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

The document assesses how Indonesia's shift from a protected to an open economy has affected its SMEs, which constitute over 90% of all firms. Despite facing significant institutional constraints—such as lack of capital, technology, and skilled labor—the author finds no evidence that trade liberalization has negatively impacted the overall number or GDP contribution of Indonesian SMEs. While most SMEs remain domestically focused or export indirectly through intermediaries, the paper argues that a free-trade regime generally provides more long-term benefits than protectionism, provided that supporting policies for human resource and technological upgrading are implemented.

• SMEs are the dominant economic actors in Indonesia, representing more than 90 per cent of all firms across sectors and employing over 90 per cent of the national workforce, primarily women and youth.
• Indonesian SMEs face several common institutional constraints that hinder growth, including lack of capital, human resources, technology, information, high transportation costs, and cumbersome bureaucratic procedures for obtaining licenses.
• There is no evidence that trade liberalization has negatively affected Indonesian SMEs; the number of these enterprises and their contribution to the national GDP continue to grow.
• Most Indonesian SMEs are domestically oriented due to deficiencies in technology, skilled labor, knowledge of global business strategies, and capital for export financing.
• The majority of exporting Indonesian SMEs do not export directly but rely on intermediaries such as trading houses, exporting companies, or subcontracting arrangements with larger firms.
• Trade liberalization can create a 'domestic input scarcity effect' where the removal of export restrictions on raw materials leads to shortages for local SMEs, as seen in the metal-working clusters of Tegal, Ceper, and Pasuruan.
• The furniture cluster in Jepara, Central Java, demonstrated that export-oriented activities can help SMEs weather domestic demand drops, such as during the 1997–98 Asian financial crisis.
• While trade liberalization has not negatively impacted the number of SMEs, there is no clear evidence that it has increased the average plant size or efficiency of scale among them in the short run.

APA

Tambunan, T. (2011). The Impacts of Trade Liberalization on Indonesian Small and Medium-sized Enterprises. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/impact_trade_lib_indonesia.pdf

Chicago

Tambunan, Tulus. The Impacts of Trade Liberalization on Indonesian Small and Medium-sized Enterprises. International Institute for Sustainable Development, 2011. https://www.iisd.org/system/files/publications/impact_trade_lib_indonesia.pdf.

Wikipedia

{{cite report |last1=Tambunan |first1=Tulus |title=The Impacts of Trade Liberalization on Indonesian Small and Medium-sized Enterprises |publisher=International Institute for Sustainable Development |date=2011 |url=https://www.iisd.org/system/files/publications/impact_trade_lib_indonesia.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tambunan2011impacts, author = {Tambunan, Tulus}, title = {{The Impacts of Trade Liberalization on Indonesian Small and Medium-sized Enterprises}}, institution = {International Institute for Sustainable Development}, year = {2011}, url = {https://www.iisd.org/system/files/publications/impact_trade_lib_indonesia.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }