Determinants on Small Scale Business: An Empirical Evidence from Indonesia

Abstract

In 1997-1998, the resilience of small and medium enterprises (SMEs) was tested when the monetary recession paralysed Indonesia. At that time, only SMEs were detected as shining and the most prominent from other sectors. This study is oriented to investigate the effect of the quality of human resources (HR), capital, and business length on turnover, labor cost, market share, and profit. The study design is offline survey, where primary data is collected from a sample that invites 285 respondents in three zones of Indonesia. Sources of information focused on and addressed to three SME scales covering the fields of trade, industry, and services. Then, the data is processed, filtered, and set using the structural equation model (SEM). The findings confirm that the HR quality and capital drives an increase in turnover, labor cost, market share, and profit. At one point, the business length actually only stimulated turnover, labor cost, and market share, but did not generate significant profits. But, significant of labor cost, market share, and profit followed the increase in turnover. Similarly, between labor cost to market share and profit, where the results are significant. The market share affects profit. It is important for a country to realize that disruptions in financial access, HR capabilities, and experience attributes trigger the inhibition of domestic market performance. These three alternatives give birth to strong SMEs.