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The Impacts of Trade Liberalization on Indonesian Small and Medium-sized Enterprises

Recently there has been public and academic debate as to whether small and medium-sized enterprises (SMEs) in developing countries can survive the process of world trade liberalization. This policy paper discusses this issue in the context of Indonesian SMEs. The question is particularly important for Indonesia for two main reasons. Firstly, SMEs have historically been the main players in the Indonesian economy, accounting for more than 90 per cent of all firms across sectors and providing employment for over 90 per cent of the country’s workforce, mostly women and youth. Secondly, the Indonesian trade regime has changed from a protected to an open economy. There are concerns that Indonesian SMEs will not survive in the era of trade liberalization. One reason is that they are facing various constraints, including lack of qualified human resource, capital and technology. In fact, only a small portion of Indonesian SMEs export their products, but most of them do so indirectly through intermediate agencies, including large-sized exporting companies. However, there is no evidence to suggest that SMEs in Indonesia have been negatively affected by the shift in Indonesia’s trade regime towards trade liberalization. Copyright © 2011 International Institute for Sustainable Development Published by the International Institute for Sustainable Development International Institute for Sustainable Development 161 Portage Avenue East, 6th Floor Winnipeg, Manitoba Canada R3B 0Y4 Tel: (204) 958-7700 Fax: (204) 958-7710 E-mail: info@iisd.ca Web site: http://www.iisd.org