Using System Dynamics Approach to Support Sustainable Growth Number of Small and Medium Enterprises in Indonesia: Some Policies Consideration

Abstract

The current data from the Central Bureau of Statistics of Indonesia (BPS) regarding the number of small, medium enterprises (SMEs) and large enterprises (LEs) in Indonesia from year 1999 until 2008 indeed demonstrated a dynamic behavior. Thus, the paper has objectives to discuss and propose policies such as; first, from operational side: providing market information in order to give more access for market demand, market capacity. This strategy will in the long term lead to a better production planning. Second, from the financing side: using profit-sharing principle of financing (PSP) to cope with such dynamics behavior in order to support a sustainable quantity growth of SMEs. System dynamics approach is applied to understand this behavior. Some relevant variables included in the simulation model are potential demand, aggregate demand, and quantity of SMEs and LEs. Modular system of simple production coordination and a guarantee mechanism based on a PSP were attached to the generic system that has generated overshoot and collapse behavior, in order to minimize or even avoids the rapid decreasing number of SMEs in stock. Simulation conducted in this paper has implemented two policy levers, which are first; a production coordination system through information sharing and second; financing mechanism with PSP contract for Small Enterprises (SEs). Based on the simulation done for this paper, such policy levers could support the development of SMEs in term of its quantity in order to keep it grow instead of “collapse.” The paper also shows the added value creation of PSP principle in economy and minimization of the agency risk with double layers referencing method. This paper re-emphasizes first; the use of production coordination to support positive growth number of SMEs especially to prevent collapse after experiencing overshoot growth, and second; proposes a financing mechanism for SMEs based on PSP principle to prevent SMEs from the operational failure. This paper also proposes the use of double layer referencing system to minimize agency risk in the area of PSP contract agreement.