Analysis of the Determinants of Micro Enterprises Graduation

Abstract

Micro Enterprises (MEs) account for 55.86 million or 98.9% of total enterprises in Indonesia employing more than 90% of its people, but almost all MEs never graduate to Small Enterprises (SEs). This study aims to analyze the determinants and design the model of MEs graduation using field survey, Structural Equation Modeling (SEM) and Strategic Assumption Surfacing and Testing (SAST) methods. Survey results reveal that MEs and SEs (MSEs) are home/shop operated informal business in manufacturing or trade sectors, which is easy to enter/exit with simple technology; operated by low educated and lack experience people, or by educated entrepreneurs; financed by their own capital; and knowledgeable about their products but having problems to win the market. Unstable macroeconomic conditions and lack of external supports could not stop them to survive. They are in dire need of any kind of assistances, especially managerial, financial, technical, marketing, entrepreneurship, leadership and mindset change. SEM results show that the main determinants of ME graduation are Standard Operating Procedure and Information Technology (MANAGEMENT Know-how), Market (BUSINESS Characteristics), Infrastructure and Macroeconomic Condition (EXTERNAL), and Family Support (SUPPORT). Other important determinants are Visionary, Entrepreneurship and Business Experience (OWNER of Business) and Skilled Human Resources (RESOURCES). Most MSEs do not have the main key factors to success and graduate. Religious Islamic characteristics, do not emerge as the main key success factors of ME graduation. However, they are necessary factors, such as Spiritual uplift, Trustworthy (Amanah), and Truthful (Siddiq). SAST results show that the most important policies needed by MSEs are price stability and infrastructure (EXTERNAL), capital and financing support (SUPPORT), easy & cheap way of doing business and strategic location (BUSINESS Characteristics), easy & cheap access to finance & raw material and availability of appropriate technology (RESOURCES).