Indonesia's Micro Business Contributions to GDP Almost Equal That of Large Companies

Research conducted by the Katadata Insight Center (KIC) and social commerce provider Evermos reveals the distribution of contributions from micro, small, and medium enterprises (MSMEs) and large companies in Indonesia.

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

Looking at the distribution of their contribution to GDP, micro-enterprises contributed significantly, namely 37.4% in 2019. This value almost rivals the contribution from large-scale companies, which reached 39.5% in the same year.

Meanwhile, small businesses contributed 9.5% and medium-sized businesses contributed 13.6%.

"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 the report *Beyond the Digital Frontier, How Offline Channels Drive the Advancement of Local Brands*.

The research team sees this as creating a "hollow in the middle" phenomenon, where the contribution of small and medium-sized enterprises (SMEs) is much smaller compared to micro-enterprises and large companies.

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

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

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 sees MSME growth as still relatively slow. Fundamental obstacles such as capital acquisition and financing cause MSMEs to experience capability gaps.

This gap refers 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 hindering their ability to gain the competitive advantage needed to scale operations," the research team wrote.

(Also read: [Micro Businesses Still Dominate MSMEs, How Many Are There?](https://databoks.katadata.co.id/datapublish/2023/10/13/usaha-mikro-tetap-merajai-umkm-berapa-jumlahnya))