In the era of the industrial revolution 4.0, Small Medium Enterprises (SMEs) in the developing countries face various challenges and the 14 weakness of small medium sized business. The researchers in their research presented three challenges faced by SMEs. The first challenge is competition. Currently the competition among SMEs is very tight and tends to escalate. One of the causes is the rapid growth of SMEs. Another cause is the import of similar goods at affordable prices.
The second challenge is the rapid advancement of technology, especially information technology. The rapid advancement of technology results in changes in people’s or consumers’ perceptions of a product. With information technology, consumers have an opportunity to compare one product with another. As a result, the life cycle of a product can be shorter.
The third challenge is the increasing demands of consumers for quality products and services. And today the quality standard is consumer satisfaction. In other words, the customer is the orientation of the company’s quality service. If the customer does not feel satisfied with the product offered, then it can be said that the product is less quality.
These three challenges require the ability of SMEs to adapt. In response to these challenges, SMEs must conduct self-evaluation of existing weaknesses. At least, there are 14 weak points of SMEs in general, namely:
First, limited capital. Capital is indeed one obstacle to the performance of SMEs. SMEs mostly do not have the grace that is usually requested by financial institutions / banks when they apply for business capital credit. Especially for micro-businesses that in fact are individual businesses and are informal.
Second, lack of quality human resources. In general, the practice of professional human resource management is not applied by small businesses let alone micro. Recruitment of employees is for example, just giving work to family members or the surrounding environment without seeing the competition owned. In addition, they consider human resource management only suitable to be applied in large companies.
Third, the lack of channels to distribute goods. In marketing mix, accuracy determines the distribution path for the product to reach the hands of consumers. Most SMEs prefer to transact directly with consumers without the mediation of other parties. Expanding distribution channels becomes important in efforts to expand target / market share.
Fourth, the ownership of a clear legal entity and licensing. SME actors are reluctant to register their business to obtain legal aspects / legal entities on the grounds of convoluted bureaucracy and high process costs. Another reason concerns being hit by business taxes as a legal entity.
Fifth, difficulty in calculating sales turnover due to manual bookkeeping. Production and financial management become the weakness of SMEs themselves. Inventory control is done conventionally so that problems arise in supply chain management. The ability to maintain the supply of raw materials, for example, is more due to the reluctance to tie long-term contracts with raw material suppliers.
Sixth, do not anticipate the development of digital technology / strategy through online marketing. The business processes conducted by most SMEs are conventional. Not utilizing the touch of technology in bringing up business performance. Internet of Things (IoT), for example, opens online marketing opportunities. The emergence of E-commerce and online marketplaces is not used as a potential to increase sales turnover. SMEs can take advantage of the free online marketplace
Seventh, there is still no maximum ability of SMEs in responding to competitive advantage opportunities. The low agility of SME actors cause slow response to rapid environmental changes. The background of low education from SME owners becomes its own obstacles related to the low agility of SME organizations.
Eighth, there is still no maximum SMEs in conducting research and monitoring the market, customers, and competitors in running this business because there is still a presumption that brilliant ideas are less supported by leaders and only add new jobs and feel burdened to be implemented in the company.
Ninth, there is still a lack of product quality assessment and service quality. SME actors are often ignorant related to the quality of the product. They assume maintaining product quality correlates with excessive costs. SME entrepreneurs have not been able to see the opportunity that product quality is related to increasing customer satisfaction overall. Isn’t it better to get loyal customers than consumers who once bought a product and never came back again.
Tenth, SMEs have not maximally utilized the network to build good relationships with customers, partners, and government agencies. Business networks have not been considered important SME actors. Building good relationships with stakeholders can maintain business continuity in the future.
Eleventh, the lack of SME ability in innovating both process innovation, product innovation, marketing innovation and management innovation. SME actors are reluctant to innovate with high consideration of costs to conduct research and development. Without innovation in various fields, it is difficult to realize SMEs up in class – as the government hopes.
Twelfth, there is still a lack of commitment in the implementation of the company’s vision and mission. Small businesses often do not care if they must have a vision and a mission. They assume that vision and mission statements are only for medium and large-scale businesses where the organizational structure has been stable. Even though no matter how small our type of business, it should have a vision and mission as a guide in moving forward.
Thirteenth, there is still no maximum SMEs in making changes in adjusting to the challenges of dynamic environmental development. Most SMEs are indifferent to environmental changes characterized by volatile, uncertain, complex and ambiguity – often known as VUCA. The low ability to predict changes that will occur in the future, becomes a challenge for SMEs in the developing countries.
Fourteenth, not yet the maximum SMEs in managing assets so that it affects the company’s performance. SMEs are usually stuck on euphoria when business profits increase rapidly. Consumptive behavior often dominates over productive behavior. Buying unproductive and unrelated assets to support business performance.
Well, it is the duty of SMEs to reassess the 14 weaknesses that often go unnoticed. In the end, SME actors should eliminate or at least minimize these weaknesses.