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International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016),
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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Guidelines for Contributors
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International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016),
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
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9. Conclusion: it should contain key research findings, meaning of the findings and
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Some examples:
-Research/working paper:
Abeberese, A.B (2012), "Electricity Cost and Firm Performance: Evidence from India", research
paper, August, Department of Economics, Columbia University, New York, NY
(https://www.dartmouth. edu/~neudc2012/docs/paper_292.pdf).
-Report:
Anh, L.H, Nguyen T. and Nguyen T.T.P. (2013), "The Inflationary Impacts of Fossil Fuel and
Electricity Price Reform in Viet Nam", report of the UNDP project Fossil Fuel Fiscal
Policies and Greenhouse Gas Emissions in Viet Nam – Phase II-Developing a Roadmap
for Fossil Fuel Fiscal Policy Reform, Hanoi.
-Journal:
Jamal, M. and A. Ayarkwa (2014), "Fuel Price Adjustments and Growth of SMEs in the New
Juaben Municipality, Ghana", International Journal of Small Business and
Entrepreneurship Research, 2(3): 13-22.
-Book:
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Tambunan, T.T.H. (2014b), "Government efforts to improve community access to health care
and education: a story from Indonesia", paper presented at the Second International
Conference on Social Security", 3-5 December 2014, Social Security Research Centre
(SSRC) and the Department of Development Studies and Institutions and Economies,
Faculty of Economics and Administrations, University of Malaya, Kuala Lumpur.
-Book chapter:
Tambunan, T.T.H. (2014), "Ongoing trade facilitation improvement: Its impact on export-
oriented small and medium-sized enterprises in Indonesia", in Ravi Ratnayake, et al.
(eds), Impacts of trade facilitation measures on poverty and inclusive growth: Case
studies from Asia, UN-ESCAP and ARNeT, Bangkok.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016),
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
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Submission
Please send your abstract not more than 200 words or full
papers not more than 5000 words including references. With
title of the paper, name(s), e-mail address of the authors(s) and
organization name to
Tulus Tambunan
Email: ttambunan56@yahoo.com
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016),
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
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Content
i Editorial Team
ii Author’s Guidelines
iv Submission
1 - 23 Textile Industry as a Smart Specialization of Lodz and the Region
of Cataloni
Makary Piasecki
114 - 142 Impacts of Energy Price Subsidy Reform on MSMEs and Their
Adjustment Strategies: a Story from Indonesia
Tulus T.H. Tambunan
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016),
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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Textile Industry as a Smart Specialization of Lodz
and the Region of Catalonia
Makary Piasecki
Department of Entrepreneurship and Industrial Policy
Faculty of Management,
University of Lodz, Poland
Email: makarygielda@wp.pl
Abstract
The subject discussed in this paper concerns the situation of small and medium enterprises
(SMEs) in the textile and chemical treatment industries in Lodz and Catalonia. This paper refers
to the case of external environment factors that significantly impact these enterprises. It also
addresses problems of technology transfer, barriers and opportunities resulting from
partnership with public sector. This research is based on literature studies and empirical view
on the environment of these two industries. It employs a method of open interviews with
experts representing the private and public domain in order to identify key factors that
influence that segment of activity. This paper has a structure of an international comparison of
two similar regions in Poland and in Spain, which are pioneers of high technology textile
services and chemical treatment.
Key words: SME, textiles, smart specialization, RIS3
JEL codes: D22, D29, F59, F39
Introduction
Many small and medium enterprises (SMEs) face the problem of being displaced
from the market by their big competitors. Such situation is especially visible in the
environment of local specializations of regions where SMEs have been the leaders for
decades, exporting services and manufactured goods. More often the sector of high
technology companies is dealing successfully with such issue, and the only possibility
for SMEs to achieve technology level of bigger companies is to cooperate with public
budget, which very often involves the amount that the small businesses cannot afford.
To understand this thesis better, it is necessary to look deeper into this problem.
Such situation is the characteristic for the area of regional specialization. Criteria in
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which a smart specialization is selected involve such factors as technology or
production supply in which one of the criteria is the market leader. This in turn creates
regional advantages in comparison to other parts of the country or even Europe. Sectors
which historically have been of top importance to economic development are always
more developed than others, even despite economic, historical, and technology-related
difficulties. The sector of textiles and design is one of the few European regional smart
specializations. According to the historical review of Lodz and Catalonia, for centuries
those regions have been leaders in textile production and processes of its treatment.
Foresight of this sector assumes that more than 60% of SMEs (which represent
more than 95% of companies operating in this sector) will not have survived the next
technology. Support for SMEs operating in this sector is one of the solutions to this
problem is. The strategy of smart specialization for the regions of Lodz and Catalonia
could protect textile sector from that vision of market. Support for SMEs is a method to
upgrade the technology used in the process of textile treatment and enables to extend
For many centuries, the Lodz region used to be a center of textile production in
Poland and a very big competitor on the international markets. Its favorable localization
in the center of Europe, between the western and eastern countries provided it with a
logistic advantage. Textile industry developed in Lodz fast due to Russian superiority
and its outlet, which took place in the nineteenth and twentieth century, however the
factors which were the key drivers for its development were: very cheap labour force
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migrating from neighboring areas, access to water supply, which is very important in
this type of activity, and development of railway in that part of the country. In a
relatively short period of time, the city of Lodz became a center of textile production.
Unfortunately after the World War Two textile sector was practically closed down. It
regained its prosperity after 3 decades under the communist policy of regional
items of new machinery as well as technologies of finishing. It impacted not only the
way of production but also the development of a textile institute which was providing
this sector with many new ideas and creative solutions which resulted in many of
patents and licenses, both at the domestic and international level. Research in that
fibers or low-temperature plasma. After the period of sustainable growth, which took
place during the political and economic transformation at the turn of the 1980s and
1990s, textile industry was privatized, and that resulted in a complete destabilization of
that sector of economy. In 1989, light industry was the most successful sector of
regional development in the Lodz Region. In that year, Polish light industry sector
reached the level of 12.2% production sold, and it employed 15.6% of the whole
population in the processing industry (Central Statistical Office, 1990). In the mid-f
1990s, Poland was the biggest European market supplier of finishing of fibers provided
by Polish textile industry. In the second half of that decade, an increasing tendency of
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industries led to their decline, or forced the entrepreneurs to move their businesses
outside of the city. The economic situation in 1990s was unfavorable to most of big
were established during that time. Most of them are family businesses, which have been
production of textiles reached the level of 5.5 million running meters, which was the
level of Polish production from 19461(Kubiak, 2014). China’s accession to the World
Trade Organization had a significant impact on fibers treatment activity, and it also
affected the Region of Lodz in terms of higher destabilization and pushing away of local
Catalonia as well as the adjacent areas, has a very similar historical background.
The first industrial advantage was achieved between 1815 and 1855, as a result of
establishing 2152 companies at that time, where most of them operated in the textile
industry (Miro, 2010). In that time this region was the main competitor in Spain related
expansion of the town mill system, which started in 1870s, de-skilling technical change,
increase of female employment, and periodical overproduction crises. Angel Smith, who
studied conflicts in textile industry in the early twentieth century, also suggested that
the excess capacity and the change in technology used in the processes had led to
1In 1946 – after the World War Two (WW II) the whole sector was practically destroyed.
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irreversible shift in labour demand (Domenech, 2005). Additionally, the second
twentieth century.
offered by electricity supply, which shifted economic background. The industrial capital
another factor that fostered the development. By that time Catalan textile industry
achieved the position of national leader. However, possibility of selling abroad was very
limited due to the lack of competitive industrial structure and adequate financial
support (which was provided by industries from other countries). The war and the
governmental policy impacted this sector. In the late 1950s, Spain restarted the highest
economic growth in its history (after stagnation lasting a quarter of century). All the
industrial sectors were developing (e.g. automotive industry which was one of the
research and development (R&D) centers) while the sector of textile industry was
slowly declining. Catalonia became an “industrial island” that produced large amount of
led to development of prospering science supply network. In the early 1990s the textile
this sector was always very absorbent in terms of knowledge and technology used in
competition from developing countries (from Europe in particular) that combined low
labor costs with high-quality equipment and know-how imported from more
industrialized countries. The World Trade Organization (WTO) on textile and clothing
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also posed a serious threat to companies operating in this sector. At the same time new
flooding the market. These technologies not only increased productivity, but also
Lodz Region
Lodz Voivodeship holds the 9th position in the country in terms of the surface,
the 6th in terms of the size of its population, where 64% of inhabitants live in the city.
City of Lodz is the capital of the region, and it houses 50% of industrial companies. More
economy and has a relatively low unemployment rate. In 2010, this region has provided
6% of the total value of the national gross domestic product (GDP). According to this
indicator, Lodz region is ranked as the 6th in relation to the other Polish regions.
However the GDP growth in the Voivodeship is faster than in other parts of the country,
thus it can be described as a “chasing region”. The service sector has 55 % share, while
agriculture stays at the level of 13%. The industry share is 32% of all employed
population in the region. From the total number of REGON business activities
operating in the sectors are medium and lower technology based companies with
smaller knowledge absorption capacities, which contributes to the fact that their share
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This region continues to develop historical and traditional branches, such as
textile industry, energy, construction, food processing, medical services, pharmacy, and
biotechnology being supported by R&D projects, highly educated labour force and
The Lodz region is ranked high in terms of its attractiveness to investors3. Special
conditions for running a business are offered by 2 special economic zones (SEZs) 4. The
a plan of development of the central transportation hub represents another key regional
advantage.
with the private sector also is a very important aspect of regional development in this
part of Poland. However R&D field is supported with insufficient funds for machinery
and technical equipment. Scientists often use outdated systems and equipment 5, which
more developed countries. However despite the problems with adequate and modern
equipment, Lodz research centers and their laboratories stand out in both Polish and
European arena of science. It results from the activities implemented in the field of
2Creative industries include advertising, fashion design, architecture, movie production and others.
3It was ranked as the 4th in 2010 in the category of attractiveness for technologically advanced activities.
4 Lodz SEZ and Starachowice SEZ. The Lodz SEZ covers an area of 1,277 hectares and 190 investors have
been authorized to run their business in the special zone . This area attracts entrepreneurs from different
industries: ceramic, plastics processing, household and consumer goods, IT, BPO, logistic, cosmetic,
medical and pharmaceuticals. A research by E&Y delivered in 2011 indicates that the total value of
investments has been estimated to reach the level of 12 billion PLN and the amount of work places that
have been established as a result of the SEZ operations reached 23,200.
5 Indicator of equipment usage which is in percentage relation of usage value to gross value of fixed assets
has increased in Lodz Region in the period 2007-2010 from the value of 76.7% to 81.7%.
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Lodz centers and institutes in international associations and projects. Lodz region has
been classified as a bioregion due to its dynamically developing sector of companies and
incubators and one technology park (Bakowski and Mazewska, 2014). The level of
innovation among companies varies due to the size of companies. 61% of large
innovative.
Catalonia
The region of Catalonia with the population of 7.5 million people and GDP of
209,282 euro (2015) (Table 1) has been identified as the region with the strongest
national (Spanish) identity with its own (regional) language and culture.
*The following data refers to the research from the end of 2014.
**According to BAEL6.
Sources: Raport o sytuacji spoleczno-gospodarczej województwa lodzkiego 2014 page 22, Statistical Office
2014, Registered unemployment 2015,Generalitat de Catalunya 2015, OECD 2015.
Catalonia is an important region in the European Union (EU). Catalonia’s GDP per
capita is substantially higher than the EU average level. In fact the level of growth for
this indicator is 3.2% per annum. However the forecast for 2016 shows a tendency of its
6Research of economic activeness of population – is delivered every 3 months and covers population of
rotating sample of 20 000 households.
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stable decreasing to the level of 2.9% by the end of that year7. The regional economy
began to grow in the final quarter of 2013, despite continuous financial difficulties and
Catalunya, 2014).
Unemployment rate stays at the level of 19.1%, which contributes to the fact that
the region has a major employment issue. The school drop-out rate stands at 24.7%,
Catalonia has also successfully entered the global market. Strongly export-
food. The following activities represent traditional service sector activities: trade,
logistics-oriented services, catering and food, medical services, design and advertising.
The economic crisis has led to a reduction in R&D investments by companies and
public administration. In 2012, the R&D investment reached 1.51% in Catalonia, far
from both the EU average (2.06%) and the 2020 target. More than half of this
expenditure (56.2%) was focused on the private sector. In Catalonia, the number of
patents per million inhabitants is lower than in any other regions in Europe. However,
Catalan participation in the European R&D programs is more than double the number
that correspond to the region by population (Catalonia received 574 million euro from
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the 2007-2013 European Framework Program, and doubled the figure received from
competitiveness of the business system and the creation of wealth and employment,
therefore it is crucial that companies should take part in public-private R&D initiatives.
The essence of the matter of RIS conception is well described in its summary and
indicates the main goals of this strategy: “The Europe 2020 Strategy for smart,
sustainable and inclusive growth sets out the targets that the EU is to meet by the year
2020 in the fields of research and innovation, climate change and energy, employment,
education and reducing poverty. The strategy also includes seven flagship initiatives
that form the framework in which the EU and its member states governments are to join
forces and mutually strengthen each other in areas related to the Europe 2020 strategy
priorities.
For the 2014-2020 period the European Commission (EC) has designed an
integrated focus that brings together all the cohesion policy funds in common strategic
framework, clearly establishing the priorities and the results to be achieved. Moreover,
the EC has made smart specialization a prior condition for investment in research and
innovation co-financed by European funds. The member states and the regions are
required to draw up research and innovation strategies for smart specialization (RIS3
specializations that match the best to their potential innovation, based on the resources
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Conceptions of Regional Strategy of Innovation RIS CAT and RIS LORIS
through indicators such as RNSII8, REUSII9 were the key factors addressed to draft
strategy for RIS LORIS 2030 (Hollanders, 2006). Both the indicators connect many
business services (KIBS) which includes wide range of activities provided commercially
(Rogut and Piasecki, 2008) is another key factor. The research was based on regional
model in order to understand factors that influence different sectors (Plich, 2011).
operational goals are adapted to recipients of the support under 3 key fields (priorities):
1. regional specialization – of companies and groups which will drive units that
people and external units out from the field of specializations, supporting activities
8The Regional National Summary Innovation Index which indicates the position of the region in the
country – index assumes relation to national average level.
9The Regional European Summary Innovation Index which indicates the position of region in European
Union – index assumes relation to EU25 (Methodology used in this indicator covers the period before the
last European Union enlargement).
10Human resources for science and technology, the number of participants in various forms of continuing
education, public and private expenditure on research and development, the number of employment in
medium and high technology industries, technologically advanced services, as well as the number of
European patents.
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3. management of innovations in the region – units and structures that create
innovational projects.
branches, which have a special innovational potential and could become regional
(including health resort medicine); (ii) power industry (including renewable energy);
(iii) modern textile industry and design; (iv) advanced building materials (including
design in this sector); (v) innovative agriculture and food processing; and (vi)
Companies operating in these sectors will be able to receive support under the
technology were evaluated for these branches: (i) biotechnology; (ii) mechatronics; (iii)
local specialization in terms of support under Priority 1. It is quite possible that in the
future this number of branches and technologies will increase by new dynamic areas
production).
potential of SMEs which are active outside of the key branches listed in Priority 1.
Adding areas that have been created naturally due to their features (expanse, internal
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should constitute centers of regional development should be highlighted: Lodz
metropolitan region, and touristic areas of Valleys of the Pilica, the Warta, and the Bzura
rivers.
In terms of Priority 2, apart from functional regions, the support should also
cooperation.
activity requires preparation of institutional structures and tools that will support
The proposed system of implementation for RIS LORIS 2030 Action Plan in Lodz
region assumes that the role of the institution which in cooperation with Innovation
Council will decide into which fields the support should be provided will be assigned to
the local government and the Marshall Office. In this plan, environment of public
technology institutions will be intermediary bodies that will be connected with the field
(such as Universities, CTTs, Technology Parks, Institutions related to R&D and others)
RIS3 CAT Priorities of Europe 2020 has been adopted through ECAT2020 11which
was its government roadmap for re-launching the economy and reorientation of
production sector towards smarter and more sustainable economic growth model. In
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result, ECAT 2020 increases level of employment and sets out public policies aimed at
R&D as a driver for the economic transformation of the production system towards a
competitive and sustainable model that suits employment and social cohesion; and
and employment.
In order to develop local economy and promote cross-cutting vision that seeks
partnership actions between private and public sector, RIS3CAT has been established
taking into consideration different sectors of economy and technologies. This analysis
assumes the main regional specializations due to its development, innovations and
1. the legacy of the Catalan industrial tradition. In the 21 st century, the development of
the Catalan industry should place the emphasis on the key competitive factors such
2. the wellbeing of people in such spheres as food, health, leisure and lifestyle, in which
R&D generates economic opportunities and direct benefits for both individuals and
3. the global challenges posed by climate change, the impact of human activity and
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To make Vision 202012 a reality, RIS3CAT has established strategic objectives
and pillars of action, as shown in Table 2. Each of the above-mentioned pillars bonds the
strategic objectives together. Pillar 1 (leading sectors) refers to the historical view of
Catalan industry in order to identify the dominant sector from the diversified structure
in several sectors that are more developed and which play a significant role of added
value to smart specialization strategy (such as tourism, textile industry, health, and
culture). Catalonian advantages are measured through factors that have driven the
transformation of that region (industrial tradition, quality of life and green economy),
and implementation of the seven criteria which enable to identify the leading sectors:
critical mass in different sectors – measured through the number of companies (in
Consequently, the following sectors have been selected: food, energy and
12According to RIS3CAT from 2014, Catalonia is presented as “… a country with an industrial base and an
open, competitive and sustainable economy that combines talent, creativity, a diversified business fabric
and its own excellent research system within framework of dynamic, enterprising and inclusive society.
The country is home to both multinational enterprises and local companies, both consolidated industries
that have become international leaders and emerging technological sectors”.
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Table 2. Relationship between Strategic Objectives and Pillars
Strategic objectives Pillars
To modernize business fabric by improving the efficiency of Pillar 1 Leading sectors
production processes, internationalization and the
reorientation of consolidated sectors towards activities with
greater added value
To promote new emerging economic activities through Pillar 2 Emerging activities
research and innovation to create and develop new market
niches
To consolidate Catalonia as European knowledge hub and link Pillar 3 Cross-cutting enabling
technological and creative capacities to existing and emerging technologies
sectors in the territory
To improve the overall Catalan innovation system, improving Pillar 4 Innovation environment
the competitiveness of companies and steering public policies
towards promotion of innovative solutions,
internationalization and entrepreneurship.
Source: RIS3CAT (2014).
activities generated by the technological change and the latest innovations, as well as
synergy between related sectors, i.e. between the firmly established branch and new
branches which are staying still at the stage of development. The process of drawing up
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Photonics A multidisciplinary scientific field based on know-
how and applications related to the light,
generation, control, treatment and detection of
photons in the visible and non-visible ranges
Biotechnology Use of living organisms, biological systems or
their derivatives to create or modify products or
processes. Biotechnology is based on such
knowledge areas as microbiology, biochemistry
and genetics
Advanced manufacturing The application of innovative know-how and
technologies to optimize production systems in
order to obtain new products, reduce time,
energy, water and material costs in processes,
improve precision, quality, safety and reduce
environmental impact
Source: RIS3CAT (2014).
Pillar 4 (innovation environment) focuses on the competitiveness of companies
in the global market. Mainly in the field of SMEs which often lack the capacity to develop
their own R&D. The possibility and easiness to absorb, combine and apply know-how
and new technology solutions is a relevant key factor in this context. RIS3CAT identifies
and strengthens those public policies that most directly impact the quality of innovation
indicates elements such as quality of training and education amongst the population,
in the economic system are, therefore, key to the competitiveness of companies in given
territory.
well from the point of the existing companies that are functioning in that sector as in the
field of future trends. In many available research publications the basic materials are
industry we can mainly observe small and micro companies that operate in this sector.
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The statistical requirement concerns these companies that employ 50 and more
comparing it to the macroeconomic view. Those statistical databases do not cover many
interesting factors, such as the level of technology and market share (in demand for
different kinds of services). This indicates difficult conditions in terms of finding new
market for textile products in services of finishing them, and in the branches which are
cooperating with them. The only way to investigate the market demand is to perform an
trends in that sector using international comparison to regions with similar structure
and specialization.
Opportunities for textile sector and the sector of chemical treatment mostly
depend on the size of company, ability to follow and adapt to trends and conditions of
opportunities are clearly available in both Lodz region and in Catalonia. The share of the
local market is hard to be fully measured, also due to the diversity in finishing of textile
materials by SMEs which represent more than 90% of whole capacity in this sector. The
lack of the statistical requirement for the companies results in insufficient data for such
research 13. Thus the following research could be carried out only by selecting a sample
of that sector with focus on interesting factors (such as production capacity, technology
used, machinery and their abilities, share of production, services rendered, material
It is necessary to get into the consideration that all of the materials that is going to be sold as a textile is
13
mentioned as a finished - in statistical data. There is no database with raw textile or knitwear.
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The opportunities are also facilitated by companies’ investments in new
technologies that will be important on the market. Creating supply for special niche of
recipients will provide competitive advantage, also on external market, not only to
bigger companies that finish textiles but also to small ones that are able to develop in
that trends. Supporting funds are of top importance in this context. They will enable
micro-sized companies to chase those bigger that can afford higher expenditures on
creditability, higher income and lower cost per unit in point of economies of scale. A
strategy presented at the end of 2006 by the EU had a huge impact on textile industry,
however the concept of its future development and support was discussed much earlier
at the Conference of “The future is Textiles”, which took place in Brussels in June that
year. 9 experts from Poland who had participated thanks to project of Loristex
(Krucinska, 2007) were involved in drafting of that strategy. Full characteristic was
company. The market competition does not only depend on the number of services
The first one is the field of environmental protection issues. The environmental
textiles processes. The higher technology is used in the process of filtering the more
fresh water is going back into circuit, and as a result, expenditure on waste is
decreasing. SMEs constitute more than 90% of the companies rendering such services,
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and they cannot afford the increasing prices. During implementation of the
environmental policy the European Commission, legislation will be more and more
Small companies will not be able to pay such amounts without raising prices for their
The other area covers benefits resulting from technology used in processes at
different stages. The higher level of technology indicates a bigger interest in material
after process of its finishing and as a result, the demand for a specific good (as a
favorable material for children or special material for military forces). The aim of
finished textile goods in high quality technology becomes very popular in East where
the standard of living has remarkably increased and as a result, the level of quality of
goods has increased as well. That situation precisely shows the future trends and needs
of textile market and its opportunities for European companies. Unfortunately they will
only be available for bigger companies that will be able to follow trends on a market
with increasing technology used in the process of finishing textile materials and
individual strategies for environment protection without increasing their costs per unit.
A solution for small companies lies in the European Policy which is an external factor
specialization in Lodz Region and Catalonia, represents one of the solutions that will
bring back possibility of development for sector of SMEs operating in this area of
economy. Support brought to textile industry will allow small companies not only to
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technology parks and other centers that support innovation and technology
improvement) allow those regions to fully fulfill goals and aims of their regional
innovation strategies.
EU policy opens a new way for SME’s to develop not only taking into
on the market structure through increasing level of innovativeness of light industry, but
possibilities mentioned above are focusing on big companies that could have a bigger
One of the solutions for small companies to achieve higher technology level and
companies related to this sector and standing for projects specially directed to small
companies, such as “Bridge Alfa”. According to trends in the structure in that sector,
external supports from EU fund seem to be the only way for many small and micro
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References
Deloitte Business Consulting S.A., Łódzka Agencja Rozwoju Regionalnego S.A. (2013),
"Regionalna Strategia Innowacji dla Województwa Łódzkiego –LORIS 2030”, Urząd
Marszałkowski w Łodzi, Lodz
Domenech, J. (2005), “Labour Market Adjustment to Economic Downturns in the Catalan Textile
Industry, 1880-1910. Did employers Breach Implicit Contracts?”, Working Paper No. 88/05,
London School of Economics, London.
Generalitat de Catalunya, (2015a), “RIS3CAT Research and Innovation Strategy for Smart
Specialisation of Catalonia”, Government of Catalonia. Ministry of Economy and Knowledge,
Barcelona
Hollanders, H., (2006), “European Regional Innovation Scoreboard (2006 RIS), European Trend
Chart on Innovation”. Retrieved from: http://trendchart.cordis.europa.eu/scoreboards/
scoreboards2006/pdf/eis_2006_regional_innovation_scoreboard_scoreboard.pdf.
Miro M., Blasco Y., Lozano S, and Soler R. (2010), “Centrality and investment at the beginning of
industrialization in mid-nineteenth-century Catalonia”, Business History, 52(3): 493-515.
Piasecki, M. (2015), Small and Medium Enterprises in Regional Specialization, Firmy rodzinne –
doświadczenia i perspektywy zarządzania. Tom XVI, Zeszyt 7, Cześć 1, Przedsiębiorczość i
Zarządzanie, Łódź.
Plich, M. (2011), "Model ekonometryczny”, report of the project ”Rola bezpośrednich inwestycji
zagranicznych w kształtowaniu aktualnego i przyszłego profilu gospodarczego
województwa łódzkiego”, Lodz.
Rogut, A. and Piasecki, B. (2008), "Regional Innovation Strategy for Lodz Province, RSI LORIS
PLUS". 6th Framework Programme, Structuring the European Research Area, Regional
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Innovational Policies Including New Tools and Approaches, Społeczna Wyższa Szkoła
Przedsiębiorczości i Zarządzania w Łodzi, Lodz.
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Taxation of Farming Enterprises in Poland and the
European Union - a Comparative Analysis
Elżbieta Klamut
University of Social Sciences,
Warsaw, Poland
Email: eklamut@san.edu.pl
Abstract
Every state has the right to constitute its own burdens on economic activity. After Polish
accession to the European Union the part of tax burden is being customized to the requirements
of a community. Farm tax which is applied in taxation of Polish agriculture is an anachronism.
How far does taxation in Poland diverge from the solutions in other EU countries? Will
introduction of income tax in Polish agriculture impoverish the state budget or the opposite?
These are just a few issues contained in this study.
Key words: taxes, farming enterprises, farm tax, income tax
JEL codes: H25,H32,Q12,D31
Introduction
the interests of general public. They are designed in order to achieve the objectives of
both fiscal and socio-general nature as well as secure selected sectors of the economy.
taxing agriculture, while, others use appropriate preferences, but to a limited extent.
Among the EU countries, there are those that do not introduce any special tax
It is also one of the factors of a successful Polish agriculture as well as food industry. The
issues of these entities have become increasingly discussed in recent years. It begins to
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appear more frequently in various types of scientific studies. The United Nations
Agricultural Organisation declared 2014 the year of farming enterprises having regard
Undertaking the study of taxation of farming entities strikes the lack of treating
succession, in other words, they pass from father to son, thus being multigenerational.
family-run enterprises. They not only produce and supply urban and also partly rural
areas, but by retaining younger generations in the latter, they renew and sustain their
differently from taxing other business activities. Which of the systems used in Western
countries would be suitable for the taxation of agriculture in Poland? Or should Poland
develop its own separate system? According to farmers, the existing separate taxation of
the agricultural sector in Poland is right and just, but the remaining part of a society
considers it too liberal and unfair. The aim of the study is to compare systems of
converting the farm tax to income tax. An important point while examining applied
solutions of the taxation is the value of revenues from the taxation of agriculture. Will
decrease them? One of the major issues of introducing changes in the taxation of family-
run farming enterprises is their impact on efficiency as well as their faster development
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entrepreneurial activities; unfortunately, the farm tax in Poland in its present form does
areas?
From the 2010 Agricultural Census (2010), it reveals that in comparison with the
approximately 22.4%, i.e. about 656 thousand units (Central Statistical Office of
Poland’s Report 2011). While conducting the census there were 2,278 thousand farming
agricultural land exceeding 1 ha. About 1,559 thousand enterprises are the individual
ones.
noted that among all households the most constitute small entities up to 1 ha (31.4% of
overall) (Martin and Jacob, 2012) and those with an area of slightly above 5 -10 ha –
about 15.4 %. Within this range, a refinement can be made and thus starting from 1-2 ha
there are approximately 15% of households from 2 to 3 ha – 10.3%, and from 3-5 ha –
12.7%. The most enterprises (regardless of size) operate in the following regions:
the fewest in Lubuskie (1.9), Opolskie (2.0), Zachodniopomorskie (2.1) and Pomorskie
(2.7) (Central Statistical Office of Poland, 2011). Looking at this data from the other
angle, i.e. taking into account the size of the farm, it is in these last provinces that we
find the largest farming enterprises in terms of area. And the following provinces:
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Warmińsko–Mazurskie had 18.94 ha and Pomorskie-15.87 ha. Households with the
least acreage are located in the south - eastern Poland: Małopolskie with the average of
According to a report from Martin and Jacob (2012), main barriers to the
production and its lack of profitability (low products prices) as well as unfavourable
climatic and soil conditions and lack of opportunities to expand the acreage. Along the
investments in agriculture, and lack of employees as well as tax system and limits in
they report are the following: investments increasing labour productivity, making
Polish agriculture, like the majority in the EU benefits from direct farming
subsidies. Allocation of these obtained subsidies (Martin and Jacob, 2012) may be
slightly different than in other countries. In Poland, vast majority of farmers allocate
and equipment which occupy the 3rd place, followed by modernisation or expansion of
farm buildings (located on the 6th), while purchasing land, in turn, is located on the 7th.
provide to certain entities. The theory of optimal taxation considers its core subject
such defining a tax system that allows the realization of a maximum level of social
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welfare under certain tax revenues. That realization usually is carried out by minimizing
adverse and negative effects of taxation, taking into account some limitations. Nearly
always there is a difficulty with defining such a tax structure that enables achieving a
desired tax income. This issue remains precisely in the circle of interest of the optimal
taxation theory. Furthermore, the subject of interest of this concept is the impact of
taxes on the basic elements of functioning markets, and thus on economic growth as
For ages there has been a conflict of interest between two parties in the issue of
taxation. On the one hand, there are taxpayers whose earned incomes are reduced by
taxes (economic category), while on the other, a state for which taxes are the most
effective source of budget revenues. The state wanting to draw revenues continuously
activities. The taxpayers, in turn, may benefit from the freedom of choice of different
According to taxpayers the tax system will neither be fair nor stable. Simplicity of
systems, small number of taxes as well as changes to the regulations are symptoms of
necessary for a good tax system does not result in satisfying all taxpayers. There will
always be a taxpayer dissatisfied with the existing system of collected taxes. It should be
cited here:‘since tax was introduced the taxpayers have demanded reforms. A tax reform is
a kind of myth. Like alchemists seeking the philosophers’ stone, political parties, pressure
1See study on the impact of taxes on economic activity in: J. B. Cullen, R. H. Gordon, Taxes and Entrepreneurial
Activity: Theory and Evidence for the U.S., National Bureau of Economic Research. Working Paper 9015, Cambridge
2002, page 36.
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groups as well as lone researchers and those inspired look for an ideal tax system (…)
One of the important objectives of the state is to maximise the social welfare
therefore necessary for the tax system to be economically efficient. (Grądalski, 2006).
social welfare while relevant tax revenues to the budget and cost minimisation of tax
Farm tax remains one of many elements of the taxation of business entities'
activity, including farms. Introduced by the Farm Tax Act (Journal of Laws, 1993) it
replaced a progressive land tax existing from 1946. The basis for calculating farm tax is
the amount of a value in use of certain land, which is determined by valorisation (using
conversion factors) into calculation hectares (tax) (Gruziel, 2008). Consequently, a land
with an appropriate classification contained in the land register can be taxed. The base
of taxation in this tax is the number of physical or calculative hectares that are included
in this register. This means that the farm tax is imposed on all agricultural land, as well
as land covered with trees and bushes, regardless of their surface, profitability or
The basic criteria of assessing the farm tax are the following:
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hectare norms;
In turn, the economic criteria of that tax dimension (Podstawka, 2000) are the
following: value in use, hectare standards, standards defining the value in use, tax
regions, tax rates as well as tax concessions and exemptions. Agricultural lands, which
are subject to taxation and which are separated in the records are called arable lands,
permanent pastures and meadows, built-up agricultural lands, orchards as well as lands
Each year the farm tax rate varies and depends on the price of a 1q of rye
Poland.
The disadvantage of this solution is treating the farm tax as a universal tax.
advantage of a low tax burden. This practice is carried out by acquiring land by people
who do not perform any agricultural activities either for speculative purposes or to
benefit from subsidies or other preferences laid for farmers. A separate way is an
'artificial' increase of agricultural areas owned in order to reduce the amount of farm
tax paid.
Among Polish farmers the majority say that the current farm tax rate is generally
fair, although some of them propose changes to the rules determining conversion
factors. Some respondents also propose a change to inadequately selected tax districts.
Farmers, especially of older age, remain afraid of the changes, especially of the duty of
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Taxes in Farming Enterprises in Selected EU Countries
countries, however, each member state of the community builds its own, separate tax
system. The substrate characteristics of these systems are seen primarily in:
In countries such as France, Spain, Czech Republic, the Netherlands, Greece and
Poland one observes a relatively high share of consumption taxes in the revenues of the
state, and a low share of personal income taxes. The reverse situation is observed in
Finland, Ireland, Belgium, Denmark or the UK, where incomes of individuals are subject
to a high taxation.
preferences for specific sectors of the economy. Undoubtedly, in every country this
particular branch is agriculture. Most of the European countries do not create a separate
tax regime for the sector, but introduce provisions dealing with revenues from it
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(north-west European countries and Slovakia). Second group consists of countries that
created a separated (specific) tax system for agriculture in order to support this sector.
These are countries such as Poland (farm tax), Germany, Austria, France or Italy. An
Ireland sole proprietorships Introduced preferences for ecological agriculture. Income determined on the
basis of the average from 3 years.
Denmark sole proprietorships Income determined on the basis of a project scheme. Small farms taxed non-
normative. Possibility of further deductions on R+D in farming entities.
Greece no data Taxation based on general principles.
Spain sole proprietorships Small farms evaluate income by estimates (vast majority)
Tax concessions: Loans on ecological investments, on B+R as well as
exporting activity.
Austria sole proprietorships Income determined by the forms of flat fee and estimates. Simplified form of
accounting. Fiscal year chosen individually.
Czech Republic 11% of farms – legal persons, Taxation based on general principles.
the remaining - family-run
farms
Estonia sole proprietorships Small farms (income up to 45 000 krona) exempt from tax. Higher income
taxed on general principles.
Lithuania sole proprietorships Small farms exempt from taxation with income tax, the remaining use
variable tax rate.
Latvia no data Small farms exempt from taxation as well as rural agro-tourism entities and
partly gardening activity with low income. Subsidies for agricultural
production exempt from taxation.
Poland family-run farms They are subject to agriculture tax only.
Slovakia ole proprietorships Taxation based on general principles.
Hungary no data Taxation based on general principles.
Source: own study based on (Ogrodnik, 2009).
burdening citizens. Is Polish system, which as the only one has a separate system of
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taxation of some of its citizens fair? Depending on the area of research approach differs
slightly. Some citizens claim that the system is unfair and farmers should be treated in
the same way as all other citizens. On the other hand, another group believes that
distinction.
More and more frequently the diminishing role of land as a factor shaping
agricultural income is mentioned while productive factors such as labour and capital are
highlighted. In Poland, the income approach dominates in the construction of farm tax
excluded from taxation. As it has already been explained taxation systems vary widely.
Therefore, it is needed to look at the tax burdens of EU farmers. The main tax obligation
supposed to support an applied agricultural model. Additional taxes remain the value
added tax and property wealth tax. With regard to agriculture, there are various
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The solutions used in Poland can also be found in Romania, and until recently in
Bulgaria too. Taxation in Bulgaria was based on the principle of a flat-rate tax (rate at
10%), but by the end of 2009 revenues from agricultural activities were almost entirely
excluded from taxation with the income tax (Monel-Mugrurel, 2010). Since 2011,
farmers have been taxed based on the principle of taxation of income on business
activity. In Romania, just as in Poland, part of the agricultural activity is exempted from
taxation with income tax, but some of the revenues remain subject to taxation.
Revenues from these agricultural activities are determined with the use of appropriate
income standards, defined for the tax year or on the basis of an actual net income
countries. In most countries taxation is based on actual data obtained from accounting
systems (usually simplified), but the estimate systems of revenue or income also apply.
However, this is only a small segment of the Polish agricultural taxation system based
on agricultural tax.
supporting agriculture in the form of modern tools. The most frequently are various
solutions in the income tax which allow applying the policy as low tax burden on
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It is worth examining for comparison the taxation of agriculture in countries
outside the EU. And so, in the US income taxes on federal level do not exclude
agriculture from taxation. Frequently, there are three types of taxes on agriculture.
These include: an 'ordinary' tax (ordinary income tax to pay), a tax for self-employed
(self-employment tax) and tax on capital gains (capital gains tax). According to the
American law the farmer is a person engaged in agricultural activity for gaining profit.
benefits for some farmers. In turn, Canadian agriculture is treated like any other
business, except that the tax law contains special conditions for agricultural activity
agricultural industry (e.g. running a wild nature reserve, production of maple syrup),
agriculture. In order to determine the amount of income there are allowed cash basis as
well as accrual basis, however, with certain restrictions; e.g. a farmer is not allowed to
Applying public burdens to the income from special branches of the economy in
the same amount as the income from non-agricultural activities should be considered as
legitimate and compatible with the principle of fair taxation (Gomułowicz,2003), whose
basic postulates are equality and universality of taxation. However, a question should be
business activities will be reflected in increased budget revenues and what impact will it
have on the profitability of farming enterprises. The overall share of personal income
taxes in tax revenues of the states is varied, but on average it amounts to about 20%.
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There are states where the share remains substantial (Denmark-50%, Finland and
England-30%), but there are also those in which it remains low (Czech Republic-10%,
Based on the data from Table 3 it can be concluded that the low share of personal
income taxes in countries such as Czech Republic or Poland is caused, among other
There are about 1.5 million farms functioning in Poland. The majority of farmers
pay the farm tax, but around 35-40 thousand are subject to income tax on special
branches of the agricultural production. Due to the fact that most frequently their
incomes do not exceed the amount free from taxation, they are not obliged to pay this
tax. Over 62% of these taxpayers did not exceed the amount of income free from
taxation (www.mf.gov.pl).
Taking into consideration the year 2012 for instance, income on farm tax
amounted to PLN 1 545.8 million. Unfortunately, this tax falls dependable on rye prices
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which frequently results in a considerable loss in the income of the state (read: local
government units). And so, in 2012 due to a decrease in rye prices the budget lost
around 691.9 million, while various concessions and exemptions amounted to the loss
of nearly PLN 3.6 m. Decisions on concessions and exemptions or decreasing rye prices
are made by the municipal council pursuant to Art. 6 (3) as well as Art.13e of the Act on
concessions are practised by the council and what the results are, but according to
estimates the biggest share in the income loss is attributed to the exemptions on lands
of inferior quality (class V, VI and VI z) and within the period of 2009 and 2011 they
amounted to respectively PLN 183, 112 and 124 million. Concessions on investments
depleted budget by about respectively PLN 53, 33 and 36 million. A significant share can
from fees and local taxes, which according to estimates amounted to PLN 40 million in
2010, while in 2011 it was around 42 million. Grounds for exemptions are included in
The introduction of income tax on agriculture in the tax system should not affect
increasing tax burdens on farmers and therefore would be irrelevant for the budget. Let
us look at the data. In 2012 farm tax brought the budget PLN 1,545.8 million, while the
revenues from personal income tax are already PLN 70,622 million, and corporate–PLN
31.950 million. The largest share in budget revenues has the value added tax – PLN
120,001 million. It clearly proves that at present it has no significance to the budget.
However, freeing this tax from changes in rye prices and reducing concessions may
become vital.
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Propositions for Changes in the Taxation of Farming Enterprises in
Poland
In the proposed project of encompassing farmers with the income tax the
Ministry of Finance has made distinctions between two groups of farmers - poorer and
wealthier, i.e. those whose achieved revenues exceeded PLN 100 thousand in a given
business year. The first group will be exempted from income tax, but would fall under
taxation with the real estate tax. It has been proposed to use twice the rate of that tax
for the undeveloped areas. Such a solution would force cultivation of wastelands. The
second group of farmers would be taxed similarly as business activity but in two
different options. The first is an option based on an already functioning lump-sum tax
on registered revenues. The limit of this form, however, is restricted to the amount of
150 thousand euro with a proposed tax rate at 4%. The second option is taxation on
Farmers, similarly to income tax payers of the SME sector would obtain the
In order to mitigate the effects of income tax the project envisages applying
income limits to determine the manner of calculating taxes. The proposals of the
transitional period for farmers assume the limit of income, and so, in 2015 it amounts to
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PLN 200 thousand, while in 2016–PLN 150 thousand. The basis for determining those
In Poland currently operate nearly 1.5 million farming enterprises with an area
exceeding 1ha. Average farming area amounts to 11.2 hectares (ha). As many as 862
thousand are small farms whose land area does not exceed 5 ha. Half of the enterprises
in Poland (56% of total households) annually create the agricultural output value of no
more than 4 thousand euros (up to PLN 16 thousand). Unfortunately, only one in four
farming enterprises (26%) achieves output value of over 8 thousand euros (around PLN
32 thousand). As many as 1.36 million households enjoy the use of direct subsidies
Looking at these figures it is not difficult to imagine that burdening income from
agriculture with personal income tax may not bring revenues such as those from farm
tax, which is paid by fairly all farmers. A study conducted in 2008 (Wasilewski and
Gruziel, 2008) showed that within the mentioned period the farm tax accounted for
nearly 5% of net output of the average farming enterprise. Unfortunately, smaller farms
ended up with over 5%, while, larger ones (richer) with less than 2%. This means that
the taxation in the form of farm tax, not only does not reduce income disparities of
farms, but deepens them, as small enterprises all the more do not have the resources to
In his publications Hanusz (1996) argues that a properly structured farm tax is
the one whose rate falls within 6% and 8% and does not exceed 10% of the average
income per hectare. According to the study in Poland, it is much lower. He also
underlines that due to the fact that production in agriculture is becoming increasingly
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specialized, thus the ratio of rye production to overall production is declining, and
repeatedly. Lately, from 2014 farmers were supposed to remain subject to income tax,
but pressure from agricultural backgrounds resulted in putting reforms off for another
period. According to the survey of recent years (Gance and Wise, 2011) which
concerned introducing the taxation of agriculture with income tax, the majority of
farmers are not interested in changing the tax system, and according to them (35.5% of
respondents), the currently binding one is adequate. However, they have reservations
about the methods of determining the conversion factors, as well as the selection of tax
regions. Some of the farmers (27.7%) agree with the thesis that the tax should be linked
to the achieved income, but should also take into account deductions of labour costs of
the farmer and his family, as well as climatic and soil conditions, and the agricultural
Farm tax in its current form (linear) primarily serves large and medium-sized
farming enterprises. The amount of tax burden is disproportionate to the income (see
above). Small farms are loaded to a greater degree and less richer, hence the
been functioning in Poland and it poses no major problems. The entities are generally
returns are not a problem. This implies that applying such rules to all farmers would be
possible.
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Economists increasingly criticize procrastinating reforms of the tax system, as
the farm tax does not motivate to develop. Polish agriculture at the present stage of
development needs the introduction of income tax, the more that aside from Romania
all other European countries already changed the rules of taxation many years ago.
Polish farmers' resistance is associated primarily with the lack of ability to keep
records of agricultural activities as well as fears of higher tax burdens, fears of the
unknown. The introduction of income tax would surely increase the burdens on farmers
with high income. Small farming enterprises in vast majority would pay no income tax,
due to very low income. The legislator intends to introduce a simplified form of records
for taxation purposes, and tax in the form of lump-sum or general principles is left to be
chosen by farmers.
functioning for years, the agriculture should be encumbered with the aforementioned
taxes: income tax, value added tax and property wealth tax. Both the economists and the
Ministry of Finance are of the opinion that burdening income from agricultural activities
with income tax should not result in an increased fiscal burdens. Looking at the
confidently say that the introduction of income tax in the remaining agricultural
industry should pose major problems neither with records (usually simplified) nor tax
deduction.
It is obvious that the tax system which binds the volume of taxes with the size of
income is considered to be more equitable among the society. There are proposals to
introduce various categories of farming enterprises. The first comprises small farms
producing for own needs, which should remain tax exempt (most frequently they lack
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revenue). The second group comprises already larger, family-run entities of a
marketable production. Such enterprises are based to a small degree on wage labour
introduce a flat-rate income tax with simplified records. The third group would include
farming entities with a large scale of output based on wage labour. Such farms should be
taxed in the same way as the remaining business activity, as usually they are individuals
The taxation of agriculture applying income tax should comply with the
principles of universality and fairness of fiscal burdens. Taking over the part of income
by the state and its redistribution for common weal are the objectives for which the tax
is introduced. The state should realize various objectives from these incomings which
The introduction of income tax on Polish farming enterprises on the one hand
will attempt to organize and unify the tax system, and on the other endeavour to treat
this sector of the economy on the very same principles as other business activities. The
Unfortunately, the mere change in tax regulations may not result in an appropriate
therefore necessary to obtain support from the state as well as various agricultural
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hence the need to support these agricultural areas. In provinces with predominantly
authorities, but also the authorities of the European Community. Joint actions have
already delivered certain results in the form of increasing the competitiveness of Polish
agriculture on global markets, however, they should intensify through aiding mainly
small farms.
One of the methods to support small farms is the Rural Development Plan 2014 -
2020. The Ministry of Agriculture and Rural Development provides farmers with
activities in the form of financial assistance, through which can benefit those possessing
enterprises of low income and scant production capacity. These numerous activities
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comprise restructuring small farms and modernization of farming enterprises, creating
agricultural producers groups alongside organic farming and bonuses for start-ups in
environment and climate, consulting and quality schemes for agricultural products and
foodstuffs as well as transfer of knowledge and innovation and the LEADER approach.
ability to sell their crops at sufficiently high prices and make purchases of the means of
production for the whole group at relatively low prices. In some Polish regions farmers
as parts of these groups have been making collective purchases for some years, which
results in real savings and increases profitability that, in turn, accumulates funds for
investment. These groups assist one another in lowering production costs, reducing
Another type of support is the system of direct payments. In 2015, under the
direct support, owners of small farms can benefit from direct subsidies in the new
system called 'payments for small farms ". The maximum amount of all payments must
not exceed 1,250 Euros per farm. Payments usually occur in the form of a lump-sum.
Programmes) there are also obtained funds to support small farms. These actions
market. This action is aimed at reducing social exclusion of rural residents, as well as
2The statutory purpose of GPR activity is a joint organization of sales in order to enter the market and achieve better
conditions of collaboration with customers. The number of groups is still growing - in 2002 there were 70, while in
2012 - 985. They achieve better results and quality of production, and also easier overcome the difficulties of
production sales as well as receive public financial aid. They can count on support under the Rural Development Plan.
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expediting structural changes in agriculture and increasing the competitiveness of
Polish agriculture.
'The strategy of sustainable rural development, agriculture and fisheries for the
years 2012 - 2020' as a general objective indicates the improvement of life quality in
rural areas, and also the efficient use of rural resources for a sustainable development of
entrepreneurship, the quality of human capital and the increase in productivity and
competitiveness of the agro-food sector as well as food security and protection of the
environment.
farming activities, while on the other hand the risk of lack of tax collection from these
farms. Better operating farms as well as greater production value mean the opportunity
to reduce hazards of activity, particularly those connected with nature and climate, as
farms will possess the funds to insure against climatic conditions, which, in
consequence reduce the need for state aid in the occurrence of adverse conditions to
farms such as flooding, drought, hail, diseases of farm animals, etc., which in recent
Supporting small-scale farmers will reduce the risk attached to conducting farm
activities, while on the other hand the risk of lack of tax collection from these farms.
Better operating farms as well as greater production value means the opportunity to
reduce hazards of activity, particularly those connected with nature and climate, as
farms will possess the funds to insure against climatic conditions and thus it will reduce
the need for state aid in the occurrence of adverse conditions to farms such as flooding,
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drought, hail, diseases of farm animals, etc. which are increasing in Poland in recent
years.
can transfer most of the risk of activity on it, as often is the case at present. Just over 80
out of 1.5 million farms insured in 2015 against drought, which had devastating effects
on many farming enterprises during last summer. The state budget has to allocate
around PLN 400 million to eliminate the consequences. These are not the means
obtained from farm tax, as it feeds the income of local government units and the units, in
turn, exempt many farmers from this tax; hence an absurd situation arises because the
budget (local government units) not only does not have any income, but it still has to
Summary
Family-run farming enterprises in the European Union are the most common
form of agriculture activity. Each country should strive to ensure that they are primarily
modern, competitive and environmentally friendly, and also that the youth remain in
rural areas and run the enterprises in order for the rural communities to prosper.
Family-run entities are subject to the same regulations as all family companies. They
remain subject to succession and various risks as well as achieve revenues and incur
The vast majority of farms in Poland are small, family-run entities which face
does not affect the social and economic development of Polish agriculture. The system
requires concerted and fundamental reforms, as it does not fulfil the fiscal function.
Proposals to introduce new principles of taxation should take into account the
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specificity of businesses and stimulate farming enterprises to development and
investment. The principles of the EU Common Agricultural Policy prohibit the state
Farm tax in Poland neither provides great means to local government units, nor
remains an instrument that could boost the development of farming entities. There are
does not foster entrepreneurship of farmers, as the vast majority of enterprises are
heavily burdened with taxation. Lack of binding income with taxation produces
excessive burden on small farming enterprises that do not have resources necessary to
entrepreneurship in rural areas too. Currently, factors such as land and production
developing farms that are run by young farmers and possess the characteristics of
not only reduce costs, but increase the competitiveness of enterprises at the same time.
introduction of income tax may be an incentive for farmers to increase it, which in the
final result increase their income, as is in the case of the special sectors of agriculture
Analyzing tax systems of the EU countries, it can be concluded that the majority
of countries applied income tax to agriculture, as with other types of business activities,
yet using preferential tax treatment for this sector of the economy. These preferences
are directed primarily to small farms in order to support their growth and increase
competitiveness. Only Poland has a different tax system for agriculture in the form of
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farm tax, which does not make the amount of tax burdens conditional on profitability.
The exception is the special sectors of agriculture, which are taxed on the basis of
income tax. This also remains a different solution from existing in the EU countries.
agricultural activity. These units remain subject to income tax. Particularly noteworthy
is the settlement of entities that remain subject to personal income tax. In this case, the
right solution is the facility to choose the way of settlement. Due to favourable estimate
standards tax settlement on general basis remains less popular - less than 1% of
References
Ganc M. and Mądra M. (2011), Sprawiedliwość opodatkowania rolnictwa oraz możliwości zmian
w tym zakresie w opinii rolników indywidualnych, Zeszyty Naukowe SGGW w Warszawie,
"Ekonomika i Organizacja Go-spodarki Żywnościowej”, No. 89, SGGW, Warszawa.
GUS (2007), "Rocznik Statystyczny Rolnictwa 2007", i Obszarów Wiejskich, Warszawa: Główny
Urząd Statystyczny,
3See writing of the Minister of Finance of the 6 April 2011 addressed to the Speaker of the Senate (ref. PK3/0602/7/
20/ JPC/ BMI9/3244/11) on the draft on amendments to the Act on Income Tax on individuals, www.senat.pl.
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GUS (2011a), "Raport z wyników Powszechnego Spisu Rolnego 2010", Warszawa: Główny
Urząd Statystyczny.
GUS (2011b), "Rocznik Statystyczny Rolnictwa 2011", Warszawa: Główny Urząd Statystyczny.
GUS (2012), "Rocznik Statystyczny Rolnictwa 2012", Warszawa: Główny Urząd Statystyczny.
Martin and Jacob (2012), Agro pod lupą, raport, dla EFL
OECD (2005), Le sector agricole, Fiscalite et securite social, Paris: Organization of Economic
Cooperation and Development.
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Human Capital and Productivity in the Sinaloa
Commercial Family Businesses
Fabiola Ponce Durán
Universidad de Occidente
Culiacán, Sinaloa, México
Email: fabiolaponceduran@gmail.com
Marcela Rebeca Contreras Loera
Universidad de Occidente
Culiacán, Sinaloa, México
Email: marcelac25@hotmail.com
Abstract
Commercial family businesses are part of an open system that establish an ongoing relationship
between the structure of the organization, objectives, people, environment and resources,
adapting to changing needs which is required in the competitive environment. The paper shows
results of the study that seeks to identify human factors that affect the level of productivity of
family businesses in Sinaloa. It proposed a model that reflects relationships between these
factors and productivity. Data collection was carried out with 209 respondents, and analyzed
with a special constructed structural equation model. The results show that in a model of
human factors that affect the level of productivity, behavior involves psychological and
psychosocial processes that influence the performance of individuals and groups, increasing or
decreasing the level of productivity of individuals, group of individuals and own organization.
Three levels of analysis have been adopted that reflect the continuous interaction and mutual
influence between each dimension. Based on the structural equation model, the paper concludes
that among the three factors, individual factors have the highest correlation.
Introduction
Given the current economic situation facing the new competitive environment,
companies must optimize their operations by focusing their efforts on activities and
practices which constitute the essence of their value. This is also valid for family
businesses since business efficiency can only be achieved by maximizing the value
added in each of these activities, and by finding the best way to combine and select their
resources.
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In this regard, in recent decades, the concern of employers has been to obtain a
thereby, to develop sustainable advantages over their competitors. Not all enterprise
resources are likely to bring such sustainability, but only those that are highly valuable
and scarce (Barney, 1991; Grant, 1996) and last in time (Amit and Schoemaker, 1993).
The company's resources must include intangibles assets, especially the human
resource, as it is the most critical and important factor for the success of the company.
Despite the importance of human resource (HR) for the competitiveness of the
company, few studies have been done specifically on the analysis of human factors, e.g.
Since there are organizations where ownership and involvement of the family in
the business are important, HR practices are developed in a particular way (De Kok, et
al., 2006). The orientation of HR practices can range broadly from a clear inclination
succession, to the detriment of employees without family ties, to a search for fairness in
the balance in the direction of such practices, which will determine, in general,
business. If this balance exists, the family business will have the opportunity to leverage
competitive advantage.
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The study has two main objectives, namely to identify human factors that from
the perspective of the store managers and assistant managers which affect the level of
reflects the relationships between these factors and the level of productivity.
Theoretical Framework
Human capital has been recognized as an important factor that adds value to
resources and capabilities they have and they must learn how to use their resources.
The companies should be able to identify or to develop their skills and knowledge in
such a way that differentiates them from their competitors and they also should
highlight the distinctive characters of the people who work in their companies. All these
are needed to form their competitive advantages. Stewart (1998: 9-10) defines
intellectual capital as “the sum of all the knowledge possessed by all employees of a
Recent studies suggest that the attributes of human capital such as education,
experience and skills of employees and managers, positively affect firm performance
(Hitt, et al., 2001). In modern organizations, human capital provides distinctive features
that make it valuable for organizations. Therefore, human capital is regarded as firms'
main intangible asset value generator (Hatch and Dyer, 2004). The knowledge,
important features for productive activity and they interact with other assets and the
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competitive advantage and the main concern now is how to measure their influence on
well resources are being used in an organization in the process of production of goods
and services. Therefore, productivity refers to the relationship between the resources
used and the products obtained and indicate the efficiency with which resources are
subjective aspects, which make its measurement more complex, and this has led several
authors to use variables based on the perception of the people involved. This subjective
method to measure the level of productivity has been used primarily for non-parametric
mid to late nineties. The global process of market liberalization and especially the
signing of the trade agreement between Mexico, Canada, and the United States of
America (USA), were among other factors the trigger for a strong performance across
the country's economy, especially in the retail sector. The sector is of a great importance
for the Mexican economy, not only in the form of its contribution to gross domestic
its calculation due to the particular characteristics of the sector: the heterogeneity of
products; little contribution to value added; low or marginal productivity of labor that
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resulting in lower real wages (e.g Achabal, 1984; Mishra, 2011). This problem led many
researchers to use different methods and indicators to measure more objectively the
results of the operations performed by area and activity. Such studies mainly aimed at
measuring tangible aspects such as sales per square meter, waste reduction, rotation of
merchandise, gross margin, among others, without delving into those human factors
ventures and the relationships that exist between the factors were analyzed and a
structural equation model was developed to explain these relationships. The concern of
this study was to seek other ways to measure the performance of the store managers to
contemplate perceptions of those aspects of human factor affecting the current level of
productivity. It is not the measurement of productivity in the conventional way, but the
study looks for other ways that consider the human factor as a variable in the
The aim of the study then is to present an alternative way of measuring productivity by
taking into account subjective aspects based on perception of HR (in this case, the
respondents).
organization-individual relationship.
There were two main reasons that this study chose store manager and assistant
manager as the human factors. First, the increasing dynamism of the retail trade in
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recent decades, which has increased significantly its contributions to the country's GDP
and job creation. Second, the lack of studies on the performance of human resources
systematically and objectively, and on indicators which are more tied to the
specific measurement purposes. This lack presents an area of interest in the existing
factor.
The heterogeneous nature of the products and services in the retail sector and
the need to use various easily measurable indicators that show the achievement of
objectives that the company is set per area and per unit, has led to the need to create
market-based indicators and mostly financial returns, leaving aside the measurement of
On the other hand, the increase interest that is now being given to human capital
as a component of intangible assets with distinctive features that has high value has
made businesses to put more attention and emphasis on the conservation of HR capital
comprehensively consider the subjective aspects of the human factor is one of the
Consider the business organization as a set of carefully sorted items with mutual
interactions between them gives the impression of a whole system working for a
specific purpose (e.g. generating profit), which is susceptible to what happens in its
environment. Therefore, doing this research with the mentioned approach, based on the
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This idea is reinforced by the opinion of Katz and Kahn (1986) that the organization is
relationship where humans and other organizational elements interact with each other
within the organization social system and, with the external environment, to realize
at the individual and group, and between groups where end results depend on the
Method
To achieve the objectives of the study, methodologically, the study was based on
quantitative, descriptive and transversal approaches. Due to the subjective nature of the
research variables, the main instrument to obtain information was a survey using a
assistant managers from two companies owned by two different families. In order to
ensure the reliability and suitability of data collected from the survey in the Sinaloa
context, the used instrument was validated in content with the own opinions of local
assess many subjective aspects of the human being, the use of nonparametric methods
in the measurement was then justified in this research. For the selection of indicators of
productivity of manager and assistant managers, the respondents were asked about
their own opinions or perceptions about the management processes in their companies
and related aspects that they consider very important, in order to evaluate their
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productivity in relation to their human factors. The selected indicators were: turnover,
From the review of existing key literature, it was found that many researchers
have studied the impact of human factors on the level of productivity, and they
(1997) and Cequea (2012) gave a list of 35 variables. For this study, based on the
literature, a list of human variables affecting productivity was selected and compiled,
and underwent expert judgments for the adequacy of these variables to the local
context.
For the analysis of data collected from the survey, a system of structural
equations was used as a statistical tool to develop a model using the software Lisrel. The
respondents on issues that affect their performance. The used structural equation
model is the methodological contribution of this study which relates variables that deal
managers and assistant managers of two different family retail businesses (A and B)
located in the state of Sinaloa, Mexico, with the following profile: male (74%), level of
education degree (76%), age between 30 and 50 years old (55%) and seniority of 2-5
years (43%). Companies “A” and “B, are family businesses whose principal activity is the
marketing of products in supermarkets. The firms have been operating for over twenty
years in the local market in the Sinaloa with a stable economy. After a long period of
being unique in the format of grocery stores in its beginnings, and then became
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supermarkets, both companies “A” and “B” lay the foundations for growth and meeting
specialized store for selling construction materials, furniture and electrical appliances
business. The first retail store was opened in the sixties, introducing models forefront of
consumer. In the seventies in Sinaloa, the company consolidated its presence in the field
growth strategy by adopting new and modern store formats, as sustainable growth
became the formula for progress and survival in the highly competitive context, in 1999
the company associated with the Sacramento group to sell its 50% shares. With this, it
allowed the company to start its expansion throughout the state of Sinaloa. In 2007, the
company had an annual growth of 18% through establishing stores with 1,800 square
meters in locations with 25,000 inhabitants on average, earned $200 million US dollars
Today, this family company has become one of the most important regional
companies in the form of creating decent and secure jobs. The company is managed by
three generations of directors who have called equal (Alfonso Zaragoza III). In 2014 the
The origin of company B was back in 1954 when the patriarch of a family from
Asian immigrants and their children, established a distribution business of butter in the
city of Culiacan, Sinaloa. The company was founded as a small wholesale and grain
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stores selling groceries and supplies to small and medium enterprises (SMEs) and final
consumer goods at affordable prices to the working class. This was the basis for the
opened two branches in Guamuchil, another municipality of Sinaloa and one more in
Culiacan. On the death of the founder in 1969, his six sons took over the company; who
By 1978 company B has already 18 stores located in the state of Sinaloa and two
in Sonora. The late eighties gave the basis for the company's growth strategy and
consolidation. In 1981 it associated with Safeway Stores (a big supermarket chain in the
United States), marking a watershed in the history of the company. As a result of this
alliance, the company has grown significantly and now it has around 200
western Mexico.
The company has also ventured into other activities such as agriculture, food
consolidated corporate group which together generated 2600 million dollars a year and
about 30,000 jobs. Another important feature of the company is that it uses a variety of
formats for its supermarkets characterized by the size and customer orientation
For more than four decades the company has been a family business with the
most brand value and strong market position The company B is currently managed by
the third generation of the family, who owned around 51% of family capital in the
company. With respect to the succession, the company is prepared to move successfully
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through generational change by providing training and advices on how to carry it the
succession, and by helping define how to organize properly the succession process in
the company. This is considered very important because the core family who
established the company has many sons, and each of them has his own family and each
family has its own needs for work and many of them have developed their own family
businesses
work and values identified in Culiacan culture. They are suppliers of products and
services for family consumption and they generate jobs in different ranges. Their logos
are part of the urban culture of the region, and they are highly respected by the local
aggressive market. These two local companies have managed to transform themselves
partnerships that enable them to face challenges from large market participants, both
productivity, a theoretical model that shows the relationships that occur in the context
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organizations. This behavior involves psychological and psychosocial processes that
group and organization (Robbins and Judge 2009). Three levels of analysis, according to
different authors, was adopted to reflect the continuous interactions and mutual
influences that exist between each dimension. Each level represents the impact that
individuals exercise in the productivity of the three factors, i.e. individual, group and
organization.
The propose for this research a theoretical model suggests that there is a direct
and positive relationship on productivity, and it was compared statistically with the
demonstrate that the proposed theoretical model is consistent with the data obtained
from the field survey. Figure 1 shows the structural model that resulted from the
empirical evaluation, which indicates that the correlations between the variables
Regarding specific results of the structural model, significant arrows between the
job satisfaction and competence are issues with individual dimension; that directly
affect the level of productivity (0.32). In the group factors, participation, teamwork and
conflict management are classified in group size and directly influence the level of
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Figure 1. Results of the Constructed Structural Model
With these results, it can be said that the proposed theoretical model is valid in
that individual, group and organizational factors have positive correlations with the
significantly positively.
Using a structural equation system through LISREL 8.8 software enabled the
estimates of the equation are shown in Table 1. The first line corresponding to the
(0.322) (0.213) and (0.308) respectively, and associated with a measurement error. The
second line corresponds to each of the latent variables standard error. The third line
shows the t statistic (coefficient/standard error of each factor) that allows the null
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Table 1. Estimates of the Constructed Structural Equation Model
Estimated Equation Error variance R²
Productivity = 0.322*X1 + 0.213*X2 + 0.308*X3 0.170 0.749
Standard error (0.247) (0.131) (0.172) (0.0509) 3.344
t 1.301 1.625 1.790
Note: X1,X2 and X3 are resp. individual, group and organizational factors
With respect to the individual factors, the obtained measurement indicates that a
0.322. A positive change in the group factors has the least positive impact on the level of
productivity with 0.213, whereas, an increase in the organizational factors will increase
the level of productivity by 0.308. The standard error, shown in the second line (e.g.
0.247 for the individual factors), indicates the accuracy of the estimated coefficient: the
smaller is the estimated coefficient, the more accurate is the measurement. The third
line shows the value of t obtained by dividing the value of the estimated coefficients by
the standard errors. For instance, with respect to the individual factors: 0.322/0.247 =
1.301, which is greater than 2.57 for a significance of p = 0.01, (or confidence level of
99%; Z = 2.57); so the variables are significantly associated with proposed
constructs.
According to the above results, it appears that individual factors have the
Variables such as motivation, job satisfaction and competence acquire meaning in the
To determine to what extent the assumed model fits the sample data, the model
was evaluated on the quality of global adjustment (Goodness-of-fit Test). Three types of
test are used in this study, namely absolute fit, incremental fit index and parsimony
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adjustment index (Manzano and Zamora, 2009; Arias, 2008; Ruiz, 2008; Cea (2004).
Figure 2 shows the path diagram tested with LISREL 8.8 software model.
The main results of the model are shown in Table 2 with absolute fit indices
RMSEA (Root Mean Square Error of Aproximation): 0.049; SRMR (Standardized Root
Mean Square Residual): 0.0559; GFI (Goodness of Fit Index): 0.886; NFI (Normed Fit
Index): 0.955; and CN (Critical N): 191,885; all tests indicate a reasonable fit of the
model. Incremental fit indexes show favorable values, i.e. NNFI (Nonnormed Fit Index):
0.981; CFI (Comparative Fit Index): 0984; and IFI (Incremental Fit Index): 0.984; all
suggest that the model is accepted. Regarding rates acceptance model parsimony, the
test results suggest some reservations, with indicators AGFI (Adjusted Goodness of Fit
Index): 0.883, and PGFI (Parsimony GFI): 0.682. A model is perfectly fit when an exact
correspondence between the matrix reproduced by the model and observations matrix
is given. For this purpose, the two most commonly used measures are the chi statistical
( 2) and likelihood ratio index and the index of goodness of fit (GFI)
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Table 2. Fit Indicators of the Proposed Model
Type of Acceptance
Statistical Model values Criterion
Adjustment value
= 318.551
2
Absolutes (Satorra-Bentler) p > 0.05 No acceptance
(p=0.000)
SRMR < 0.05 0.0559 Poor adjustment
GFI > 0.90 0.886 Regular adjustment
NFI > 0.90 0.955 Correct estimation
Incremental
Summary
The main aim of this research is to identify human factors of commercial family
business that influence the level of productivity, and to propose a model of productivity
the state of Sinaloa, Mexico, with store managers and assistant managers as the
organizational factors) were adopted to identify the human factor and it obeyed the
psychological and psychosocial processes that form the interaction of the individual at
work.
The results of this study confirm of the important of the human factors in
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The structural equation model developed for this study in order to measure the
productivity of store manager and assistant managers indicates a positive and direct
relationship between human factors, identified and classified in individual, group and
organizational dimension. The highest correlation was found from the individual factor
correlation of 31%.
References
Achabal, D., Heineke, J., and McIntyre, S. (1984), "Issues and Perspectives on Retail
Productivity", Journal of Retailing, 60(3). Fall.
Amit, R., and Schoemaker P.J.H. (1993), "Strategic assets and organizational rent", Strategic
Management Journal, 14(1): 33-46.
Hatch N., and Dyer J. (2004), "Human Capital and Learning as a Source of Sustainable
Competitive Advantage", Strategic Management Journal, 25:.1155-1178.
Hitt M., Bierman L., Shimizu K., and Kochhar R. (2001), "Direct and Moderating Effects of Human
Capital on Strategy and Performance in Professional Service Firms: A Resource-Based
Perspective", Academy of Management Journal”, 44: 13-28.
Katz D., and Kahn R.L.(1986), Psicología Social de las Organizaciones, México, Trillas.
Mishra A. (2011), "Retail Productivity: Concept and Analysis for an Emerging Retail Sector",
Working paper No. 336, Indian Institute of Management Bangalore.
Robbins S., and Judge T. (2009), Comportamiento Organizacional, Pearson Editores, México City.
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Sustainable Waste Management and Social Capitals:
The Experience from Landfill Community in
Converting of Waste into Alternative Energy, in
Kendari South East Sulawesi 1
Patta Hindi Asis
Social and Political Science Faculty, Muhammadiyah University of Kendari
Kendari Southeast Sulawesi, Indonesia
E-mail: pattahindi@gmail.com
Ririn Syariani
English Department, Muhammadiyah University of Kendari
Kendari Southeast Sulawesi, Indonesia
E-mail: ririnsyahriani@yahoo.com
Abstract
Management of waste into alternative energy that blends environmental capital and social
capital has conducted by Independent Community Energy Landfill (TPA) Puwatu District
Kendari South East Sulawesi. In this community, waste can be managed properly because the
cooperation between by local Government and community and mutual trust among the
members.
The qualitative methods through case study approach this study is done that explore the data
with study of literature/libraries, in-depth interviews, and focus group discussion (FGD) in TPA
as partners in waste management activities into energy alternative.
The result shows that waste management into alternative energy has run well because of the
structure is supported by good relation between government as facilitator and the members of
community. Social capitals such as personal interaction, trust and powerful networking in this
community make the program of waste management sustainable that producing methane
brings benefit to community as expected, and has become a pilot project.
As recommendation, it is important to maintain the sustainability of waste management. Since
the program leads to also maintaining social capitals of community; increasing skill of life,
increasing leadership capability, finance skill and networking. Therefore the establishment of
independent energy can be reached and continued as the way of people empowerment. Here the
government should support by making regulation which assure its sustainability without
influenced by leaders changing.
Key words: social capital, landfill community, alternative energy
JEL codes: L44, L50, Q2
1 The article has presented on Bandung Spirit International Conference 30th October 2015 held at Trisakti University
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Background
environmental harmony, sustainable Is crucial since it balances both natural and human
life. This equilibrium can be done by maintaining natural and social capitals. The entity
Will be run well in the form of environment management such as turning waste
(environmental capital) into alternative energy that is supported by social capital due to
maintain human existence. To understand the work of both environmental and social
capitals, it will be described by the landfill community which using the waste to support
their daily lives. For the members of community, waste is a gift and they depend on its.
The waste converted into energy is known as methane, which could be utilized
for lighting and cooking, garbage could contribute some benefits to this community.
This endeavor is a part of the strategy to overcome the lack of fuel as well as the
strengthening of social capital that is changing gradually. Society in Puwatu landfill gets
together to initiate The effort of energy distribution in order to fulfill their daily needs.
Creative works of converting garbages into energy are conducted by the community and
by the lead to positive effects. The energy procurement has helped the society to
overcome their problems due to fuel crisis. The cooperation between government and
integrated with social networking, trust built among them and social norms. That is also
shown in the way they manage the garbages into alternative energies. Values/norms,
trust and networking abilities either internal or external (with government) has enable
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them to: (1) access more information, (2) coordinate the activities in the best ways and
Social Capital
Discourse on social capital is not a new concept in social sciences. The debate has
already existed over a century, at least if it refers to the early writings in 1916 in the
United States (OECD Insight, undated). Over times, the development of social capital
then becomes hot topic discussed by social scientists, especially in developing countries.
Robert Putnams considers that there is no exact definition of social capital (see
Putnam, Social Capital: Measurement and Consequences). However, Putnam limits the
The central idea of social capital, in my view, is that networks and the associated norms
of reciprocity have value. They have value for the people who are in them, and they
have, at least in some instances, demonstrable externalities, so that there are both public
and private faces of social capital…(Putnam, 1)
Social capital relates to networking and mutual reciprocity norm in society.
There is a bond between their values as outlined in both the private space and public
space. In the social space, one definitely has capitals that can be utilized in interaction.
These capitals are then used in interconnected reciprocity. Social capital is joint
network in which norms, values and understanding are shared in the cooperation
among individuals and groups. This definition explains that individual or groups
cooperate. The cooperation can take place in families, colleagues, and other groups by
regarding empathy, understanding, and norms. Klipatrik (2003), quotes the concept of
OECD (2001), he identifies that social capital aims to improve human capital by sharing
knowledge and information through trust and networks. In this respect, Klipatrik agrees
with some previous social capital concepts such as Bourdieu, Putnam and Fukuyama
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Similar to Klipatrik, Derek Bacon says that there is no single definitions about
social capital as well as there is no single measurement of it. Yet, it can be formulated in
the form of trust (trust) within an organization or society, social norms, social network
availability, and the combination of all these factors (Bacon 2002: 4-6). In line with
Bacon, Zimmer argues that social capital can be seen in the form of faiths, norms and
significant. Explanation of the capital itself cannot be separated from the contribution of
Marx in his historical dialectic. Marx emphasizes on the structure and economic bases.
Not like Pierre Bourdieu, who does not limit it to the economic capital only but also
social capital, cultural and symbolic. According to him, capital is social relationships.
Capital is social energy that only exists and will only fruitful in struggle condition, where
capital produces and reproduces (Asis 2012, 12). Capital has an energy that is important
in the social arena. Pierre Bourdieu, who sees a more comprehensive social capital,
“actual or potential resources which are linked to possession of durable of network of more
or less institutionalized of relationships of mutual acquitance and recognition, or ihen the
other word to membership in a group (Dale dan Newman, 2008).
Common threads that can be drawn from the debates mentioned previously is
that social capital is an actual or potential sources. It can be concluded that social capital
is potential sources own by the society as can be seen from networks, norms, bond, and
trust amongst them either individually or groups. To see to what extend the In line with
it to see how far the influence of success in managing waste in landfill Powatu will be
more focus on the aspects of trust, social networks, norms prevailing in society and
aspects of the more personal the relationship between individuals within the group but
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does not close well in the aspect others will be seen at the time of the study such as the
associated with the ability of networking between them and the government. Besides,
the trust built between them and the government also significantly contributed to the
success of the program. According to Sue Kilpatrik, who studies social capital in some
villages in Australia, sees that interactions within and outside the community plays a
role in building a network in the community. Sue recognizes that informal relationships
such as drink tea together, meetings, and discussions are very helpful in shaping
The ability to build networks is really crucial in the social capital concept.
Bourdieu (Schaefer-McDaniel, 2004) says that social capital consists of two dimensions.
social networking, connections and social skills become adhesive in forming social
capital. In terms of networking, capabilities will form a tighter social capital in the
community. Social networks are constructed by capital ownership of each actor. This
capital can be in the form of economic capital, social capital, cultural capital and
symbolic capital.
cornerstone of social capital is the confidence (trust). Francis Yukuyama emphasizes the
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confidence (trust) may be present in the community in a way behave honestly and could
…trust, thus the hope that arises within a community that behave normal, honest, and
cooperative norms based on shared, in the interests of the other members in the
community. (Fukuyama, 2007)
Trust in society is very important in both the small-scale community and society
on a large scale such as the State. Countries that have a high level of trust tend to be
more advanced and able to survive in the competitive global economy and social.
him:
Social capital is a capability that arises from the common belief in a society or certain
parts of it. He can be institutionalized in a social group is the smallest and most
fundamental, as well as community groups the most, the State and all other groups that
exist.. (Fukuyama, 2007: 37)
community level, in both the small and the level in the larger society. It is a very
valuable capital in the community to be able to integrate a common goal so that what is
aspired to be realized.
central area of waste collection in Kendari city. This location is the region's largest
garbage disposal and a pilot project of the city government in making use of waste to be
processed into energy. Puuwatu landfill has been build for long time ago but not until in
2009 the program utilization of waste that is processed into methane gas.
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Table 1. Charateristics of Puuwatu Landfill
No Items Descriptions
1 Total area 18 ha
2 Number of residents 100 household
3 Occupations Scavenger & Honorary employee of Sanitation
Department
4 Garbage volume/day 120 ton
5 Number of managers 6 persons, 2 of them are honorary employees
Sources: Research result, 2014
The community in Puwatu landfills, most of which are scavengers and sanitary
service employees, has a high intensity of the meeting so that communication between
neighbors goes well. This is possible to happen because the community has adjancent
houses and are only separated by wood partitions supervisioned by the government
and Asian Central Bank of Kendari. Moreover, intense social interactive also emerge in
religious social activities, such as recitation and community services. Society in this
community mostly has common field of jobs, which are scavengers and staff in sanitary
departments, which enable them to meet every time. It can be said that interpersonal
scavenging so that they become more active in social activities such as community
The community uses gas for cooking only in the morning, starting at 8:00 to
10:00 am. Afer that, most people spend their time in other activities such as in early
childhood education and group recitation. The most obvious network in the community
is house wifes groups that are really active in participating in their children’s education
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programs. To support learning activities in early childhood education at the landfill, the
Trust Capital
Trust among the community in Puwatu landfill is interwoven even though they
Javanese. Communications between them are good because of mutual trust and respect
between people. TPA community Puwatu agrees that trust is important in waste
management.
As the result of rust among them, there have been no conflicts in the use of gas
and social facilties provided by the government. They put common interest in the top
priority than individual interest that results in strong trust among them.
The interesting finding in trust among the Puuwatu landfill community is that
they trust more on banker, garbage manager, volunteers such as teachers and students
especially politics parties. They assume that politicians are egoistic. However, they
organizations, they show positive reactions. This indicates that he community still has
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The importance of alternative energies for local business
sustainability
The utilization of alternative energies is one of ways to deal with the limited
fossil energies. This problem can be solved only if stakeholders, along with the society,
economic activities. According to Prof. Tulus Tambunan from the Center for Industry,
community. With the existence of alternative energies, society can be more independent
in terms of energy supply for local economy, therefore they are not depending anymore
encourage micro business doers (UKM) so that they can be more independent and not
Conclusion
converting waste into alternative energy, although this program was initiated by the
landfill community. Apart from this, social capital such as networking and trust are
strong among community, marked by how they cooperate and trust each other in the
daily interaction and other social activities such as community service, recitation and
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empowerment from the stakeholders in terms of financial management, leadership and
education is also crucial so that there will be no clash or misperception about politics as
happens all the time. This is important to raise community’s awareness of the
Puuwatu landfill community has been real example of the importance of social capital
References
Bacon, D. (2002), "Revitalising Civil Society Through Social Capital Formation in Faith Based
Organisations: Research Finding From Notrhern Ireland, Center for Voluntary Action
Studies, University of Ulster, Coleraine.
Kilpatrick, S. (2003), "The Role of VET in Building Social Capital for Rural Community
Development in Australia", CLARA Discussion Paper Series, Launceston, Tasmania.
Newman and Ann Dale. (2008), Social Capital: A Necessary and Sufficient Condition for
Suistainable Community Development? Oxford University Press and Community
Development, Greet Clarendon Street, Oxford,
Matthias, A. Z. (2008), "Bringing Society Back in: Civil Society, Social Capital and Third Sector",
in William A Maloney and Jan W. van Deth (eds.), Civil Society and Governance in Europe,
Edwar Elgar, Cheltenham.
OECD. (2001), Social Capital. The Well Being of Nation; The Role of Human and Social Capital,
Rosewood Drive, Denver.
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Putnam, R. (2001), "Social Capital: Measurment and Concequences", Isuma, Canadian Journal of
Policy Research.
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Resilience of Firms to Economic and Climate Shocks
Key words: aggregate shocks; crisis resilience; SMEs; consumption and investment smoothing
JEL codes: D20, H41, O12, O43, P48
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Introduction
The world is increasingly becoming shock prone and families and businesses
need to cope and thrive despite the rising number of crises and aggregate economic and
climactic disturbances. The Asian region is among the most vulnerable to natural
hazards in the world—home to about 1 death per 1,000 square kilometers from natural
hazards (double the global average of 0.5 deaths per 1,000 square kilometers) and
accounting for about 50% of the world’s estimated economic cost of disasters over the
past 20 years. The estimated average loss incurred by the ASEAN from disasters is more
than $19 billion every 100 years, and yet less than 5% of disaster losses in developing
Asia are insured as compared to the 40% in developing countries (ADB, 2013).
254 million (The Philippine Star, 2011). On the other hand, the 2011 flood in Thailand
Unless measures to reduce disaster risk and improve preparedness are put in place, the
increasing frequency of disasters has the ability to disrupt the region's economic growth
depending on the resilience of the individuals, households, firms and other entities in a
community or country. This helps to establish the main rationale for public action in
this area – to preserve and promote economic and social returns through substantial
reduction of risk and vulnerability (Fuentes-Nieva and Seck, 2010). It is a known fact
that the poor are the most vulnerable to various types of crises, as they have less
capability to cope with risks (Lokshin and Yemtsov, 2004), so that policies to reduce
risk should be at the core of poverty reduction efforts (e.g. Harper et al, 2012; Fuentes-
simple. Public sector and donor support support for disaster- and crisis-hit
communities is critical; but it is only when firms get back up that the community is able
to recover fully. Once firms are able to start operating again, then workers are able to
return to their jobs and the domestic economy is able to return to normal. Stronger
resilience over time is also expected to reflect more robust economic competitiveness
The goal of this study is to assess the resilience of the Philippines’ small and
medium scale enterprises (SMEs) during economic and environmental shocks. The main
focus here is on firms’ resilience during the global financial crisis and economic
slowdown in 2008-2010 and the major floods that hit the country in 2009 and 2011.
These climate-related shocks affected cities such as Marikina, Iligan, and Cagayan de
Oro. SMEs in these cities will be the main focus of this study.
2. What mechanisms were adopted by firms to cope with the crisis or disaster?
3. What policies could help to lower firms’ risks over time and boost resilience
4. What characteristics of firms and the jurisdictions they operate in, and which
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In what follows, section 1 provides a review of related literature, while section 2
develops the analytical framework for this study. Section 3 then describes the empirical
methodology and data. Section 4 contains the main analysis of findings, and a final
Review of Literature
to better understand how families and individuals cope with aggregate shocks. Very few
studies have focused on firm-level data, and the ways in which firms and entrepreneurs
Household Resilience
Studies of household coping behavior provided evidence that the types of coping
households that are poorer tend to cope in harsher ways. Lokshin and Yemtsov (2004),
for instance, explored the coping strategies that respondents adopted during the
Russian financial crisis of August 1998. Their study found evidence that the level of
human capital was a major factor behind the choice of survival strategies. That study
out an apartment);
crisis; and it focused on identifying the households that only chose activities in this
cluster. The most widely used coping mechanisms were also the least effective (i.e. the
questionnaire also asked the respondent to rate the helpfulness of each mechanism). A
cross tabulation of expenditure deciles vs. coping strategies showed that the poor are
doubly constrained—they face a limited set of coping alternatives and these alternatives
also tend to be least effective and likely to impact their human capabilities in the longer
The study also estimated three regression equations with three different
household size, age of head, level of education of head, etc.), locality factors (e.g. local
unemployment rate and level of inequality), and previous working history of the
household head. The two main findings of the study were that: a) welfare or
consumption before the crisis had positive correlation with C1 and negative correlation
with C2 implying that poorer households rely more on soliciting help, and b) those who
The results also showed that the households with the following characteristics
were more at risk: household head was a pensioner, smaller household, household head
with high school diploma only, and higher level of unemployment in the locality. There
was also a negative effect of land ownership on the probability of relying on passive
response. In short, they were predominantly urban pensioners and poorly educated
pre-retirement individuals.
Similarly, del Ninno et al (2001) examined the impacts of the 1998 floods that
occurred in Bangladesh which caused severe damage to rice crops and threatened the
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food security of tens of millions of households. That study analyzed the adjustments of
households to the shock which typically included: reducing expenditures, selling assets,
and borrowing. A majority of the households (60% of the sample) coped by borrowing,
(compared with a small percentage of monthly consumption about eight months before
floods). The borrowing was able to keep the value of household expenditures at the pre-
flood levels. But higher prices forced flood-affected poor households to consume fewer
calories per capita, per day when compared to non-flood-exposed households. This
finding implied that targeted cash transfers and credit programs could have been an
effective complement to direct food distribution (del Ninno et al, 2001). Thus,
information on poor and vulnerable households could help sharpen crisis response
policies.
In addition, Datt and Hoogeveen (1999) used household survey data for 1998 to
analyze the effect of the financial crisis in the Philippines and found that in terms of the
impact on poverty, the relatively greater shock was caused by the El Niño weather
phenomenon. The labor market shock was progressive (reducing inequality). However,
the El Niño shock turned out to be more regressive (increasing inequality). Certain
community and household characteristics mitigated the impact of the shocks. For
households with higher levels of education were affected more by wage and
much more affected by the financial crisis. Yet, occupational diversity within a
household helped mitigate the adverse impact, suggesting that household resilience
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better-off households were able to smooth consumption, the poor were less able to
Fuentes-Nieva and Seck (2010) also found that in the absence of credit or
perspective of welfare in most crisis situations (e.g. lessening of food intake of children
or dropping out of school which affects their future chances). Uninsured risk changes
investment behavior where for example, asset-poor households devoted a larger share
of land to safer traditional varieties of rice and castor than to riskier but higher-return
varieties. Such events occurred in a very short time period but permanently diminished
the set of choices that people have. One-time shocks not only created immediate
consequences, but might also result in lifetime consequences or by changing the life-
paths of their victims. The two authors also distinguished between risk management
strategies (before the shock occurs) and risk-coping strategies (once the shock occurs).
concluding that poorer households have less ability to deal with shocks and may choose
coping strategies that keep them poor (e.g. selling productive assets like draft animals,
decreasing human capital of their children) or transmitting poverty from the current
generation to the next. Hence, through these two channels, a short-lived shock might
What did we take away from all these studies? Governments should provide
safety nets during shocks, but these programs must also contribute to poverty
alleviation in the long run. With regards to public actions to minimize exposure to and
impact of shocks, there were several instruments to be used (e.g. cash transfer and
public work programs, unemployment assistance, wage and commodity price subsidies,
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targeted human development or cash transfer programs conditioned on school
attendance and regular visits to health centers, service fee waiver, food and nutrition
programs, micro-finance and social fund programs, etc.), but predictably each
demonstrated its own advantages and disadvantages. It appeared that ex-ante risk
reduction programs put in place before a crisis occurs tended to be more effective and
give more value for money as compared to ex-post mitigation and coping programs as
they seemed to enhance welfare as well as reduce poverty at the same time (Skoufias,
2003).
Resilience of Enterprises
including the Asian financial crisis of 1997-1998 and the global financial crisis that
erupted in 2008.
banking and investment, and therefore relatively large firms are affected more severely
(as smaller firms rely on self-finance and do not rely as much on formal financial
institutions) (Berry et al, 2001). In Indonesia, where the crisis peaked in 1998, causing
its GDP to contract by 13%, the most common coping strategies of firms included
decreasing the number of workers and using cheaper inputs instead of imported
In the Republic of Korea where policies were skewed towards large firms, the
government played a major role in helping SMEs survive the crisis by restructuring the
financial sector with a focus on providing financing for SMEs that are knowledge and
technology intensive companies. This policy helped to increase loans to SMEs, boosting
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The assistance of government policies helped SMEs fight their vulnerability and even
the recovery process in Korea, perhaps even contributing to its v-shaped economic
Some studies called for size-neutral policies rather than size-specific ones. In
Indonesia, the effect of the Asian Financial Crisis is known to be an industry and location
specific crisis as shown by the data that the manufacturing and other urban-centered
sectors registered a double digit negative growth in 1998 (Sato, 2000). The
metalworking and machinery industries were hit the hardest, recording a decline of
52%. However, looking at the data closely showed that small firms in the manufacturing
sector recorded a positive value added despite the crisis (Sato, 2000).
Sato (2000) hypothesized that the performance of SMEs varied even in the same
industry and location. Using data from 50 enterprises in Java from 1997-1999, his study
showed that 65% of the firms in sector were affected negatively, but performance
varied. Some enjoyed a turnover that was higher than their pre-crisis level. No
correlation was found between size and performance during crisis, thus generalizations
Using firm-level data in Indonesia, Narjoko and Hill (2007) also found that firm
location, foreign ownership and prior export orientation were significant determinants
of firm survival and recovery during the crisis of 1997-1998. Similar to Sato, that study
found that firm size was found to be an ambiguous factor for firm survival and recovery.
Further, Wengel and Rodriguez (2006) used the Annual Manufacturing Survey
of 1996 and 2000 of 20,000 Indonesian industrial enterprises and discovered that the
Asian financial crisis caused 6,100 firms to shut down, but 5,277 new firms started
during the same period—possible proof that the response of SMEs varied. While most
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closed down, a number still took advantage of new opportunities. Post-crisis firms also
seemed to be more export-oriented than pre-crisis ones (Wengel and Rodriguez, 2006).
While there could be a number of factors behind this, it is likely also connected to the
As regards the global financial crisis that erupted in 2008, Balisacan et al (2010)
traced its impact on Philippine national output using regression and decomposition
techniques and constructed an augmented panel data from national household surveys
to simulate the differential effects of the crisis across population and social groups. The
study found evidence that the global financial crisis pushed down the GDP growth rate
from its long-term trend by 1.0 percentage points in 2008 and 3.8 percentage points in
2009. The industry sector was hit the hardest. The study also talked about several
government programs such as the Economic Resiliency Plan (ERP), which aimed to
stimulate the economy through tax cuts, increased government spending, and public-
private sector projects that could cushion the impact of future upturns in the global
economy. Their study emphasized the importance of building productive assets that
would form the foundation for a faster but more inclusive recovery and growth.
oriented firms and found evidence that the major adjustment measures adopted by
firms included: (1) seeking out new customers or markets since the slowdown was a
demand crisis; and (2) labor-related adjustments such as reducing working time,
developing alternative work arrangement and laying-off workers. The study also
conveyed that females are included in the most retrenched workers. In Japan, the global
economic slowdown rapidly deteriorated the business climate mainly through a plunge
been hurt. In countries heavy on tourism, the economic slowdown was expected to hurt
travel and tourism enterprises (ADB, 2009). This underscored the importance of
In Cambodia, the global financial crisis affected key industries, such as garments,
tourism, construction and agriculture, which drove the growth of the Cambodian
economy. A survey of 120 SMEs in the construction and tourism sector in the provinces
of Phnom Penh and Siam Reap conducted in 2011 showed that the most common coping
mechanisms used by SMEs during the crisis included reducing staff (28.3%), saving
WBES data and found that the global crisis resulted in more severe employment
reduction among skill-intensive firms, larger contraction in sales in younger firms, and
decline in sales among innovative firms in Eastern Europe and Central Asia (Correa and
Iooty, 2010). More than a third of firms in some countries in Eastern and Central Europe
considered reducing their workforce within six months (Ramalho et al., 2009). In the
same region, another study showed that in four out of six countries surveyed, the
percentage of firms with overdue financial obligations rose from 2009 to 2010 (Correa
et al., 2010).
Guimbert and Oostendorp (2012) focused on the risk coping behavior that
required smoothing of inputs (labor, raw materials, or capital). The data used comes
from a panel of Cambodian firms from 2008 to 2009. Using a theoretical framework that
analyzed the responsiveness of inputs to demand shocks, the study found that although
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the degree to which firms adjusted inputs differ, firms without credit constraints were
more able to smooth their use of inputs when shocks are perceived as temporary.
The ability to smooth or hoard inputs was based on liquidity constraints, thus
imperfect smoothing, i.e. reducing inputs (reduce hiring, increase firing, reduce
inventory of raw materials and reduce production capacity) significantly even if they
expected the downward shock to be temporary, and leading to a welfare loss due to
incomplete risk coping. The study found that credit constrained firms were less able to
maintain their productive capacity, thus incurring higher adjustment costs in the future.
(The study estimated the loss at 44.4 times the adjustment costs of the firms without
credit constraints.)
expectations on duration of the negative shock, but the size of the adjustment depends
on adjustment costs, the price of inputs, the size of the demand shock, the persistence of
the shock, and the availability of finance. The desire to smooth when there is a negative
shock was due to adjustments costs. For example, the study found that the reduction of
unskilled and non-production workers were greater because adjustment cost was
higher for firing or hiring skilled workers. The study concluded with three policy
implications:
Contagion Effect: The higher response of the labor market to the demand shock (by
policy to adjust was therefore financial policy. By reducing credit during crises,
Role of policies to absorb sub-optimal smoothing: This emphasized the role of social
safety nets. Emerging sectors will not be able to provide full smoothing for
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temporary shocks; and therefore public policy could play a key role notably in
Macroeconomic policy: If all firms perceived the shock as permanent, there could be
will make the shock more permanent. Thus, to the extent possible, there was a role
for the public sector to help assure that the shock is quickly mitigated, and also send
Environmental Crises
Even fewer studies examined how firms cope with natural disasters. Those that
focused on the recent disaster events do not specifically use firm-level data. For
instance, Lempert et al (2013) saw that the recent flood risk reduction efforts of Ho Chi
Minh City may be insufficient as climate and socio-economic conditions deviate from
projections made during the initial planning of those efforts. To help the city develop a
better risk management strategy in the face of an unpredictable future, the study used
robust decision making (RMD) to analyze flood risk management in Ho Chi Minh City’s
Nhieu Loc-Thi Nghe canal catchment area. RMD is “an iterative, quantitative, decision
support methodology designed to help policy makers identify strategies that are robust,
that is, satisfying decision makers’ objectives in many plausible futures, rather than
being optimal in any single estimate of the future” by running models thousands of
reduce risk in best estimates of future conditions, but was not as effective in many other
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There were also studies of country-specific crises. Ando and Kimura (2012), for
machinery exporters to two major crises: the global financial crisis, described as a
demand shock and the East Japan earthquake, a supply shock. The reaction to the global
financial crisis, whose negative effects were larger and more prolonged, were
permanent, such as the shrinkage of the basis of the Japanese exports and the
realization of the increasing importance of trade with other East Asian countries. The
East Japan earthquake also influenced structural reforms but corporate activities
quickly returned to the original production in a shorter span of time (Ando and Kimura,
2012).
on the coping strategies of Asian firms during crisis is much needed. The likely lasting
possible implications as far as public policy and business strategy (e.g. retrenchment of
skilled workers during the crisis, and implication for innovation and R&D during the
recovery). Job creation during the recovery and the link between democracy and
business reforms can also form part of the thematic focus of these proposals.
Analytical Framework
While there were many approaches to define and operationalize the concept of
resilience, Frankenberger et al (2012) provided a useful starting point, which states that
to, and/or recover from the effects of potentially hazardous occurrences (natural
accelerates and sustains recovery, and supports economic and social development”.
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Different resilience assessment frameworks developed first with the “system of
2001; Frankenberger et al, 2012). The units of analysis in this paper were micro, small
and medium scale enterprises. Hence, following the approach in the literature, the
economic, historical, demographic, religious, conflict and policy conditions, etc.), the
disturbance itself (form, magnitude, frequency, and duration of shocks), and adaptive
capacity (nature and extent of access to and use of resources in order to deal with
disturbance in the form of livelihood assets, structures and processes, and livelihood
competitors, partners, investors, etc.), capital, labor, product markets in which firms
operate, and the quantity and quality of support from the government and other
institutions, also affected the way firms cope with the crisis and their performance
Smit and Pilifosova further expounded on adaptive capacity, which they explain
Economic resources – wealth and poverty were rough indicators of the ability
to cope;
Technology – the unit’s level of technology and ability to develop new ones
Information and skills – Among other examples, this included “lack of trained
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Infrastructure – This mitigated the flexibility to deal with risks (e.g.
risks;
related to the ability to cope with risks as they may prevent access to finance
or infrastructure.
were studies that focused on competitiveness of firms that can also be used in a crisis
context. Kumar and Chadee (2002), for example, combined elements from different
financial sector. Their model identified three factors internal to the firm that can
enhance competitiveness: (i) flexibility and cooperation with outside organizations, (ii)
Arguing that external factors that firms face were also important, the model also
The authors cited the lack of access to finance after the Asian financial crisis as an
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example to support the fact that access to capital and other financial resources, which
the government can control, was necessary for firm growth and survival.
How units cope with the shock was often measured by sensitivity (i.e. the degree
to which the unit will be affected by a given shock or stress), resilience, and livelihood
outcome (i.e. needs and objectives the unit is trying to realize) (Frankenberger et al,
2012). Most frameworks viewed resilience as a process rather than a static state (Smit
External
Conditions
Coping
Shock Productivity of SMEs Strategies
Firm
Characteristics
Put simply, when an aggregate shock takes place, firms were already in a certain
context and possessed a set of specific characteristics that will moderate its effects. Both
external conditions and firm characteristics affected firm productivity and the coping
strategies that they will choose. Productivity was also affected by the shock, but it could
also act as a mitigating factor for the shock itself. An over-all assessment of these
various factors could therefore provide a sense of how resilient the firms were; and to
what extent this resilience was moderated by various factors that matter to its
competitiveness.
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Data and Methodology
As a contribution to the scant literature in this area, this study examined data on
firms’ crisis coping strategies, drawn from the 2012 AIM-ADB Enterprise Survey
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The survey covered 2,040 MSMEs in 34 cities in the Philippines. A total of 60
business enterprises were surveyed in each city. The cities included in the survey are
listed in Table 1.
We used stratified random sampling using firm size. We also adopted the
definition of firm size used in the Philippine Magna Carta on MSMEs. Hence, the
The strata distribution was comprised of 30 Micro, 15 Small and 15 Medium per
city. A floor on asset value and employment, Php1M and 5 employees respectively, was
also introduced to filter the sample. The survey contains several modules:
Innovation
Finance
Crisis resilience
Using statistical and econometric analysis, the study focused on the crisis
Descriptive Analysis
Three observations were dropped out of the 2,040 firms because the asset values
of the firms were beyond the Php 100M, which placed them in the large size category.
There were 838 out of 2,037 firms that experienced at least one form of economic or
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environmental shock as outlined in the questionnaire. This number was based on the
firms that responded that the global financial crisis had moderate to very high effect on
their businesses, or that that they experienced any form of disaster or calamity. The
(Table 2).
More than half of the respondents (68.34%) reported that the global financial crisis had
“no impact” to “minimal impact” on their business. Of the firms that reported “moderate
impact” to “very high impact”, the majority was on the micro and small scale in terms of
firm size (see Table 3). The proportion of firms per size affected by the GFC is as follows:
30.92% of micro, 30.21% of small and 36.7% of medium. This suggested that the sample
contained firms affected in some way by aggregate shocks despite their relative size
differences.
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Table 4. Effect of the Global Financial Crisis
Total of Very Total of
Firm No Negligible Minimal No to Moderate High High Moderate to
Size Impact Impact Impact Minimal Impact Impact Impact Very High Total Firms
Micro 602 46 145 793 132 191 32 355 1,148
Small 272 23 70 365 54 94 10 158 523
Medium 181 14 39 234 69 55 8 132 366
Total 1,055 83 254 1392 255 340 50 645 2,037
Source: AIM Policy Center.
respondents who answered that they were hit by any disaster or calamity. The
volcanic eruption, armed conflict, fire, and others. However, of the 348 respondents
affected by any form of disaster or calamity, 297 (85.34%) said they were affected by
typhoons, 288 (82.76%) were affected by floods, and only 24 (6.9%) answered that they
The five cities that were most affected by calamities are Dagupan City, Iligan City,
Marikina City, Olongapo City and Pasay City. In terms of firm size, 55.46% of those affect
by calamities are micro, 25.29% are small, and 19.25% were medium (see Figure 2).
However, since 30 micro firms were interviewed per city, as compared to the 15 small
and 15 medium firms per city, it was more practical to combine the numbers of the
small and medium firms or to examine the proportion per firm size. Only 154 out of the
348 firms (44.25%) that were affected by climate shocks had disaster preparedness kits
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Figure 2. Firms Affected by Calamities by City and Size
60
50
40
30
20
10
0
Tuguegarao City
Olongapo City
Bacolod City
Iligan City
Naga City
Cebu City
Davao City
Pagadian City
Pasay City
General Santos City
Valenzuela City
Dagupan City
Surigao City
Iloilo City
Quezon City
Tagum City
Angeles City
Baguio City
Lucena City
Cotabato City
Legazpi City
Cagayan De Oro City
Santiago City
Zamboanga City
Marikina City
Micro Small Medium
As regards coping mechanisms (Figure 3), the most common were reducing R&D
(17.23%) and laying off employees (14.11%). Clearly, these coping mechanisms varied
in their implications for over-all firm and community resilience (i.e. those that cut
investments in future competitiveness could suffer more lasting consequences form the
shock; and those that laid off workers could also contribute to the weaker resilience of
communities since many would be unemployed). Other coping mechanisms with similar
discounts to clients. For the 158 firms who laid-off employees to cope with the global
financial crisis or calamities, as much as 22 firms (13.92%) reduced the number of their
employees by half or more. Nevertheless, after adopting the adjustments, the majority
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of the firms were able to sustain daily operations (97.14%), but some still incurred
serious losses in revenues (25.27%) and lost clients (18.57%). Furthermore, only 5 out
of the 838 crisis affected firms reported receiving any formal assistance (such as from
Figure 3. Coping Mechanisms of Firms Affected by the Global Financial Crisis and
Calamities (%)
Empirical Specification
household coping literature. For example, Loshkin (2004) who studied coping strategies
of households in Russia during a financial crisis uses the assumption that household
leisure of its members, and household characteristics that act as taste shifters. To
achieve maximum utility, a household has the choice to apply one or more strategy
during shocks, where each strategy has its costs and benefits for the household. If the
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benefits of a certain strategy outweigh its costs, the household chooses to employ the
strategy.
As Loshkin (2004) argues, assuming that the unobserved gain G ij associated with
of the exogenous variables, the observed choice of the particular set of strategies can be
presented as:
is an error term, 1 indicates the state with a strategy implemented, and 0 indicates the
In this paper, 20 binary probit equations are used with the 20 coping mechanisms as
the dependent variable in each equation:
performance such as firm characteristics and characteristics of the city where the firm is
located. The 20 coping mechanisms are also grouped into their possible implications on
competitiveness or productivity of the firm. The summary of the variables used are
coping so as to help reveal possible patterns that could be useful in interpreting over-all
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Table 5. Variables Used
Dependent Variables
Coping Increases competitiveness Invited an investor
mechanisms
Diversified or introduced new products / services
Sought new markets
Neutral mechanisms Acquired a loan from a financial institution
Acquired multiple loans from different financial institution
Borrowed funds from relatives / friends
Borrowed funds from usurer /loan sharks
Asked clients for advances
Asked suppliers for credits on transactions
Buying second-hand equipment instead of new
Shifted to cheaper brands
Sold some assets or amenities
Decreases competitiveness Reduced R&D spending
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Analysis of Empirical Results
Using binary probit, the results are shown in Table 5 below. Table 6 is a
summary of the results, showing only variables that are significant. A plus sign (+)
signifies the direct relationship of the dependent variable (specific coping mechanism)
and the independent variable, while a minus sign (-) signifies an inverse relationship.
The coping mechanisms are also grouped where the three leftmost columns enclosed in
a blue border are coping mechanisms that increase competitiveness, the middle group is
and the ten rightmost columns enclosed in a red border are coping mechanisms that
decrease competitiveness.
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(11) (12) (13) (14) (15)
Bought second Reduced
Postponed hand Laid-off benefits of Stopped
Variables wages equipment employees employees operations
business asset value (log) 0.086 0.007 0.072 -0.041 -0.178***
[0.063] [0.060] [0.071] [0.073] [0.054]
corporation -0.561 -0.160 -0.240 0.034 0.281
[0.372] [0.362] [0.290] [0.310] [0.307]
business age (years) 0.006 -0.008 0.016*** -0.020** -0.005
[0.007] [0.008] [0.006] [0.009] [0.006]
productivity in 2009 (log) -0.079** 0.001 0.013 0.107** -0.013
[0.036] [0.035] [0.031] [0.048] [0.029]
prop of employees who graduated
college -0.003 -0.006*** -0.004 -0.001 0.000
[0.004] [0.002] [0.003] [0.003] [0.002]
work experience of respondent
(years) -0.003 -0.025* 0.005 -0.025 -0.011
[0.010] [0.015] [0.013] [0.017] [0.013]
total no. of amenities 0.002 0.002 0.005* 0.001 0.007**
[0.003] [0.003] [0.003] [0.003] [0.003]
export 0.716* 0.417 -0.244 0.785** -0.450
[0.374] [0.389] [0.410] [0.394] [0.356]
business insurance -0.529* 0.324 -0.459* -0.168 0.132
[0.299] [0.241] [0.265] [0.316] [0.230]
rating of city infrastructure: good or
not good -0.484** -0.138 -0.202 0.376* -0.474**
[0.230] [0.216] [0.220] [0.218] [0.195]
total city income (log) -0.352 0.187 0.646** -0.095 -0.240
[0.246] [0.200] [0.321] [0.228] [0.205]
population density 0.000 0.000 0.000 0.000 0.000***
[0.000] [0.000] [0.000] [0.000] [0.000]
no. of higher education institutions -0.041** -0.021 0.074*** -0.020 0.034*
[0.017] [0.021] [0.020] [0.014] [0.019]
no. of banks 0.007*** 0.002 -0.011*** 0.004* -0.004
[0.003] [0.003] [0.003] [0.002] [0.003]
dynasty (mayor level) 0.223 0.048 0.262 -0.765*** 0.251
[0.283] [0.191] [0.231] [0.276] [0.172]
Constant 5.390 -4.654 -16.630** -0.016 6.149
[5.189] [4.212] [6.724] [4.845] [4.194]
Observation 859 859 859 859 859
Robust standard errors in brackets
*** p<0.01, ** p<0.05, * p<0.1
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(16) (17) (18) (19) (20)
Discontinued Diversified
product/ Shifted to Sold assets/ products/ Sought new
Variables service cheaper brands amenities services markets
business asset value (log) 0.012 -0.095 0.105 -0.021 0.090*
[0.055] [0.079] [0.095] [0.048] [0.054]
corporation -0.521** -0.604 -0.103 -0.282 -0.489*
[0.241] [0.369] [0.410] [0.244] [0.270]
business age (years) 0.005 -0.014 -0.003 0.000 0.006
[0.006] [0.009] [0.011] [0.007] [0.008]
productivity in 2009 (log) -0.032 0.111 -0.056 0.005 0.068*
[0.034] [0.072] [0.038] [0.032] [0.038]
prop of employees who graduated
college 0.003 -0.006* -0.001 0.002 -0.005*
[0.003] [0.003] [0.004] [0.003] [0.003]
work experience of respondent
(years) -0.004 0.029** 0.048*** 0.026* 0.023**
[0.011] [0.014] [0.014] [0.015] [0.010]
total no. of amenities 0.001 0.009*** -0.056** -0.009* -0.017***
[0.003] [0.003] [0.023] [0.005] [0.006]
export -0.088 -0.631 -1.591*** 0.655* 0.570
[0.383] [0.433] [0.500] [0.355] [0.375]
business insurance 0.147 -0.157 0.258 0.222 0.580**
[0.246] [0.235] [0.342] [0.181] [0.264]
rating of city infrastructure: good or
not good -0.389** -0.108 0.436* -0.206 -0.027
[0.174] [0.217] [0.255] [0.165] [0.236]
total city income (log) -0.649*** 0.029 0.056 0.340 0.378
[0.232] [0.222] [0.326] [0.231] [0.252]
population density 0.000** 0.000*** 0.000 0.000** 0.000
[0.000] [0.000] [0.000] [0.000] [0.000]
no. of higher education institutions -0.012 0.051** 0.035 -0.038** -0.011
[0.018] [0.023] [0.028] [0.016] [0.025]
no. of banks 0.002 -0.010*** -0.004 0.003 0.000
[0.002] [0.004] [0.004] [0.002] [0.003]
dynasty (mayor level) -0.281 -0.305 0.090 -0.536** -0.553**
[0.194] [0.188] [0.242] [0.208] [0.237]
Constant 12.577*** -2.107 -3.840 -7.573 -10.879**
[4.603] [4.590] [6.889] [4.684] [5.206]
Observation 859 859 859 859 857
Robust standard errors in brackets
*** p<0.01, ** p<0.05, * p<0.1
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Table 7. Summary of Results
cheaper brands
Borrowed from
Borrowed from
Bought second
financial inst…
Postponed tax
Advance from
Reduced R&D
Invited a new
Discontinued
Sold assets…
Sought new
Credit from
Diversified
equipment
operations
employees
employees
Postponed
Postponed
products…
benefits of
relatives…
Loan from
product…
Shifted to
suppliers
payment
payment
Reduced
Multiple
investor
Laid- off
markets
Stopped
services
usurers
loans…
clients
wages
hand
Variables
business asset value (log) (+) (-) (-) (+) (+) (-)
corporation (-) (-) (-) (-) (-) (-) (-) (-)
business age (years) (-) (+) (-) (-) (+) (+) (-)
productivity in 2009 (log) (+) (+) (+) (+) (+) (-) (-) (+)
prop of employees – college
graduate (+) (-) (-) (-) (-) (-) (-) (-)
work experience of
respondent (years) (+) (+) (+) (-) (+) (+)
total no. of amenities (-) (-) (-) (+) (-) (+) (+)
export (+) (+) (-) (-) (+) (+) (+)
business insurance (+) (-) (-) (-) (-)
rating of city infra: good or
not good (+) (+) (-) (-) (+) (-) (-)
total city income (log) (-) (-) (-) (+) (-) (+) (-)
population density (+) (-) (+) (-) (+) (+) (+) (+)
no. of higher educ institutions (-) (+) (+) (-) (-) (+) (+)
no. of banks (+) (-) (+) (+) (+) (-) (+)
dynasty (mayor level) (+) (-) (-) (+) (+) (-)
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With 20 different coping mechanisms, the results vary greatly. Some of the
example is the business asset value variable, which shows that the bigger the firm size,
the more likely the firm will choose to seek new markets as an adjustment response;
and the less likely it will choose to stop operations. Another example is the productivity
variable, where the results show that the higher the productivity of a firm in 2009 (i.e.
pre-crisis), the higher the probability it will choose to invite a new investor and seek
new markets, and the lower the probability that it will postpone payments to services
and wages of employees. A third example is the variable related to the number of years
of work experience related to the business of the respondent (the survey only
interviews employees who are decision makers in the firm), where the results show
that the more experienced the respondent is, the higher the probability that the firm
will choose to use all three coping mechanisms that could be seen as contributing to
competitiveness.
These findings suggest that the coping of firms could be bifurcated – larger and
more productive firms are better able to cope, and might even see crises as
opportunities for expansion and finding new markets. However, firms that are smaller
and less productive may face additional challenges to survive, and they may turn to
crisis coping mechanisms that have negative implications on their long run
competitiveness. Nevertheless, these are very initial findings, given there is much noise
in the dataset, and the patterns of coping are still far from definitive.
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Directions for Policy and Research
In lieu of more definitive findings, we can only discuss directions for further
inquiry and policy action here. Much of firms’ crisis coping and adjustment is still little
understood, notably as these interact with policy variables and available risk
management tools. It is likely that policies could be vastly improved with more evidence
on how to strengthen firm level competitiveness and resilience over time. Nevertheless,
based on international experiences, the available literature, and our own initial findings,
be measured by the typologies of the crisis coping mechanisms. The analysis can be
similar to resilience of households, where the choice of which strategy to adopt may
depend on how they see the future (e.g. If they believe that the effect of the shock is
short term, they may choose coping strategies such as delaying some forms of
spending which could have very minimal and only temporary effects; as compared
to strategies that may have more long-lived effects like selling their livestock or
2. Without broad based resilience, shocks can exacerbate inequality. If shocks hit
smaller and more informal firms will tend to be affected more adversely, based on
this study and also on the existing international experiences. Once this becomes
broadly known and is the norm, then informal and smaller firms may also opt for
investments that enhance productivity but are vulnerable to shocks). Markets may
also marginalize them further, when these smaller firms are forced to choose more
For instance, in the city of Hanoi, planners located leisure areas like parks in more
flood prone areas. The logic is that these areas will have very little impact on the
typically true, manufacturing firms and key residential and business districts are
often near the river. Rivers are also sometimes over-run by informal settlers.
Act 10174 is a law that amended the Climate Change Act of 2009 by establishing the
country’s first legislated climate change funding mechanism. The fund is dedicated
allocation and maintenance of at least P1 billion for the Fund every year,
for the latter, an example is weather derivatives like snow derivatives in the US. A
typical arrangement here is that buyers and sellers of snow insurance will agree on a
pre-specified trigger for pay out—usually a fixed number of inches of snowfall which
could then be independently measured. If the accumulated snow is greater than the
trigger, then the seller of the insurance product has to pay out. With thriving snow
index-based insurance, there is less information asymmetry thus less moral hazard
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because the trigger (flood or snow) cannot be controlled by any of the parties
involved.1
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Impacts of Energy Price Subsidy Reform on MSMEs
and Their Adjustment Strategies: a Story from
Indonesia
Tulus T.H. Tambunan
Center for Industry, SME and Business Competition Studies
University of Trisakti
Grogol, West-Jakarta, Indonesia
Email: ttambunan56@yahoo.com
Abstract
This is an exploratory study at the micro level which tried to explore the impacts of energy price
increases on micro, small and medium enterprises (MSMEs) in Indonesia. More specifically, it
aimed to answer the following research question: what was the impact of energy price increases
occurred before on MSMEs, and which measures they have taken to cope with the impact? For
that purpose, it has adopted a qualitative approach with three methods of analysis: i) desk
study; (ii) a series of surveys of a total of 193 respondents (owners/managers of MSMEs) in
various cities in Java and West Sumatera, and (iii) focus group discussions (FGDs). Findings of
the study suggest that the overall impacts of energy price increases on MSMEs depend on their
current capacity to mitigate the impact. However, the type of mitigation varies across MSMEs,
depending various factor, including the current availability of financial resources and current
market condition which determines to what extent the MSMEs can increase their selling prices
or reduce the size of their made goods without losing their customers or market shares.
Key words: MSMEs, energy price subsidies, Jakarta, Semarang, Padang, Solo
JEL codes:D22,D24,E62,H32,L25
Introduction
The Indonesian government has been subsidizing energy for more than 30
years1, since the 'new order' era. Windfall profits from rising oil prices in the
international market, together with low levels of oil domestic consumption, have
allowed the government to provide these energy subsidies. Although net profits from oil
production started to decrease (as oil production costs increased) from 1975, the
government kept subsidizing energy with the intention of maintaining the purchasing
power of the poor. However, as domestic demand for energy (especially gasoline)
1
See, e.g. Beaton and Lontoh (2010), Braithwaite, et al. (2012), Casier and Beaton (2015), IMF (2013).
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continued to increase, the government’s budgeted amounts for energy subsidies rose
energy subsidies and showed its willingness to eliminate energy subsidy and to reform
its energy policy in general (Adam and Lestari, 2008). In the aftermath of the 1997–
1998 Asian financial crisis, as part of a supported adjustment program from the
increase in the price of kerosene by 25%, of diesel fuel by 60%, and of gasoline by 71%.
This drastic increase triggered protests in the two weeks after the announcement and,
along with a complex range of other factors including dissatisfaction with the
government, eventually led to the end of President Suharto‘s rule (Beaton and Lontoh,
Since then, reforming energy price subsidies has been a persistent policy
challenge for the Indonesian government. The subsidized energy price in the country
has fluctuated considerably over time (Figure 1), reflecting changes in international
prices for oil, the exchange rate, and the subsidy regime. The first two factors have
become key determinants since 2004, when Indonesia became a net importer of oil for
the first time2. The fiscal cost, especially for the fuel subsidy (in Indonesia known as
BBM or bahan bakar minyak) has been large. In 2008 it reached 2.8% of gross domestic
product (GDP) (IMF, 2013), and, based on data from state budget 2014, total subsidies
for energy in 2014 reached Rp350.3 trillion (Indonesian rupiah) (or approximately US$
28 billion at current exchange rate) including Rp246.5 trillion (US$ 19.72 billion) for
fossil fuels (kerosene, diesel and gasoline), or about 16.2% of GDP fourth quarter 2014
(based on constant market price) (Ministry of Finance, 2014; BPS, 2015). This fiscal
2
Since Indonesia became a net oil importer, current domestic market prices for oil (in rupiah) and hence current
amount of oil price subsidy have been strongly influenced by current international prices for oil as well as
current exchange rate of the rupiah against the US dollar. Especially since Jokowi became the new President, he
has decided that domestic prices for oil should be fully link to international prices for oil.
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burden has crowded out core expenditures for the country’s development, including
Period
Source: Kompas Newspaper (2014a).
with energy price reform. In November 2014 the government increased the price of
gasoline (premium) by Rp3,000 (US$0.24) per liter and in January 2015 the government
implemented a new pricing mechanism for fuel prices that allowed the government to
set prices in accordance with international oil prices. Additionally, subsidies for
premium were removed entirely and the subsidies for diesel were capped at Rp1,000
the prices of diesel and gasoline decreased in line with international oil prices (Casier
reform and to eliminate subsidies on all energy items (i.e. BBM, 12kg-cylinder LPG, and
electricity) not only because of the fiscal burden, but also no evidence that energy
subsidies do benefit the poor and low-income households, the group at which they were
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aimed. Energy subsidy reform combined with volatile international oil prices and
exchange rate fluctuations of the Indonesian rupiah against the U.S. dollar, is worrying
both final consumers as well as producers and business owners, including those in
micro, small and medium-sized enterprises (MSMEs). In general, these enterprises are
less energy-intensive than large enterprises (LEs) but they are also more vulnerable.
While the direct financial impacts of fuel subsidy reform and the consecutive energy
price increases may not be as serious as those experienced by LEs, the capacity of
MSMEs to cope with any negative impact is likely to be much lower, and the actual
impact may be much more severe (Tambunan, 2014). Energy price subsidy reform has
become one of the most politically sensitive issues in the country. The main reason is
simply because the majority of the Indonesian population is still from the low income
group, and poverty, though declining (at least based on official data), is still a serious
issue. The majority of this part of the country's population has income sources from
low-income generating activities including micro and small enterprises (MSEs) and in
the informal sector. No doubt, energy or fossil-fuel subsidies do really matter for them.
That is why every time the government reduces energy price subsidies, it is generally
expected that many of these activities will collapse and poverty will increase3.
Based on the above background, this study provides an analysis of the impacts of
193 MSMEs in two groups of manufacturing industries (i.e. the food and beverages
industry and textile and garment industry), and in several other sectors, i.e. retail, food
3See discussions on this issue in e.g. Adam and Lestari (2008), APSN (2008), Citra Indonesia (2013),
Hizbut Tahrir Indonesia (2013), Kompas (2012), Purwanto (2013), and Rizal (2007).
4Although the prices of gasoline, kerosene and diesel fuel (solar) differ for industrial and individual
questions:
1) What was the impact of previous energy price increases due to subsidy removal on
businesses?
2) Which measures have MSMEs taken to cope with the impacts, and what was the
result?
Given that the nature of this study is an exploratory study at the micro level, it
has adopted a qualitative approach. Three methods of analysis were used: i) desk study
on available key literature (both theoretical and empirical) on the impact of energy
price increases on MSMEs in Indonesia and other (mainly) developing countries; (ii)
field surveys and in-depth interviews; and (iii) focus group discussions (FGDs) with key
stakeholders5. A total of 193 MSMEs were selected randomly in four locations: Solo city
and Semarang city in the Province of Central Java, DKI Jakarta and its surrounding areas,
and Padang city and its surrounding areas in the Province of West Sumatera. The
time of the survey and FGD. The random selection of respondents in these cities was
the regional Chamber of Commerce (Kadin) in Solo, Semarang, and DKI Jakarta, (ii) lists
of MSMEs from regional offices of the Ministry for Cooperative and SME (Kantor Dinas
Koperasi & UKM), (iii) Directory of MSMEs by industry, province and city in Indonesia
5From the government, they were officials from the Ministry of Industry, the Ministry of Trade, and the
Ministry of Cooperative and Small and Medium Enterprises. The levels of officials were such as directors
or vice ministries. From the private sector they were directors, heads or chairmen of regional/local
chamber of commerce and industry (Kadin), Indonesian Association of Food and Beverages Producers,
Indonesian Association of Textile Industry (API), Indonesian Association of Entrepreneurs (APINDO),
non-government organizations (NGOs) , and other relevant/related business associations. Also some
researchers from local universities were participated.
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from the Ministry for Cooperative and SME in Jakarta, and (iv) most recent unpublished
list of some clusters provided by the Ministry. Based on these lists, initially, invitation
letters were sent randomly to more than the actual number of respondents. For
instance, in Solo, more than 25 MSMEs were invited to come to an introduction meeting
in the office of Kadin Solo. But, only 25 owners of MSMEs came. Except in Padang, many
The selection of the cities was mainly based on opportunities to collaborate with
local institutions (i.e. regional chamber of commerce and industry, and regional office of
the Ministry for Cooperative and SME) in conducting the surveys and the FGDs. The
selection of the sectors is based on the fact that these are among key sectors of MSMEs 6.
The structure of the questionnaire and the analytical framework are based on
the hypothesis that the impact on firms of the cutting of energy subsidies and their
internal factors including fender of owners or producers or managers of the firms, their
current business performance, their recent level of energy consumption, their past
experiences with the effects of energy price changes on their businesses and hence their
6Although it is generally expected that both the type of energy and the intensity of energy consumption
(or the share of energy cost in total production cost) varies by sector or group of industry, and this fact
may have a serious implication for the study, due to limited time and fund available for doing the study,
only these sectors and groups of industry were selected for the survey.
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adopted mitigation strategies, their opinions or perception and their own assessment of
energy prices, their expectations of future prices of energy, and their past experience
researchers such as Braithwaite et al. (2012) for the case of Indonesia, and probably
most recently Hoai and Tran (2013) for the case of Viet Nam, which both assessed the
possible strategies of firms to cope with energy subsidy removal. Hoai and Tran’s
(2013) study includes the following salient observations: First, many firms interviewed
never assessed their current energy efficiency (they might also have had no idea about
the price of energy in their country and the extent of energy subsidization). Second,
firms of different sizes, with different ownership structures, and of different energy
energy price increases. Third, as generally expected, the increase of energy prices does
affect firms, but the extent of the impact is not significant. Finally, three types of coping
measures are most frequently chosen by firms faced with any given energy price
increase, namely raising their selling price, using energy more efficiently, and improving
their current technology in order to make their production process less energyintensive
Braithwaite et al. (2012) found that firms in Indonesia with different energy
intensities have different opinions about the energy subsidy reform policy because the
impact also differs. For instance, car manufacturers are among those who are strongly
against the policy as it may have a negative effect on market demand for new cars.
However, oil importers (though not for the Indonesian state-owned oil company,
Pertamina) are among those who are in favor of the policy, as it may increase local
amounting to almost 58 million in 2013 (Table 2). They have always been the main
drivers of domestic economic activity in Indonesia, accounting for more than 99% of all
existing firms across sectors. They provide employment opportunities for over 90% of
the country’s workforce. Especially MSEs generate a significant amount of not only
primary but also in many cases, secondary income sources for low-income households.
For instance, in many small or poor farm households, men (husband) work in the field
while women (their wives) own small businesses at home making simple handicraft
items or food products, or running small shops selling basic need items. Indonesian
MSEs (as in developing countries in general) look very different, however, than MSEs in
more developed economies. Indonesian MSEs, which are about 99% of total MSMEs in
the country have the following key characteristics (Tambunan, 2009a,b, 2014): (i) they
are unregistered and operate in the informal sector; (ii) they do not employ modern
systems of organization, management and accounting; (iii) they are dominated by self-
employment businesses using unpaid family members as helpers; (iv) they are
scattered widely throughout rural areas, and, therefore, are likely to play an important
role in helping villagers, particularly women, to develop their entrepreneur skills; (v)
most of them are established by poor households or individuals who could not find
enterprises have low productivity, produce comparatively inferior goods and have
and information; (vi) because their made products are mainly inferior, they can only sell
their product locally, while the majority of them lack access to regional or national
market and also more difficult in marketing their products abroad; and (vii) most MSEs
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are found in rural areas and owned by farm households. So, this sub-category of MSMEs
that MSEs in the manufacturing industry often face. It shows that only a very small
proportion of the surveyed respondents indicated that high energy prices or short
high price or short supply of fuel/energy as their most serious problem has been found
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The Importance of Energy in the Cost Structures of MSMEs
Although it is generally known that MSMEs, particularly MSEs, are much less
energy-intensive than LEs, energy costs are still significant, running from around 10%
to more than 65% of the total cost of production for many of them (USAID, 2008). For
MSEs, BPS surveys do not provide data on detailed cost structures or composition of
inputs used. There are, however, some case studies based on field surveys which show
that energy costs are not the largest component of total production costs for MSEs in
Indonesia, although the percentage share varies by industry group. For instance,
findings from a field survey conducted by BI and PS-IUKMPU (2010) show that
operation costs are just a small component of total production costs for MSEs in wood
processing, food and beverages, textile and footwear industries in some regions in the
country, including in West Sumatera and West and East Java (Table 4). Operation costs
include energy costs, but energy is not necessarily the dominant component. For
example, in the wood-processing industry, the share of energy costs in total operation
costs is about 13.55%. In other industries the share is much higher, such as the food and
beverages industry, where fuel costs represent 42.4% of operations costs (BI and PS-
IUKMPU, 2010). MSMEs in the latter industry use boilers as the source of steam for their
production processes. Coal, diesel, and oil are the common fuels for operating the
boilers, which result in high production cost for the MSMEs (BI and PS-IUKMPU, 2010).
Thus, the variety of proportion of fuel or energy costs to production costs across
industries is due to two main factors: (i) type of good produced, which determines the
nature of production process and hence energy intensity (i.e., whether they are labour-,
capital- or energy-intensive), and (ii) level of efficiency in using energy relative to that
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Table 4. Cost Structure of MSEs in Selected Group of Industry, 2010
Selected Group of industry % share
Key raw materials Supporting materials Labour Operational Capital
Wood processing 64.07 4.42 26.40 4.48 0.63
Food and beverages 69.9 11.6 11.2 5.9 1.4
Textile 63.2 7.69 21.51 5.78 1.82
Footwear 56.6 10.3 27.0 4.1 2.0
Source: BI & PS-IUKMPU (2010).
For MEs in the manufacturing industry, there are national data presented by BPS
in its annual publication Statistics for Medium and Large Industry. It reveals that the
energy is not the largest component of MEs’ total production costs, although energy cost
share varies by industry group. Figure 2 shows that the largest component of total
materials, which averages around 81%, compared to energy costs of only around 8.8%.
This might be attributable to the fact that, on one hand, fuel has been so cheap, and on
the other, raw materials are often more costly than energy, not only because prices of
raw materials are not subsidized but also most of them are imported. However, when
the price of energy increases drastically, it might still have an important impact given
the quantity of fuel that is necessary for the production processes. Or, if energy price
increases have a significant impact on prices of raw materials, the cost of energy might
still have a serious impact even on firms with a low share of energy in their total costs.
Cost components
Source: BPS (2010b).
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Literature Review: Impact of energy price increases on MSMEs
Theoretical Framework
An increase in energy prices will have both direct and indirect effects on firms
(Figure 3). Direct effects occur when an increase in energy prices directly impacts a
firm’s energy costs (i.e. energy cost paid increases). Indirect effects are the ones that
affect a firm's production costs through increases in the prices of raw materials costs,
transportation costs, capital costs and other costs. It also affects negatively consumer's
real income (e.g. Rizal, 2007; Casier and Beaton, 2015; Sinaga, 2013; APSN, 2008;
Widodo et al., 2012; Ayarkwa, 2014). More explanations are given below.
Figure 3. Main Channels of the Impact of the Increase in Fuel Price on MSMEs
Fuel price
↑
Consumers’
Direct impacts
MSMEs
structure of MEs in the manufacturing industry suggests that the direct effects of an
increase in energy prices on these enterprises may not be significant, especially if the
increase is only small. Indirect effects on MSMEs, on the other hand, are generally
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expected to be more significant than direct effects. Only one case study in North
Sumatra in 2007 indicated that the business performance of local MSMEs was not
Direct Effects
in energy price will of course vary by industry, according to the amount used (e.g. heavy
industries using many machines use more electricity than small producers of
handicrafts), and the type of energy used (e.g. if electricity price increases, only those
enterprises using electricity as their main energy will suffer higher cost of energy).
Braithwaite et al. (2012) conducted a study that assessed the possible responses
of firms to cope with energy subsidy removal in Indonesia. Specifically, sectors such as
the transportation or fisheries sector (vessels for inter-island transport and for fishing
use a significant amount of subsidized fuel) are against the reduction of subsidy as it
will certainly increase their operational cost. Also car producers and assemblers,
although they use electricity as their main source of power, are against the removal of
oil subsidy because they are concerned that, as an indirect effect, their car sales are
likely to decline as potential buyers may postpone buying new cars when fuel is
expensive.
As mentioned in Tambunan (2013, 2014), in the East Java city of Malang, at least
10,000 local MSMEs faced bankruptcy due to the sharp rise in operating costs
(especially transportation costs) that followed the fuel price change. Although the
resulting increase in production costs in 2013 was not as bad as when fuel prices were
increased in 2005, it has still created significant problems for many MSMEs.
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According to Purwanto (2013), the BPS and the State Ministry for Cooperatives
and SMEs have estimated that the impact of the fuel price reform has generated
MSMEs making bread in Indonesia are very dependent on LPG. Energy costs
represent 7% to 8% of the total cost of bread production. The 35% price rise of 12 kg
cylinder LPG in March 2013 caused an increase of 2% in the cost of bread production.
Total energy costs, which included increases in the cost of electricity, rose by 10% (Citra
Indonesia, 2013). The price of 12 kg-cyclinder LPG rose in January 2015, which pushed
entrepreneurs in the food sector to raise their output prices, which may lead to a higher
cylinder LPG to avoid a price increase in their end product (Tempo Online, 2015).
This demonstrates that the increase in energy cost also depends on the
cheaper alternatives.
Indirect effects
other aspects of MSME businesses. When the government decided to increase fuel
prices in July 2013, transportation fares went up. According to the Organisation of Land
government capped the increase at a maximum of 20% (Republika Online, 2013a). The
(US$ 0.08) (Kompas, 2014b). Recently, the government reduced the price of fuels but
transportation fares did not decline. This does not come as a surprise given the long
experience showing that prices of many basic consumption goods always went up along
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with the increase in energy prices, but when the fuel prices returned to their previous
levels, not all the prices of these goods declined. This phenomenon is also known as
B) Raw material price increases, inflation and less disposable real income
An increase in transportation fares caused by an increase in fuel price usually
causes the prices of raw materials and various food items to rise too, though the
increase varies by region, depending on many factors including location from the supply
source of energy, local transportation system and facilities, local distribution system of
energy, and level of local market distortion. A survey conducted by the Ministry for
Cooperatives and SMEs in 2006 (cited in Sinaga, 2013), shows that product costs and
business incomes were affected considerably by the increase of fuel prices. The survey
covered 37,950 MSMEs in over 33 provinces that use kerosene, solar oil and gasoline in
a range of businesses, including food processing, rice milling, fishery, food stalls, batik
(Indonesian traditional cloth), industries making simple building materials like tiles and
brick, and city transportation. It found that production costs increased by an average of
28.1% (in MIEs by 34%; in SEs by 24.6%; and in MEs by 29.6%) and that net income
dropped by 18.37% (Sinaga, 2013). About 76.8% of the total number of MSMEs
surveyed increased their sales prices; 45.4% reduced the size or quantity of their
products; 63.6% reduced quality of their products; 39.7% reduced their profit margins;
39.7% had increased production cost efficiency; and 6.11% pursued “other” strategies
In 2008, Tempo Magazine announced that the increase in the price of fuel in late
May 2008 resulted in the collapse of thousands of MSMEs in the Tangerang regency in
the Province of Banten (APSN, 2008) Around 50% of the 17,353 MSMEs in the region
had closed down due to bankruptcy, which included food stall traders, handicraft
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industries, and cottage industries, especially those producing kerupuk (chips made of
flour flavored with fish or shrimp), tempe and tofu. Many of the MSMEs had closed down
because of increases in the price of raw materials, public transport fares and production
costs caused by the increase in the price of fuel in that May 2008, while the remaining
businesses were struggling to survive, with dim prospects for the future (APSN, 2008).
two districts, (Banyumas and Kebumen) in the Province of Central Java were expected
higher price they had to pay for their key imported raw material (soybean) caused by
in fuel price in July 2013 prices of necessity goods and services would increase by a
it was even higher (Hizbut Tahrir Indonesia, 2013). The direct and indirect impact of
the July 2013 decision on fuel price increase on inflation was 2.45% with the following
specification: the indirect effects on public transportation fares and commodities (food
and other core items) was, respectively, 0.82% and 0.40%, and the direct impact
estimated at 1.23%. According to the Indonesian Central Bank, Bank Indonesia (BI), the
impact would last for three months notably in the public transport cost (B2B, 2013).
Increases in fuel prices also lead to a rise in general prices that reduces the real
to increase wages (UNDP, 2014). In November 2014, workers from many factories took
to the streets in Jakarta and some other cities in Java demanding higher wages (Kompas,
2014a)
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In 2013, BI said that, as a result of the rise in the price of fuel, inflation that year
could surge to as high as 7.9%, exceeding the government’s estimate of 7.2%. The actual
inflation rate in December 2013 reached 8.38% and in December 2014 8.36% (BPS,
2015). The Indonesia Economic Quarterly report issued by the World Bank in December
2014 stated that the 2014 and 2015 projected annual average Consumption Price Index
(CPI) inflation rate has been revised up to 6.3% and 7.3% (year-on-year), respectively,
to account for the effect of the increase in subsidized fuel prices. Moreover, in
November 2014, BI announced a 25 basis points increase in its policy rate, as a signal to
and Jamal and Ayarkwa (2014), the channels through which a rise in fuel price affects
MSMEs indirectly can be categorized into two key linkages, namely consumption
linkages (i.e., local demand for MSMEs' products declines) and production linkages. The
latter consists further of two sub-linkages, i.e., backward linkages (raw materials
become more expensive) and forward linkages (more transport costs paid to distribute
normally the monetary authority increases interest rate in responding to the increase in
general prices (inflation) (Mishkin, 1992), which means higher capital costs for MSMEs
which finance their operations with loans. For instance, in response to the increase in
the inflation rate, and also to the continued depreciation of the rupiah, the Indonesian
monetary authority has decided to increase the BI interest rate from 6.0% in June 2013
(or 5.75% in May 2013) to 6.5%, making the cost of capital or credit more expensive
(BI, 2013)
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This can have a serious indirect effect on bank loan dependent-MSMEs, though in
Indonesia as in other developing countries they are only a small percentage of total
MSMEs. However, MSMEs that are not dependent on capital from banks may also be
affected if they have business or production linkages with formal credit dependent-LEs
those firms have financial problems caused by higher interest rates, and therefore have
Profiles of Respondents
namely gender, market orientation, changes in revenues and cost components of energy
With respect to their revenues in the past few years, in Solo, nine respondents
said that their revenues in 2014 compared to 2013 and 2012 were more or less stable,
respondents stated that their revenues in 2014 declined for various reasons, such as
purchasing power and increased prices for raw materials; a few of them also said higher
energy prices in the past two years also contributed to the decline in their production or
revenues. In Semarang, the majority of the respondents said that their revenues
increased in the past few years. For those whose revenues declined in the past few
years, the main causes indicated were more competitors, less market demand, change in
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Table 5. Key Profiles of the Respondents in the Four Locations, 2014
Aspects Unit Solo Semarang Jakarta Padang
Ratio of females to males Number of respondents 11/18 16/9 35/64 28/12
Market orientation: Number of respondents
-Only domestic market 12 23 94 40
-Only foreign market 3 - - -
-both markets 14 2 5 -
Revenue during 2012–2013: Number of respondents
- relative stable 9 3 23 9
-increased 11 16 55 16
-declined 9 6 21 15
Cost components of Energy: Percentage
-Petroleum: -average per 2.6 3.2 5.8 9.4
respondent:
-maximum: 10.0 20 40 50
-minimum: 1.0 2 0.8 5
-LPG: -average per 1.5 12.4 8.99 9.1
respondent:
-maximum: 10 30 35 70
-minimum: 2 1 0.5 5
2014 compared to 2013. Those who experienced a decline in their revenues said that
the drop in consumers' purchasing power was the main cause; while a few others said
that the increased prices of raw materials pushed them to reduce their production
to 2012), mainly caused by the deterioration of consumer purchasing power; only one
respondent said that the rise of prices of raw materials, which occurred almost yearly,
has been the main factor. The decline in market demand due to the decline in
consumers' purchasing power and the increase of prices of raw materials may reflect
the indirect effects of energy price increases. Some of the respondents in Semarang who
experienced a decline in their revenues in the past few years (as well as the participants
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traditional cake (lapis legit) said that when energy price increases, consumers,
especially from middle- to low-income groups, reduce their demand for unnecessary
energy, in Solo, petroleum cost on average per respondent is around 2.6%, higher than
LPG cost but much lower than electricity cost; in Semarang and Jakarta the average
electricity cost is higher than average cost of the other two energy items; and in Padang
the average costs for the three items are not significantly different.
To assess the impact of energy price increases after energy subsidy reforms the
respondents were given two questions: (1) how would your businesses be affected if
energy prices increase in the near future, and (2) what were the actual impacts on your
businesses from energy price increases in previous years? The findings presented in
Table 6 suggest that, in general, an increase in energy price will have an impact on firms,
but not always be considered by the respondents as serious, at least not directly. Only a
small number of respondents (15 respondents for future increase and 24 respondents
for the past experiences) in all cities surveyed said no impact. They also expect that in
Solo, the respondents are producers of textile or garments, and electricity is their most
important energy source. In Semarang, the respondents are food and beverages
industries, and LPG is their main energy. So, as also based on their past experiences
7Although their answers were based on a self-reporting procedure which means that they may not gave
the correct information, since the nature of this study is exploration, it may not be so problematic.
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effect between premium and electricity or LPG used in the production process of MSMEs
surveyed.
From their experiences with price increases of Premium that occurred several
times in the past, the impact was mainly through higher transportation costs that they
had to pay for bringing their products to their markets. Some also said that in the past
few years, prices of some materials they used also increased. Some of them commented
that the main reason for the decline in their production volume during the period of fuel
price increases was due to the increase in their production costs, not because market
demand declined. For other respondents, the decline in consumers' purchasing power,
which they attributed to energy subsidy reforms, was the main cause of the decline.
Many of the respondents said that their production will not be affected if the
price of energy increases less than 5%, as they have enough profit margins to cover the
price increases of energy. However, this figure drops sharply when the price increases
more than 5%. Only few producers said that there would be no impact even if the price
of fuel increases up to 20%. This may suggest that producers with larger profit margins
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are more able to maintain their production volume than those with smaller profit
Overall, the findings from Solo, Semarang, Jakarta and Padang suggest that firms
are sensitive to the increase in the energy prices, although the extent of the impact may
vary by firm depending on many factors, including type of goods produce, profit margin,
and current level of efficiency in using energy, both of which determine the extent of
energy they consume, and their coping measures or their responsiveness to energy
price increases.
How a firm copes with the shock of a price increases is crucial, as it will
determine the extent or the level of seriousness of its impact on the firm. During the
survey, respondents were asked about their possible responses to different rates of
alternative mitigation measures. In Solo case, it was found that for energy price
increases of less than 5%, the option mostly frequently chosen is "doing nothing." Thus,
a price increase of less than 5% does not seem to be considered as major problem and
therefore does not require special adjustment. If energy prices increase between 5%
and 10%, two options chosen by the majority are "raising the output price," and "using
energy more efficiently." These two options become less likely the higher the price
increase. Options such as "using other alternative energies" and "using alternative raw
materials" are more frequently chosen the higher the energy price increase becomes.
The case of Semarang shows a similar picture. However, many respondents tend to
increase their prices even if the price of energy increases less than 5%. The Jakarta case
shows that if energy prices increase less than 5% there is no need to make any
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adjustment. However, one interesting fact from this case is that there are few
respondents who said that no special measures will be taken for any energy price
increases, as they have never done that in the past. In Padang all respondents said that if
the energy price increase is 5% or less no adjustment would be needed. For percentage
increases beyond that, an adjusted sales price is the more popular response. As in Solo,
a small number of respondents in Padang said that if energy prices increase beyond
20% they probably must close their business because that is a price level they cannot
Raising the sale price is often chosen as the first or short-term coping
measure by firms in addressing price increases of not only energy but also raw
materials, due to energy subsidy reforms. It is the solution that is the easiest to put in
However, raising the sales price has one important limitation: the price elasticity
of demand of the product. Rice, a staple food in Indonesia, has a very low degree of
substitution. Increasing prices will be noticeable. For meat, corn or fish, the
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substitutability is much higher and consumers will shift more quickly to substitutes.
Also restaurant owners have limitations on price increases. At a certain price level
customers may decide not to have dinner any more in their restaurants, as has
happened with many owners of small food stalls in Jakarta and many other cities. When
the price of LPG-12 kg increased on January 2, 2015, they did not raise their prices
because they were afraid their consumers (mainly from middle to low income groups)
will go away; instead they moved to LPG-3 kg (Tempo Online, 2015). Indeed,
respondents in all three cities who did not choose raising the output price as their first
choice of strategy said that they were afraid their consumers will go elsewhere.
Producers were also asked whether they would be able to cope (or have no
serious difficulties coping) with volatile prices, and if not, what are the main reasons. As
can be seen in Table 8, the majority of total respondents in all cities (142) have no
difficulties coping with energy price increases. Of those who said that they would not be
able to cope with energy price increases, the main reason for most of them is difficulty
in raising their output prices, as they may risk losing their market competitiveness and
market share.
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Conclusion and Policy Recommendation
energy subsidy reform on MSMEs varies not only by sector or industry and region, but
also by individual enterprises in the same industry and region. The variation of the
impact is due to a number of factors, including MSMEs' capacity to mitigate the impact
of subsidy and, consequently, price reforms, and the capacity to cope with the increases
also varies across individual MSMEs, depending on (1) availability of financial resources
materials/inputs, types of machines or tools to be used, and (2) on the current level of
market competition, which determines to what extent the MSMEs can increase their
selling prices, reduce the size of the production of their goods, change the composition
of raw materials in their products, or shift to alternative energy sources, without losing
Based on the data collected, this study may suggest that the indirect impacts of
energy price increases have the most serious effects on MSMEs: higher transportation
costs (especially land transportation), higher prices of raw materials, and higher
inflation all have a very significant impact. These three transmission channels are more
obvious in the case of fuel price increases than in the case of electricity fare increases.
With respect to inflationary impact, because MSMEs (especially MSEs) serve mainly
low-income market segments, higher inflation can be a serious problem for these
enterprises.
This study only focuses on selected groups of sectors and industries and only in
selected regions which are all in Java. So, as the implication of this, the findings
presented in this study may not tell the true story or not give a comprehensive picture
about the impact of energy price subsidy policy reform on MSMEs in Indonesia, as
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generally expected that the type of energy and the intensity of energy consumption (or
the share of energy cost in total production cost) varies by sector or group of industry.
Therefore, It needs a further study on MSMEs in other sectors and also in regions
beyond Java especially in rather isolated many small islands given the fact that local
energy especially fuel prices are usually higher than in, for instance, Jakarta because of
From the policy perspective, there are at least four important questions that
need first to be answered before the government makes the decision to reduce energy
price subsidy. First, when or in what economic condition the cut of energy price subsidy
is visible (which will result in minimum cost for businesses, especially MSMEs)? Second,
how much the subsidy should be cut each time? Third, what kind of compensation
measures or impact mitigation supports for MSMEs? Fourth, in what sectors MSMEs
should be given the first priority for the compensation measures or impact mitigation
supports? Besides these questions, indirect effects of subsidy cut on MSMEs should also
be taken into consideration, and they should be estimated before make the decision to
reduce subsidy.
Acknowledgments
The author is grateful for the financial support of the Global Subsidies Initiative
(GSI) of the International Institute for Sustainable Development (IISD). Finally, this
effort could not have been undertaken without the generous support of the Swedish
Foreign Affairs (MFA) and the Danish Ministry of Foreign Affairs (MFA). The views
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expressed in this paper do not necessarily reflect the views of these funders and should
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About the Authors
Ailyn S. Lau is a researcher specializing in small and medium enterprises (SMEs), trade
policy, and competitiveness. She graduated magna cum laude from Ateneo de Manila
University in 2012 with a Bachelor of Arts Degree in Economics (Honors Program). As a
research associate for the Asian Institute of Management (AIM) Policy Center, she co-
managed the Enterprise Performance in Asia project that supported evidence-based
research on SMEs in middle-income Asian countries. At the AIM Policy Center, she also co-
authored several papers with topics ranging from technology spillovers from trade and
investment to crisis resilience of SMEs and a book entitled The Asian Noodle Bowl: Free
Trade and Economic Integration in the Post-Crisis Era. She is currently studying in
University of Queensland in Brisbane, Australia to obtain a Masters of Commerce (major in
Applied Finance and Accounting).
Fabiola Ponce Durán hold a PhD in Administrative Sciences. Her research areas of
interest are management and business strategy with the emphasis on organizational
behavior, government and organizations. She teaches at the Autonomous University of
Sinaloa, Mexico and TecMilenio University System Tecnológico de Monterrey. She has just
completed her study on the system of structural equations in Venezuela.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016), pp 144 - 146
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Jamil Paolo S. Francisco is an Associate Professor of Economics at the Asian Institute of
Management (AIM), and the Executive Director of the AIM Rizalino S. Navarro Policy Center
for Competitiveness. A former lecturer for the Ateneo de Manila University Economics
Department, Prof. Francisco is currently involved in a number of research projects on
ASEAN economic integration. He has worked on a broad range of topics including
household adaptations to disasters, post-disaster recovery, among others. He has also led
several research projects under the East Asian Development Network (EADN) and the
International Development Research Centre’s (IDRC) Economy and Environment Program
for South East Asia (EEPSEA). Dr. Francisco obtained his Ph.D and Master’s degree in
Economics from the Ateneo de Manila University.
Makary Piasecki graduated from Clark University. Currently, he is a PhD student at the
Department of Management, University of Lodz, focusing on technology transfer issues and
relation between public and private sector. Since 2015 he has been working at the Institute
of Biopolymers and Chemical Fibres, and he has also been involved with the Institute of
Research and Industrial Cooperation of Terrassa.
Marcela Rebeca Contreras Loera is a full time professor in Universidad de Occidente. She
holds a PhD in Organizational Studies and a postdoctoral title in Social Sciences. She is a
member of the National Research System Level 1; honorary member of the State Research
System of Sinaloa; preferred profile recognition of Prodep; leader of the consolidated
analysis and development academic body. She is a core member of the Doctorate in
Management and Tourism Management (PNPC-CONACYT). Member of the National
Research Network Conacyt Civil Society and Quality Democracy. She is also part of the
National Research Network Conacyt Poverty and Urban Development. She has published
books, book chapters, and articles in indexed journals. She is an evaluator of Conacyt,
Prodep, PROFOCIE and several universities.
Patta Hindi Asis hold M.A in Sociology at Gadjah Mada University. He is a lecturer and
researcher in the Faculty of Social and Political Science Faculty in University of
Muhammadiyah in Kendari, Southeast Sulawesi, Indonesia. His research focus areas are in
community development, rural sociology and sociology of knowledge. Currently, he is going
to conduct more studies on the subject of livelihood strategy of survivor of Indonesian
Communist Party (PKI) in Nanga-nanga village in Kendari. His personal blog:
lumbungpadi@blogspot.com.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016), pp 144 - 146
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
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Ririn Syahriani got her M.Ed from Muhammadiyah University of Surakarta with major
educational management as her major study and she has been accepted in University of
Bristol, UK to pursuit her doctoral study in 2016. She is an English lecturer in English
Department of Muhammadiyah University of Kendari. Her expertise is especially in
teaching English as foreign learner; however, leadership and community development has
also been her concern, especially when it comes to educate and to empower people. Her
focus project is to integrate education, leadership and society empowerment.
Ronald U. Mendoza, PhD is the incoming Dean of the Ateneo School of Government (June
2016). Previously, he served as Associate Professor of Economics at the Asian Institute of
Management, and Executive Director of the AIM Policy Center, a think tank engaged in
research on governance, competition policy and international development. Prior to AIM,
he was a senior economist with the United Nations, where he worked on international
development policy for almost a decade. Mendoza obtained his BA in Economics (Honors
Program) from the Ateneo de Manila University, his MPA in International Development
from Harvard Kennedy School of Government, and his MA and PhD in Economics from
Fordham University. Mendoza was named Young Global Leader by the World Economic
Forum in 2014, and Outstanding Young Scientist by the National Academy of Science and
Technology in 2013.
Tulus T.H. Tambunan, graduated and received PhD in economics from the Erasmus
University in Rotterdam, the Netherlands, is a lecturer in the Faculty of Economics,
University of Trisakti in Jakarta (Indonesia). Currently he is also the head and the main
researcher of the Center for Industry, Small and Medium Enterprises, and Business
Competition Studies in the same university. Since 1995 he has been the country researcher
representing Indonesia for the World Economic Forum (WEF) in Geneva, which publishes,
annually, The Global Competitiveness Report. He has done many studies on various issues
related to micro, small and medium enterprises, economic crises, regional trade, and
inclusive development.
International Journal of Small and Medium Enterprises and Business Sustainability,Vol.1, No.3 (March 2016), pp 144 - 146
© 2015-2016 by Center for Industry, SME and Business Competition Studies, USAKTI
ISSN:2442-9368 electronic
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