Corresponding Author: Agus
Email: [email protected]
INTRODUCTION
Micro, Small, and Medium Enterprises (MSMEs) are a
vital foundation in the Indonesian economy. The strategic role of MSMEs is
reflected in their contribution to creating jobs, advancing the economy, and
reducing poverty levels (Supatmin, 2023). MSMEs are the primary support in providing
employment opportunities and are a source of significant economic growth.
Through the presence of MSMEs, people's incomes are raised, increasing the
standard of living and purchasing power of society. Apart from that, the active
involvement of MSMEs in this sector also helps reduce poverty levels by
providing economic opportunities to community groups that previously may not
have been reached by the formal sector (Utami, 2019).
MSMEs also often experience obstacles that become
obstacles to optimizing business performance. For example, limited access to
financial resources can limit MSMEs' ability to develop businesses, increase
production capacity, or face unexpected financial challenges. Then, limited
access to modern technology and innovation can make MSMEs lag in adopting new
technology that can increase efficiency and competitiveness. Furthermore,
limitations in business management can affect the process of managing resources,
planning, marketing, and overall business strategy (Indiworo, 2016). Therefore, procuring financial resources technology
and improving management capabilities is crucial for MSMEs to overcome these
obstacles and optimize MSME business performance.
Various factors influence the performance of Micro,
Small, and Medium Enterprises (MSMEs), which can be grouped into two main
categories: internal and external factors. Internal factors refer to variables
from within the company or business itself. These include human resource
management, internal policies, marketing strategies, product innovation,
operational efficiency, and employee skill levels. On the other hand, external
factors come from outside the business environment, such as economic conditions,
government regulations, market conditions, industrial competition, technology,
and political and social factors that influence business sustainability (Kore & Septarini,
2018). These two factors have an essential role in
determining the performance of MSMEs and often interact with each other, both
directly and indirectly. However, in this research, internal factors will be
the focus of this research.
Previous research by (Diana et al., 2022) shows that Business Actor Competence has a positive
and significant influence on Marketing Strategy Creativity, Access to Capital
has a positive and significant influence on Marketing Strategy Creativity, and
Marketing Strategy Creativity has a positive and significant influence on MSME
Performance. However, Access to Capital has a positive but insignificant
influence on MSME Performance, and Business Actor Competence has a positive but
not significant influence on SME Performance. These results can be used as a
reference for the government in supporting the improvement of the performance
of MSME players by paying attention to the factors of Competence and marketing
Creativity but not ignoring the factor of access to capital so that it can help
increase regional income.
Other research by (Sandra & Purwanto,
2017) shows (1) External factors consisting of aspects of
government policy, socio-cultural and economic aspects, and aspects of the role
of related institutions have a positive and significant influence on the
internal factors of SMEs (2 )External factors have a positive but not
significant influence on SME performance (3) Internal factors consisting of
human resource aspects, financial aspects, technical and operational aspects,
as well as market and marketing aspects have a positive and significant influence
on SME performance.
Similar research by (Purwaningsih and
Kusuma, 2015) shows that internal and external factors influence the
performance of SMEs. External factors consist of government policies,
socio-economic and cultural conditions, and the role of related institutions,
which significantly influence the conditions of internal factors, which consist
of aspects of human resources, finance, technical production, and marketing.
The influence of external factors on SME performance is more significant than
internal factors. In creative industry-based SMEs, internal factors in the form
of technology have a negligible influence because the production process
technology is still superficial; most of the production process is handmade
crafts.
Based on this background description, the purpose of
this study is to know and analyze the Internal Factors Determining MSME
Business Performance. This research can help MSMEs in understanding the
internal factors that affect their business performance. The implication is
that MSMEs can adjust and improve certain aspects such as financial management,
marketing strategy, operations, or other internal aspects identified in the
research.
METHOD
Micro, Small, and
Medium Enterprises (MSMEs) are a vital foundation in the Indonesian economy.
The strategic role of MSMEs is reflected in their contribution to creating
jobs, advancing the economy, and reducing poverty levels (Supatmin, 2023). MSMEs are the primary support in providing employment
opportunities and are a source of significant economic growth. Through the
presence of MSMEs, people's incomes are raised, increasing the standard of
living and purchasing power of society. Apart from that, the active involvement
of MSMEs in this sector also helps reduce poverty levels by providing economic
opportunities to community groups that previously may not have been reached by
the formal sector (Utami, 2019).
MSMEs also often
experience obstacles that become obstacles to optimizing business performance.
For example, limited access to financial resources can limit MSMEs' ability to
develop businesses, increase production capacity, or face unexpected financial challenges.
Then, limited access to modern technology and innovation can make MSMEs lag in
adopting new technology that can increase efficiency and competitiveness.
Furthermore, limitations in business management can affect the process of
managing resources, planning, marketing, and overall business strategy (Indiworo, 2016). Therefore, procuring financial resources and technology
and improving management capabilities is crucial for MSMEs to overcome these
obstacles and optimize MSME business performance.
Various factors
influence the performance of Micro, Small, and Medium Enterprises (MSMEs),
which can be grouped into two main categories: internal and external factors.
Internal factors refer to variables from within the company or business itself.
These include human resource management, internal policies, marketing
strategies, product innovation, operational efficiency, and employee skill
levels. On the other hand, external factors come from outside the business
environment, such as economic conditions, government regulations, market
conditions, industrial competition, technology, and political and social
factors that influence business sustainability (Kore & Septarini,
2018). These two factors have an essential role in determining
the performance of MSMEs and often interact with each other, both directly and
indirectly. However, in this research, internal factors will be the focus of
this research.
Previous research
by (Diana et al., 2022) shows that Business Actor Competence has a positive and
significant influence on Marketing Strategy Creativity, Access to Capital has a
positive and significant influence on Marketing Strategy Creativity, and
Marketing Strategy Creativity has a positive and significant influence on MSME
Performance. However, Access to Capital has a positive but insignificant
influence on MSME Performance, and Business Actor Competence has a positive but
not significant influence on SME Performance. These results can be used as a
reference for the government in supporting the improvement of the performance
of MSME players by paying attention to the factors of Competence and marketing
Creativity but not ignoring the factor of access to capital so that it can help
increase regional income.
Other research by (Sandra & Purwanto,
2017) shows (1) External factors consisting of aspects of
government policy, socio-cultural and economic aspects, and aspects of the role
of related institutions have a positive and significant influence on the
internal factors of SMEs (2 )External factors have a positive but not
significant influence on SME performance (3) Internal factors consisting of
human resource aspects, financial aspects, technical and operational aspects,
as well as market and marketing aspects have a positive and significant influence
on SME performance.
Similar research by
(Purwaningsih and Kusuma,
2015) shows that internal and external factors influence the
performance of SMEs. External factors consist of government policies,
socio-economic and cultural conditions, and the role of related institutions,
which significantly influence the conditions of internal factors, which consist
of aspects of human resources, finance, technical production, and marketing.
The influence of external factors on SME performance is more significant than
internal factors. In creative industry-based SMEs, internal factors in the form
of technology have a negligible influence because the production process
technology is still superficial; most of the production process is handmade
crafts.
Based on this
background description, researchers are interested in conducting research
titled "Internal Factors Determining MSME Business Performance: Literature
Review." This research can help MSMEs understand the internal factors
influencing their business performance. The implication is that MSMEs can
adjust and improve certain aspects, such as financial management, marketing
strategy, operations, or other internal aspects identified in the research.
This research aims to examine the internal factors that determine MSME business
performance.
RESULTS AND DISCUSSION
MSME business performance concept (definition, dimensions, and indicators)
The definition of MSMEs in Indonesia is regulated in the
Law of the Republic of Indonesia Number 20 of 2008 concerning MSMEs. Chapter I
(General Provisions), Article 1 of the Law, states that micro-businesses are
productive businesses owned by individuals and individual business entities
that meet the criteria for micro-businesses as regulated in the Law. Small
businesses are productive economic businesses that stand alone, carried out by
individuals or business entities that are not subsidiaries or branches of
companies that are owned, controlled, or are part, either directly or
indirectly, of medium or large businesses that meet the criteria for small
businesses as intended in the Law. Meanwhile, medium businesses are productive
economic businesses that stand alone and are carried out by individuals or
business entities that are not subsidiaries or branches of companies that are
owned, controlled, or are part, either directly or indirectly, of
micro-businesses, small businesses, or large businesses that meet the criteria
for medium-sized businesses as intended in the Law (Destiana & Jubaedah,
2016).
Micro, small, and medium enterprise (MSME) activities are
one way for regional creative products to be known and provide business
opportunities for regional business actors (Halim, 2020). There are three division criteria for MSMEs; the first
is micro businesses; this business category has maximum assets of 50 million
rupiahs and a maximum turnover of 300 million rupiahs. The second is a small
business. Namely, this business category has maximum assets of 50 million
rupiahs to 100 million rupiahs and a turnover of 300 million rupiahs to 2.5
billion rupiahs. The third is medium business. Namely, this business category
has maximum assets of 500 million rupiahs to 10 billion rupiahs and a turnover
of 2.5 billion rupiahs to 50 billion rupiahs (Maulana, 2021). The four dimensions, namely proactiveness, resource
leveraging, value creation, and customer intensity, positively affect business
performance (Setiyaningrum &
Ramawati, 2020).
The contribution of MSMEs to the economy cannot be
separated from the performance of MSMEs themselves; whether or not MSMEs are
successful depends on their (Alansori &
Listyaningsih, 2022). Performance is the output or result of work produced in
terms of quality and quantity of work. It can be accounted for by the role in
the organization or company, ability, work skills, proficiency, and completion (Wibowo, 2018).
Performance (business performance) refers to the level of
performance or performance of a company or individual during a specific period.
According to Rahayu (Ahmatang & Sari, 2022),
there are three business performance indicators: Increased sales is an
increase in the number of purchases made by customers of company goods. Sales
growth shows how much a product's sales have increased over time. Increased
profit is an increase in client purchases for company goods. Product sales will
continue to increase in order to meet the targets that have been set.
Satisfactory growth is defined as an increase in consumer purchases measured by
average consumption levels and sales volume referred to as customer growth.
However, there are also internal factors that do not have
a significant effect on the performance of MSMEs because there is no selection
and distribution of tasks for employees, lack of availability of machines and
equipment, and analysis of the business's ability to obtain the desired profit
cannot be optimal. Meanwhile, external factors significantly influence the
performance of MSMEs due to the coaching and training activities provided
through related agencies or institutions and the ease of accessing business
permits (Mokodompit et al., 2019). The following indicators are used to measure the
performance of MSMEs: 1. Sales growth 2. Capital growth 3. Addition of
workforce every year 4. Market and marketing growth 5. Profit/business profit
growth (Kurniawan et al., 2020).
Determinants of MSME business performance
MSMEs differ from large companies because of limited
human and financial resources, narrow markets, and parallel and flexible
structures. Limited resources in MSMEs make the dimensions of quality and
processing time important so that the level of wasted materials remains low. In
addition, because they operate in a narrow market, consumer satisfaction must
be maintained. Apart from that, the number of employees and flexible
organizational structure allows someone to be responsible in many domains, so
the quality and motivation of employees must also be considered (Islami et al., 2017). So, performance assessment is critical for MSMEs to
carry out. MSME performance assessment can be carried out in four ways (Suryani & FoEh, 2018)
namely: 1) measuring the level of performance achievement
of stakeholders in meeting their needs, such as the needs of customers and
employees; 2) measuring effectiveness, namely the level of success of MSMEs in
achieving the set goals; 3) measuring efficiency, namely how the resources
owned by MSMEs are managed, and 4) measuring financial performance, namely how
MSMEs can finance long-term and short-term needs in terms of profit levels,
investment and so on.
Performance measurement that balances financial and
non-financial aspects is known as the Balance Score Card (BSC). BSC has
advantages over conventional performance measurement because it measures
company performance from four perspectives: finance, customers, internal
business processes, learning, and growth (Latifah & Syam, 2020). Thus, BSC can also be used as a benchmark in
determining MSME business performance.
Future research agenda
The research that will be carried out next is still
related to the business performance of MSMEs. However, it is not limited to
aspects of internal factors of MSME business performance but also focuses on
financial ratios in measuring financial health. Meanwhile, the contribution of
technology in MSME financial management is currently known as Financial
Technology (fintech).
Financial Technology is also defined as technological
innovation in financial services that can produce business models,
applications, processes, or products with material effects related to the
provision of financial services; with creative ideas and technological
innovation, Financial Technology offers new choices for consumers in carry out
payment activities, money transfers, fund intermediation and investment (Kusuma & Asmoro,
2020). As a new financing model which is the result of a
combination of financial services and FinTech technology, it has changed the
business model from conventional to moderate, where initially you had to meet
face to face to pay and bring a certain amount of cash, now you can make
long-distance transactions by making payments that can be made in person. Just
a matter of seconds. FinTech emerged along with changes in people's lifestyles,
which users of information technology currently dominate, and the demands of a
fast-paced life (Rizal et al., 2018).
Apart from its contribution to financial management,
technology also creates various innovations that can support MSME business
performance. The use of e-commerce platforms as a new technological innovation
is becoming popular with the general public, so MSMEs need to take advantage of
opportunities for branding through digital marketing. In the current era of the
industrial revolution, all business actors must adapt to a rapidly changing
business environment by relying on digital technology. This digital marketing
is one of the efforts to realize MSMEs' move towards digitalization to achieve
marketing effectiveness and increase MSME performance (Arumsari et al., 2022).
Ali Hasan (Febriyantoro &
Arisandi, 2018) describes that digital marketing has several
characteristics as follows:
1. Efforts to increase business interactivity with customers
who depend on technology.
2. An electronic dialogue (interactive technology) to
provide access to information to customers (communities, individuals), and vice
versa.
3. Efforts to conduct all business activities via the
Internet for research, analysis, and planning to find, attract, and retain
customers.
4. Efforts to increase the acceleration of buying and
selling (specific) goods and services, information, and ideas via the Internet.
The digital era is impossible to avoid. Marketing expert
Yuswohadi said that if they want to survive, MSMEs must be able to maximize the
benefits of digital development (Maulana in Syukri & Sunrawali, 2022).
Thus, further research can be carried out on utilizing technological innovation
to improve and develop MSME business performance.
CONCLUSION
Based on the research results, MSMEs
have an essential position in developing the national economy, so they require
more attention regarding their business performance. Performance is a result of
efforts made both in quality and quantity. The measurement of MSME business
performance can be seen from the increase in sales, which is the increase in
the number of purchases made by customers for the goods sold. In a business,
performance always rises and falls, as does MSME business performance because
several internal factors determine it: finance, customers, internal business
processes, learning, and growth. Thus, management must regulate and improve the
performance of MSME businesses.
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