INNOVATION IN DISTRIBUTION CHANNEL(S) & COST EFFICIENCY ON SMALL & MEDIUM ENTERPRISE SCALES’ PERFORMANCE: SMES AND THE INDONESIAN ECONOMY

INNOVATION IN DISTRIBUTION CHANNEL(S) & COST EFFICIENCY ON SMALL & MEDIUM ENTERPRISE SCALES' PERFORMANCE: SMES AND THE INDONESIAN ECONOMYWhen The Thailand decided adopting floating on its currency in mid-1997, financial crisis in ASEAN unavoidably done- the Asian financial crisis. It made the exchange rate of domestic ASEAN countries and some others – Indonesia, Malaysia and the Philippines harshly depressed. The economic slump happened for most all of them let their currency semi freely depend on the U.S dollar and at the same time received a substantial amount of short-term foreign capital. In Indonesia, the crisis made the Rupiah currency depreciated dramatically from around 2,500 to 10,000 Rupiah per U.S. dollar, whilst its GDP declined by 13% in 1998. Stunningly, large enterprises (LE), and SMEs responded differently to it. Somehow, SMEs survival under the crisis much better than larger ones. As the local market demand was low, the SMEs switched their market to the global. On the contrary, LEs were still under performed for their high import substances in their products.

Since then, the existences and establishments of SMEs has attracted the interest of the globe. As SMEs in Indonesia are mostly concentrated in agro-based industries, their capability to generate employment and value added are highly seen. Illustrated in figure 1-next page, they generated value added as much as 2,993,151 billion Rupiahs or 56.5% of value added in total. By their establishment, in 2009, the number of SMEs totaled 52.7 million or 99.9% of all firms’ establishments. In terms of job creation, Indonesian SMEs provided about 96.2 million employment or 97.3 % of the total employment.
Though for their significant contribution in most global economy, Indonesian SMEs were, as others in the globe, hindered by various obstacles. Some of the issues were related to internal aspects like marketing & promotion, technology, & human capital; and some other external ones – capital access & legality issues. Abundant efforts have been taken to alleviate facing the sector by the Government, somehow, product distribution channel innovation is still a myth for local SMEs, especially those established in rural area, particularly on tight customs procedures & trade regulations as well as unreached luxurious infrastructure (Tulus, 2009-can be seen in notes- the page before references). This paper focuses on innovation in distribution channel(s) among SMEs export oriented. Bowersox et al, suggested distribution channel should be designed to carry out five fundamental functions-adjusment or assortment, transfer or transportation, storage, handling and communication. Other recommendations from Walters assured that distribution channel activities are categorized into two general groups, i.e. assortment and logistics. With respect to the activities, many of them are engaged along the distribution channel connecting to the members, namely suppliers, manufactures and end consumers. However, most of the activities are concentrated in,namely, logistics- inbound and outbound logistics. Inbound logistics support the materials’ flow from suppliers into producers, whereas outbound logistics from the producers to the next channel. It is essential to pay attention that the activities shared to each other. All the activities involve costs. Outbound logistics for instance incur namely, transportation cost, warehousing and inventory cost, order processing cost, information cost & so forth.

Figure-1

Figure. 1. Valve add ed arcwh cf 341Б 1999 — 30 09 in Iirb nesia