This is the Difference in the Contribution of MSMEs and Large Companies in Indonesia, Thailand, and Singapore

Research conducted by the Katadata Insight Center (KIC) and social commerce provider Evermos reveals a disparity in the value-added distribution of micro, small, and medium enterprises (MSMEs) and large companies in Indonesia compared to Thailand and Singapore.

Borrowing data from the Indonesian Ministry of Cooperatives and Small and Medium Enterprises (Kemenkop), the research team notes that the majority, or 99%, of businesses in Indonesia are MSMEs. MSMEs contribute 61.9% to the total gross domestic product (GDP) and absorb approximately 97% of the local workforce.

In terms of their contribution to GDP, micro-businesses contributed a significant 37.4% in 2019. Small businesses contributed 9.5%, and medium-sized businesses contributed 13.6%. Large-scale companies contributed 39.5% in the same year.

"The Indonesian business landscape is dominated by large companies and micro-scale companies, most of which are in the informal sector," the research team wrote in their report, *Beyond the Digital Frontier, How Offline Channels Drive the Advancement of Local Brands*.

The research team observes that this will create a "hollow in the middle" phenomenon, where the contribution of small and medium-sized enterprises (SMEs) is significantly smaller than that of micro-businesses and large companies.

Furthermore, the low value-added for SMEs indicates a potential weakness in the Indonesian business segment. SMEs, the research team writes, face challenges in productivity, competitiveness, or limited access to resources.

The contributing factors are varied, ranging from limited innovation and market access to difficulties in scaling operations.

"If we compare this to Singapore and Thailand, the value added generated by businesses in these two countries tends to increase gradually with increasing business scale," the research team writes.

Based on 2021 data from Thailand's NESDC, the contribution of micro-businesses in Thailand reached 2.6% of GDP. Small businesses reached 14.4%; medium-sized businesses, 17.6%; large businesses, 58.9%; and others, 6.5%.

Meanwhile, Singapore's 2020 statistical data shows that small businesses contributed 9% to GDP; medium-sized businesses, 22%; and large businesses, 69%.

It should be noted that Singapore's data is based on the value added generated by the service sector. In Singapore, companies are classified only as SMEs or non-SMEs; there is no micro-business category.

"This distribution shows a diverse business landscape where large companies dominate the value-added production, but micro, small, and medium enterprises collectively still contribute significantly to the total overall economic output," the research team writes.

The research team believes that a current priority is to unlock the full potential of MSMEs and ensure their sustainability. The government has emphasized initiatives to encourage MSMEs by providing various resources and growth opportunities.

Despite these efforts, the research team observes that MSME growth remains slow. Fundamental constraints such as capital acquisition and financing cause MSMEs to experience capability gaps.

These gaps refer to the limitations of the company's internal capabilities to effectively respond to market opportunities.

"As a result, MSMEs often face difficulties in creating added value and hinder their ability to gain the competitive advantage needed to scale operations," the research team writes.

(Also read: [This is the obstacle faced by business actors in expanding sales channels](https://databoks.katadata.co.id/datapublish/2023/10/06/ini-hambatan-yang-dihadapi-pelaku-usaha-dalam-memperluas-saluran-penjualan))