Recent Development of Small Medium Enterprises’ Businesses Profitability: Evidence from Indonesia

Abstract

Small Medium Enterprises (SMEs) has an important role in the Indonesian Economy based on the fact that more than 90 percent of domestic employment is in this sector. At the same time, the Government of Indonesia enacted law 20/2008, which is focused on strengthening SMEs' participation in economic growth, job creation, and poverty reduction. Using Small Medium Enterprises Dataset of Indonesia from 2010 to 2015 which consisted of 50,000 businesses observations, the research investigated the research problem: the business conditions and business profitability in Indonesia. We used quantile regression and descriptive methods involving the owner's characteristics, such as: gender, age, years of education; and production factor, such as: material cost, and amount of production. We found that: 1) the owner characteristics and production factor had significant changes in the medium business sector over the 5 year period; 2) in the recent year, the owner characteristics played important role in the small business sector, compared to the 5 years earlier. From the policy perspective, the government could increase the profitability factor in SMEs by ensuring the coordination between stakeholders.