 Let us look at some of the main factors that affect business owners in this climate.

There is a need for business owners in Indonesia to look at holistic solutions, rather than focusing on one-dimensional quick fixes. Most companies, especially MSMEs (Micro, small and medium enterprises, such as  warungs) have adopted quick-fix strategies and changed their way of business as a result of the supply chain problem in order to keep up with the surging consumer demand. To be able to survive and scale in 2023 and beyond, businesses must focus on product source diversification, cost assessment, and digitalisation. 

To increase sales, businesses also need logistical plans that can quickly change to accommodate an ever-evolving eCommerce environment. Consumers are becoming increasingly cautious about their purchases because of constrained budgets. Simple things like having a solid and clear return policy that assures customers of some control over the entire purchasing journey may help boost sales.

Research suggests that before making an online purchase, 67 percent of consumers check the return policy; therefore, a poor policy may deter them entirely. On the other hand, if the return procedure was simple, 92 percent of customers would make another purchase from the business.5

Top 4 Trends for Business Growth to Anticipate

Looking at the bigger picture

In order to enhance Indonesia's economic underpinnings, it is essential to develop resiliency against both significant and minor shocks. Businesses must apply a big-picture approach as they get ready for Indonesia's post-pandemic economy. It is important to remember that focusing on sustainable and consistent growth is one of the economic resilience methods in dealing with global difficulties. To adapt to changing consumer needs, consumption patterns, and economic situations, businesses must develop new strategies based on long-term growth rather than throwing in dramatic measures like sudden price spikes in response to inflation or a recession.

Not losing focus on “small” sales

Wealthy consumers naturally have more spending power, and companies typically focus on the higher markets for high-volume sales and profits. However, disregarding small sales would be a grave error, particularly in Indonesia, where MSMEs constitute the engine of the nation's economy and predominately sell everyday FMCG goods. Nearly all of the nation's employment—97 percent—is provided by the 63 MSMEs that account for over 60% of the GDP.6 

The theory of comparative advantage: Reduced costs, boost sales

Price reduction could be a solution, as businesses are expected to increase profits by reducing manufacturing costs and establishing market prices. By gradually lowering their prices while maintaining a respectable profit margin from each sale, businesses can increase their market share. 

Given that it aids in allocating resources to productive areas of the economy, the theory of comparative advantage could be utilised as a tool to modify the production system for competitiveness.7 A nation achieves comparative advantage when it produces commodities or services at a lower opportunity cost than other nations. This enables a business to offer goods and services at a lower cost than its rivals, hence boosting its profit margins. For SMEs, movements of low-cost product items that take into account other unique product characteristics, such as price and quality, are crucial under the WTO trading system in order to benefit from competitive benefits from business internationalisation.

Collaborations and partnerships are the way to go

In a post-pandemic future, collaboration and partnerships will be key to addressing the challenges faced across industries and boundaries; multiple reports8 and studies9 have said this over the last year and a half. Close collaboration and partnerships become even more pertinent in a fragmented market like Indonesia.

“The strong influence of collaboration on business performance in the digital industry in Indonesia shows that industrial collaboration strategy is a good intervening variable for the effect of distinctive capability on the performance of the digital industry.”

In the industrial era 4.0, business collaboration is a wise strategic move as it significantly affects the performance favourably. As such, collaboration becomes an excellent intervening variable for differentiated business success in Indonesia's digital sector.

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