Empowering Indonesian Agro-Industries: Competence,

Policies, and MSMEs Development Impact

*Priyo Handoko1 Ihin Solihin2 Tubagus Wahyudi3 Salman Imbari4
1234
Sekolah Tinggi Ilmu Administrasi Banten (Pandeglang, Banten, Indonesia)
Correspondence* :
Sekolah Tinggi Ilmu Administrasi Banten (Pandeglang, Banten, Indonesia) Email :pryo.handoko@stiabanten.ac.id

Abstract
Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in supporting the economy, particularly in
Indonesia. In 2019, MSMEs contributed as much as 57.5% to the country's economic output. MSMEs act as a catalyst
for job creation, with a contribution of 96.77% to employment in Indonesia in the same year. Specifically, the agro
cluster made a significant contribution of 45.84% to the national Gross Domestic Product in the third quarter of 2021.
As Indonesia prepares to face the challenges of the ASEAN Economic Community in 2025, it becomes highly
important for MSMEs in the Agro Industry sector to understand the competitive factors involved in navigating this
economic landscape. The main objective of this research is to evaluate the competencies and government policies
influencing MSMEs in the fruit and dairy processing sectors and to analyze their impact on business competitiveness.
To achieve this goal, a questionnaire survey was conducted with 459 respondents for each cluster, namely dairy
processing and fruit processing. Various methods of data processing and analysis were used in this research, including
Descriptive Analysis, SEM with the PLS approach, with a focus on quantitative data. Research findings highlight the
influence of training and competition control policies on the competitiveness of MSMEs. Originality This research
provides comprehensive insights into the factors that can enhance the competitiveness of agro-based MSMEs in fruit
and dairy processing. Findings regarding the moderating variable, which involves business development influencing
government policies and its impact on competitiveness, offer valuable insights into understanding the business
dynamics in this sector. Implications There is an urgent need for holistic training for MSMEs, focusing on the
development of business owner competencies, and the formulation of more targeted business development strategies.
The government needs to consider policies that support the internal aspects of MSMEs to enhance their
competitiveness.

Key words: competence, MSMEs Growth, government policy, business competitive.

JEL Classification: M5, M21

1. Introduction
Micro, small, and medium enterprises (MSMEs) constitute a business sector that has proven to play
a strategic and vital role in addressing the consequences and impacts of economic crises that have affected
Indonesia in 1997 and 2008. Even in 2013, MSMEs contributed to the country's economic development by
57.5%. MSMEs are recognized as the forefront driving force in economic development (Bank Indonesia
2005). The number of MSMEs reached 55.20 million units in 2011 and continued to increase to 57.89
million units in 2013. MSMEs in Indonesia were able to absorb 77,678,498 thousand people, accounting for
96.77% of the total workforce absorbed by small, medium, and large-scale enterprises (Susilo 2010).
In the context of developing the national industry, as stated in Article 2 of the Presidential
Regulation of the Republic of Indonesia Number 28 of 2008 regarding National Industrial Policy, the
development of priority industrial clusters includes agro-based industries. Agro-based MSMEs contributed
45.84% to the GDP, surpassing the 44.64% in 2019 (Ministry of Industry 2022). These data show that agro-
based MSMEs are a source of income for the majority of Indonesians, constituting 99.99% of the national
business actors (Ministry of Industry 2022).
The Agro Industry is considered a key industry for the future due to its potential natural resources
derived from agriculture, fisheries/maritime, livestock, plantations, and forestry. The agro industry is divided
into several clusters, including fruit processing and dairy processing clusters (Ministry of Industry 2022).
The production value of fruit and vegetable processing industries in 2018 was IDR 469.1 billion,
while the production of canned fruit and vegetable processing amounted to IDR 1.4 trillion (Ministry of
Industry 2021). As for the dairy processing industry, the production value of milk and ice cream in 2013 was
IDR 4.1 billion, and in 2014, the production value of milk and cream reached IDR 1.95 trillion. The
produced value is still considered insufficient to meet national export targets (Ministry of Industry 2022).
Challenges faced by agro-based MSMEs include low productivity (Susilo 2010), associated with (i)
the low quality of human resources in micro-scale businesses, (ii) the low entrepreneurial competence in
micro-scale businesses (Rizal 2013), and (iii) the need to enhance competitiveness and performance of
MSMEs (Ermayani et al. 2010). Other hindering factors are (i) limited access to capital, (ii) restricted market
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access, (iii) low business competence, and (iv) limited access to information about resources and technology
(Susilo 2010). The challenges in MSMEs include identifying competencies that have high relevance to
business productivity (Septiani 2012) and implementing appropriate policies to enable business actors to
compete.
In line with national priorities regarding industrial policies and the development of agro-industrial
clusters in the Presidential Regulation of the Republic of Indonesia Number 28 Article 2 of 2008 concerning
the direction of National Policy in supporting strengthening the competitiveness of business actors.
Therefore, the aim of this research is to identify and analyze the influence of the competencies of MSMEs
actors and government policies on the competitiveness of agro-industry-based MSMEs in fruit and dairy
processing, in an effort to build the national economy to achieve the government's program to compete in the
ASEAN Economic Community (MEA).
This study focuses on the influence of the competencies of micro, small, and medium enterprises
(MSMEs) operators and government policies on the competitiveness of agro-based MSMEs in the fruit and
milk processing sector. This focus aligns with the direction of national policies, especially those related to
the development of agro-industrial clusters.
The scope of the research includes the identification of competencies relevant to the business
productivity of agro-based MSMEs. Additionally, the study will analyze the impact of government policies,
particularly in supporting the strengthening of competitiveness among business operators. Thus, the research
aims to provide in-depth insights into the factors that can enhance the competitiveness of agro-based MSMEs
in fruit and milk processing. The research findings are expected to serve as a foundation for further policy
development and strategies supporting sustainable economic growth in Indonesia, particularly in facing the
challenges of the ASEAN Economic Community.

2. Research Method
Research Location and Time
The research was conducted in two different locations, which are the centers of fruit processing
industries (Ciwidey District) and dairy processing industries (Pengalengan District) in West Java. Data
collection was carried out from May to July 2023.
This research was chosen to be conducted in two different locations, namely Ciwidey District as the
center of the fruit processing industry and Pengalengan District as the center of the dairy processing industry,
for specific reasons. Firstly, both districts are recognized as significant economic hubs in their respective
industries. Regional economic data indicates that Ciwidey is an important center for fruit processing industry
in West Java, while Pengalengan is known for its substantial contribution to the dairy processing industry.
Moreover, these two locations provide a fairly good representation of the diversity within their respective
processing industries, allowing this research to encompass various characteristics and challenges that Micro,
Small, and Medium Enterprises (MSMEs) may face in both sectors. By selecting these two distinct locations,
the research can offer a more comprehensive understanding of the dynamics and factors influencing the
business competitiveness in fruit and dairy processing in West Java.

Sampling Technique
The data collection technique used in this research involved primary data through observation and
in-depth interviews (Indepth Interview). This technique is similar to what was done by Wijanarko and Ihsan
(2016), and the sampling was done through purposive quota sampling. Sekaran and Roger (2013) state that
the appropriate sample size for a study is more than 100 and less than 500.
The steps of the sample determination technique involve:
1. Cluster Selection: This research selects two clusters, namely milk processing and fruit processing, as the
main focus. Samples are drawn from Micro, Small, and Medium Enterprises (MSMEs) involved in these
clusters.
2. Number of Respondents: A total of 459 respondents are chosen for each cluster, resulting in a total of
918 respondents. This number aims to reflect the diversity of opinions and experiences from the two
different clusters.
3. Survey Questionnaire Method: A survey questionnaire is used as the primary instrument to collect data
from respondents. The questions in the questionnaire are designed to evaluate the competence and
government policies affecting MSMEs in the field of fruit and milk processing.

Population and Sample

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 The population of this research is MSME actors in the agro-industry of fruit processing and dairy
processing in Bandung Regency, West Java. The population of fruit processing MSMEs is 450, while the
population of dairy processing MSMEs is 643. The sample includes 212 fruit processing MSMEs and 247
dairy processing MSMEs. The total number of respondents selected for this research is 459 people
representing the leading MSMEs in each industry.
Data Analysis Technique
The data analysis technique used in this research is quantitative descriptive analysis, Likert Scale.
The data analysis tool used in this research is Structural Equation Modeling (SEM) with the Partial Least
Squares (PLS) approach. The SEM-PLS technique aims to test predictive relationships between constructs
(Ghozali, 2015). Before testing, coding was applied to each indicator to standardize the data.
The use of Structural Equation Modeling (SEM) with the Partial Least Squares (PLS) approach in
this research is based on specific considerations. SEM-PLS is an effective analytical tool to test predictive
relationships between constructs and has advantages in handling complex models with relatively small
samples. In the context of this study, where the focus is on Micro, Small, and Medium Enterprises (MSMEs)
involved in fruit and milk processing, the use of SEM-PLS provides flexibility to evaluate the impact of
training policies and competition control on business competitiveness. The PLS approach in SEM is also
known for its resilience to measurement errors and non-normality of data, which can be relevant when
dealing with survey questionnaire data. Thus, the use of SEM-PLS in this research provides a significant
analytical advantage, allowing researchers to delve deeper into the relationships between variables and
evaluate the impact of independent variables on dependent variables more accurately. These advantages
make SEM-PLS a suitable choice to address the complexity of this study and achieve the desired analytical
goals.

3. Results And Discussion

Respondent Characteristics
The characteristics of business actors examined in this study are related to MSMEs in the agro-
industry of fruit processing and milk processing. Based on the obtained data, age categories are divided into
four groups. Business actors in the milk processing industry are predominantly in the 41-50 age group,
accounting for 52%. Meanwhile, business actors in fruit processing are dominated by the 21-30 age group.
Data on the characteristics of business actors based on age are presented in Table 1.
Tabel 1. Percentage of business actors' characteristics based on age.
Age Category Fruits Processing Milks Processing

21-30 years 55% 13%

31-40 years 10% 13%

41-50 years 29% 52%

>50 years 6% 23%

Source: Processed output (2023)

Based on the observation results, the fruit processing industry is dominated by female entrepreneurs,
accounting for 54%. This is because female workers are needed more by fruit business operators for the
division of fruit product packaging tasks, such as cutting and wrapping. Female workers are considered more
meticulous and neat in packaging food. In contrast, the milk processing industry is predominantly male,
accounting for 58%. According to the observation results, the majority of entrepreneurs in the milk
processing industry are male heads of households who own cows. The percentage data of business operators'
characteristics based on gender are presented in Table 2.
Table 2 Percentage of business operators' characteristics based on gender
Gender Fruits Processing Milks Processing

Male 46% 58%

Female 54% 42%

Source: Processed output (2023)

The educational background of small and medium-sized enterprises (MSMEs) entrepreneurs in agro-
industry-based fruit processing and milk processing is predominantly composed of individuals with high
school (Senior High School or equivalent), accounting for 45% in fruit processing MSMEs and 49% in milk
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processing MSMEs. Based on observation results, these entrepreneurs acknowledge the importance of
education in enhancing their business management skills, particularly in making their enterprises more
competitive. The percentage data of business entrepreneurs' characteristics based on gender is presented in
Table 3.

Table 3: Percentage of Business Entrepreneurs' Characteristics Based on Education

Education Fruits Processing Milks Processing

Not enrolled in School 0% 3%

Elementary School or equivalent 13% 3%

Junior High School or equivalent 36% 19%

Senior High School or equivalent 45% 49%

University 6% 26%

Source: Processed output (2023)

The average monthly income of small and medium-sized enterprises (MSMEs) in fruit processing
and milk processing. The data indicates that the majority of both fruit processing and milk processing
industries have income ranging from IDR 1,000,000 to IDR 10,000,000. This data explains that most
MSMEs players are micro-businesses with revenue less than IDR 25,000,000 (Law No. 20 of 2008). Table 4
presents the percentage of business characteristics based on monthly income.
Table 4 Percentage of business characteristics based on monthly income
Monthly Income (IDR) Fruits Processing Milks Processing

<1000.000 10% 3%

1.000.000 - 10.000.000 65% 48%

10.100.000 - 20.000.000 16% 10%

>20.000.000 10% 39%

Source: Processed output (2023)

Evaluation of Assessment on the Outer Model of Barbasis Agroindustry Micro, Small, and Medium
Enterprises (Fruit Processing and Milk Processing) There are four latent variables in this research model,
including actor competence, government policies, business development, and competitiveness. Each latent
variable is reflected or formed by indicators presented in Table 5.
Table 5 Indicators of Agroindustry-Based Micro, Small, and Medium Enterprises Variables
Indikator Variabel

Kompetensi pelaku Kebijakan pemerintah Pengembangan usaha Daya saing

- Completing a task until it - Capital loans - Annual growth in product - Competing in the city/district
is finished - Facilitating banking capital sales area
- Being able to trust others loans - Increase in revenue - Competing in the provincial
openly - Business management - Job creation area
- Acting like an training - Yearly profit enhancement - Acquisition of new customers
entrepreneur or - Marketing and sales training - Employment generation - Development of domestic
businessperson - Product processing training - Potential for reducing marketing regions
- Enjoying risks - Streamlining permit unemployment - Competing internationally
- Easily motivating others procedures - Intangible assets (patents, - Engaging in exports
- Creating company rules - Financial training copyrights) - Annual growth in export
- Managing time - Market facilities - Increase in current asset activities
effectively - Competition control value - Popular in the market
- Understanding - Equipment assistance - Increase in fixed asset value - Replaceable with similar
comprehensively - Competition control against - Business expansion products
- Customers recommend the

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 - Managing time well large enterprises (Sarma et al., 2016) products they purchase
- Fully understanding the (Munizu 2010) - Customers express a desire to
business being conducted make repeat purchases
(Sarma et al. 2016) (Tambunan 2010)

Source: Processed output (2023)

The model in this study encompasses four latent variables, prior to conducting outer model and inner
model testing. These variables have eight indicators for competence (KP), eleven indicators for government
policy (KBJ), ten indicators for business development (PNG), and eleven indicators for competitiveness
(DS). The research model is presented in Figure 1.

Source: Processed output (2023)

Evaluating the reflective and formative outer models of the variables in this study using six criteria.
These six criteria are composite reliability (ρc), Cronbach's alpha, indicator reliability (Ghozali, 2015),
average variance extracted (AVE), Construct's error term, and multicollinearity (Sarwono, J 2008). Based on
the results of the outer model test of latent variables in this study, there are variables that need to be
eliminated, as they are below the standard
Figure(>0.7). After conducting MSMEs
1: Agroindustry-Based periodic Research
testing, indicators from each
variable were found to meet the standard (>0.7).
Model
In the fruit processing cluster, the competency variable of the actors is reflected by two indicators
(KP.1 and KP.4), the business development variable is reflected by three indicators (PNG.4, PNG.8, and
PNG.9), and competitiveness is reflected by two indicators (DS.2 and DS.3). Meanwhile, in the milk
processing cluster, the competency variable of the actors is reflected by three indicators (KP.01, KP.05, and
KP.07), the business development variable is reflected by three indicators (PNG.04, PNG.08, and PNG.09),
and competitiveness is reflected by two indicators (DS.02 and DS.04).
Tables 6 present a comprehensive assessment of the outer reflective model for agro-based MSMEs.
Research Results Score
Criteria
Fruits Processing Milks Processing

Composite Reliability (ρc). ρc > 0.7 Competence (0.897), Development Competency variable (0.905),
signifies internal consistency. (0.841), and Competitiveness (0.902) are Development (0.839), and
the variables examined. Competitiveness (0.791).

Cronbach's alpha. A well-constructed Cronbach's alpha values are as follows: Cronbach's alpha values:
model has a value > 0.7, indicating the Competence (0.841), Competency variable (0.902),
reliability of the construct Development (0.711), Development (0.830), and
and Competitiveness (0.701). Competitiveness (0.841).

Indicator Reliability. Indicators with factor The factor loading for each indicator is The factor loading for each indicator is
loadings < 0.7 should be removed from the present in both the initial and final present in both the initial and final
model as they fail to consistently and stably models. models.
reflect the latent variable

Average Variance Extracted (AVE). All Competence (0.760), Competency variable (0.637),
latent variables have AVE values > 0.5, Development (0.521), Development (0.760), and
confirming the model's validity and Competitiveness (0.910). Competitiveness (0.661) have AVE
These variables have AVE values >0.5. values >0.5.

Sumber: Processed output (2023)

Tabel 7 Evaluation of the Formative Outer Model for Agro-Based MSMEs
Criteria Research Outcome Values

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 Fruits Processing Milks Processing

Construct's Error Term (v) External validity can be The external validity score is The external validity score is above
calculated using the formula 1 – v, and the expected above 0.8. Therefore, the 0.8. Thus, the formative index aligns
value should not be less than 0.8. External validity formative index aligns with the with the intended objectives.
value above 0.8, intended objectives.

Multicollinearity. A VIF value greater than 10 can be The VIF (Variance Inflation The VIF (Variance Inflation Factor)
considered indicative of the presence of Factor) score of the policy value of the policy variable is (1.769)
multicollinearity. variable is (2.251).

Source: Processed output (2023)

Evaluation of Assessment on Agroindustry-Based MSMEs Inner Model (Fruit Processing and Milk
Processing)
The inner model assessment is utilized to observe the relationship between latent variables in the
research model. The bootstrapping method in Smart PLS is employed to obtain path coefficients and T-
Statistics values. The model identifies variables that have a significant positive impact, indicated by the
condition that the calculated T-value > T-table = 1.96 and P-value < 0.05 (Ghozali 2014). Bootstrapping
technique is also applied to examine the indicators forming formative variables (Ringle et al. 2009). Table 8
presents the bootstrapping results for MSMEs in fruit and milk processing agroindustry.
Table 8 Agroindustry-Based MSMEs Bootstraping Results
Hypothesis Testing
MSMEs Path Coefficient P Values T Statistics
Results

Policy -> competitiveness 0.008 2.667 H1 accepted

Policy -> competence 0.052 0.672 H2 rejected

Policy -> development 0.069 1.823 H3 rejected

Fruit Processing
Competence -> competitiveness 0.070 1.818 H4 rejected

Competence -> development 0.005 2.293 H5 accepted

Development -> competitiveness 0.118 1.564 H6 rejected

Policy -> competitiveness 0.010 2.600 H1 accepted

Policy -> competence 0.035 2.114 H2 accepted

Policy -> development 0.000 5.033 H3 accepted

Fruit Processing
Competence -> competitiveness 0.387 0.866 H4 rejected

Competence -> development 0.010 2.569 H5 accepted

Development -> competitiveness 0.841 0.200 H6 rejected

Source: Processed output (2023)

Hypothesis Testing Results

Hypothesis Testing for Fruit Processing MSMEs
H1: Government policy influences competitiveness
The path coefficient test results in Table 8 indicate that government policy influences the
competitiveness of fruit processing MSMEs, with a T-statistic value of 2.667 (>1.96). Government
policies, reflected in marketing and sales training, as well as competition control among MSMEs, have
successfully made fruit processing MSMEs competitive in the West Java province and have increased
domestic customers each year.
H2: Government policy influences the competence of actors
Hypothesis testing on government policy variables with indicators of marketing training, sales, and
competition control among MSMEs does not affect the competence of business actors, as reflected by
those who complete their tasks and enjoy risks in the competition of fruit processing SMEs. This is
evidenced by the T-statistic result (0.672<1.96).
H3: Business development moderates the influence of government policy on competitiveness
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 Bootstrap results show that business development variables in this study cannot moderate the influence
of government policy on competitiveness, with a T-statistic of (1.823<1.96). Business development,
reflected in increased profits and increased assets (current and fixed), does not affect the
competitiveness of fruit processing MSMEs in the provincial area.
H4: Actor competence influences competitiveness
The latent variable of competence in fruit processing MSMEs based on agro-industry does not affect
competitiveness (1.818<1.96). The competence of actors who complete tasks and enjoy risks, reflecting
this variable, does not impact the increase in customers and competition among MSMEs in the West
Java province.
H5: Business development moderates the influence of actor competence on competitiveness
The increase in assets (fixed and current) and the increase in profits of MSME business actors in fruit
processing, reflecting business development, has an impact on the competence of business actors in
facing competition. This statement is supported by the test results with a T-statistic of 2.293, which is
greater than the standard (1.96).
H6: Business development influences competitiveness
Based on hypothesis testing results, business development does not influence the competitiveness of
fruit processing MSMEs. The T-statistic is lower than the standard value (1.564<1.96). Increased profits
and asset development do not affect the competitiveness of agro-industry-based MSMEs in the West
Java province.
Hypothesis Testing for Milk Processing MSMEs
H1: Government policy influences competitiveness
The path coefficient test in Table 8 shows that government policy influences the competitiveness of
milk processing MSMEs, with a T-statistic of 2.600 (>1.96). Government policies, reflected in product
processing training, ease of licensing procedures, and equipment assistance, have made these SMEs
competitive in the West Java province and have experienced market development domestically every
year.
H2: Government policy influences the competence of actors
Test results on government policy variables with indicators of product processing training, ease of
licensing procedures, and equipment assistance in SMEs influence the competence of business actors in
milk processing MSMEs. This is evidenced by the T-statistic result (0.672<1.96). Government-
organized training has successfully improved the competence of agro-industry-based MSME actors in
trusting others openly, motivating others, and managing time well.
H3: Business development moderates the influence of government policy on competitiveness
Bootstrap results show that business development variables, reflected in increased profits and increased
assets (current and fixed), can moderate the influence of government policy on the competitiveness of
milk processing SMEs, with a T-statistic of (5.033>1.96). Thus, agro-industry-based MSMEs are
competitive in the West Java province and experience market development domestically every year.
H4: Actor competence influences competitiveness
The path coefficient test of the competence variable in agro-industry-based milk processing MSMEs,
with indicators of trusting others openly, motivating others, and managing time well, does not affect
competitiveness in the West Java province. The T-statistic result is (0.866<1.96).
H5: Business development moderates the influence of actor competence on competitiveness
Based on the path coefficient test results, the variable reflected in the increase in assets (fixed and
current) and the increase in profits of MSME business actors in milk processing (business development)
can moderate the variable of business actor competence, making them competitive. This is supported by
the test results with a T-statistic of 2.569, which is greater than the standard (1.96).
H6: Business development influences competitiveness
Bootstrap test results show that business development does not influence the competitiveness of milk
processing MSMEs. Increased profits and increased assets in business development do not affect the
competitiveness of agro-industry-based MSMEs in the West Java province, as the T-statistic is lower
than the standard value (0.200<1.96).

Implication Manajerial
Government Policy Impact on Competitiveness of Agro-Based MSMEs
The main products processed in this agro-based MSME (Micro, Small, and Medium Enterprises) are
predominantly strawberries and red guava (fruit cluster), while for the milk processing cluster, the products
processed are cow's milk and goat's milk. Fruit processing industry players produce relatively similar fruit
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processed products. Product variations include strawberry dodol, guava dodol, strawberry syrup, red guava
syrup, strawberry jam, red guava jam, and processed snacks from strawberries. On the other hand, product
variations from the milk processing cluster include yogurt, candies, crackers, and dodol.
Based on field observations and interviews, the distinguishing factor between successful and
unsuccessful business operators in the fruit and milk processing industries is the activity of entrepreneurs in
attending training facilitated by the Department of Trade and Industry of Bandung Regency. Actively
participating in training enriches knowledge, skills, and expands markets, allowing entrepreneurs to apply
them to improve and compete more effectively. The increased awareness of entrepreneurs in applying
information obtained from various training sessions, especially those related to product processing,
marketing, and sales, is crucial. The implementation of training policy dimensions is aimed at improving the
competencies of entrepreneurs, both technically and managerially. Meanwhile, easing licensing policies,
especially in the milk processing cluster, and controlling competition are forms of protection undertaken by
the government to maintain stability in the market through the absorption of products.
The Department of Industry and Trade, the Integrated Licensing Agency, and the SME sector are
several government institutions responsible for facilitating the marketing and promotion of MSMEs
products. Furthermore, the profile of agro-based MSME clusters is analyzed based on their business status.
The majority of business operators in the milk processing cluster, about 61%, make milk processing their
main source of income. In the fruit processing cluster, the majority of business operators, about 52%,
consider their business as an additional source of family income. This could be due to the relatively recent
establishment of both clusters, i.e., less than 5 years. Hence, business operators are still cautious about
making it the main source of family income. Conversely, the milk processing cluster shows a different
scenario, where the majority of business operators position their business as the main source of family
income (61%). Looking back, only the milk processing cluster has been standing for a considerable period
(5-10 years). Readiness of Agro-based MSME Clusters for the Implementation of the ASEAN Economic
Community (AEC) The readiness of agro-based MSME clusters to face the implementation of the ASEAN
Economic Community (AEC) is identified through several indicators that also serve as supporting factors for
entrepreneurs' readiness to face the AEC. Researchers identify and analyze several measurements, such as
government support for business operators, the business development pursued by business operators, the
competitive ability of business operators, which ultimately can be analyzed for the readiness of business
operators to face the AEC. Generally, for both the fruit processing and milk processing clusters, the ease of
licensing procedures is perceived as the best-applied indicator. The licensing ease index in the fruit
processing cluster reaches 69%, and 60% in the milk processing cluster.
The business development pursued by business operators is divided into three main indicators: their
ability to develop sales (sales growth), their ability to utilize local human resources to reduce unemployment
(employment growth), and their ability to increase business assets (asset growth). The development of agro-
industry-based MSMEs from this perspective shows that the Employment Growth index has the highest
achievement position in all clusters, each at 54% for the fruit cluster and 48% for the milk cluster. The
achievement percentage for the fruit cluster is higher than the milk cluster, mainly because the fruit cluster
requires more human resources and does not require special expertise in processing, making it easier to
absorb labor in the fruit cluster. Furthermore, the competitive ability of the business is seen through four
indicators: the ability to compete in the domestic market share, the ability to diversify the market to foreign
markets, the ability of business products to improve product value as a superior product, and the ability of
products and businesses to satisfy consumers. The consumer satisfaction index occupies the highest-rated
position in all agro-based industry clusters, with a percentage of 69% for the fruit processing cluster and the
milk processing cluster. The index with the lowest achievement is the market diversification index related to
marketing and competition in foreign markets. This shows that agro-based MSME operators are currently
capable of providing the best in selling their products and competing domestically only, but they have not yet
been able to compete and expand markets for foreign markets.
The readiness of agro-based MSME clusters can be seen from the good ability of business operators
to face the flow of products, human resources, capital, and investment both from and to ASEAN countries.
The data results show that, in general, the milk processing cluster does not have good readiness to face the
AEC. This is evident from the AEC readiness achievement index which is below 50% for each indicator in
both clusters. One of the reasons for this is that the licensing in the milk processing cluster is more complex
than in the fruit processing cluster. The opposite is seen in the fruit processing cluster, where there are two
AEC readiness indicators that score more than 50%, namely readiness in the flow of human resources and
investment, both of which reach 53%. This data provides an overview that the fruit processing cluster is

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relatively ready to face the AEC. The ease of licensing procedures and flexibility in product creation make
this cluster easier to develop in the global market.

Discussion
The research findings indicate the influence of government policies on the competitiveness of fruit
processing Micro, Small, and Medium Enterprises (MSMEs) in West Java Province. These positive results
align with previous studies emphasizing the crucial role of government policies in supporting the
development of MSMEs (Moleong, 2017; Prasetyo, 2019). The implementation of marketing and sales
training, along with competition control, is identified as a factor that successfully enhances the
competitiveness of fruit processing MSMEs, aligning with the concept of empowering local economic
development (Brata, 2018).
While government policies have a positive impact on competitiveness, the results show that these
policies do not significantly affect the business competence of entrepreneurs. This could be attributed to the
policy's focus on external aspects such as marketing and competition, rather than the development of skills
and internal competencies of business actors. This finding is consistent with previous research highlighting
the need for more holistic coaching for MSMEs (Purwanto, 2016).
Business development, encompassing profit and asset enhancement, did not prove effective in
moderating the influence of government policies on the competitiveness of fruit processing MSMEs. This
suggests that although business development has a positive impact on the competence of business actors, it
does not significantly affect the interaction between government policies and competitiveness.
Regarding business competence, the results indicate that this competence does not significantly
influence the competitiveness of fruit processing MSMEs. This may be due to other factors such as market
dynamics and consumer purchasing power that play a more dominant role in influencing MSME
competitiveness (Wijayanti, 2019). Therefore, further efforts are needed to enhance the business competence
of MSME entrepreneurs, possibly through more focused training programs.
In the cluster of MSMEs engaged in milk processing, the results show a positive impact of
government policies on competitiveness, emphasizing training in product processing, ease of permit
procedures, and equipment assistance. This finding is consistent with previous research emphasizing the
importance of government support in MSME development (Utami, 2018). Government-provided training has
a positive impact on the competence of business actors, especially in terms of open trust, motivation, and
time management.
Business development has proven effective in moderating the influence of government policies on
the competitiveness of milk processing MSMEs. This indicates that business development, in terms of profit
and asset improvement, plays a crucial role in optimizing the positive impact of government policies.
However, Bootstrap test results suggest that business development does not directly affect the
competitiveness of milk processing MSMEs. This could be a concern for developing more targeted strategies
to enhance the competitiveness of milk processing MSMEs in both domestic and global markets.
In discussing these research findings, it is essential to note that market conditions, policies, and other
external factors may change over time. Therefore, strategies for the development and empowerment of agro-
based MSMEs need continuous adaptation to the dynamic business environment.
4. Conclusion And Recommendation
Conclusion
The conclusion drawn from the research results is that the current competencies of agro-industry-
based MSMEs operators are not sufficient to make them competitive in facing the ASEAN Economic
Community (MEA) competition. Government policies such as marketing or sales training, product
processing training, licensing facilitation, equipment assistance, and competition control among MSMEs can
make agro-industry-based MSMEs competitive, even if only within the provincial area. Business
development, reflected in the increase of assets such as fixed and current assets, as well as an increase in
profits each year, can moderate the influence of the competence of operators on the competitiveness of agro-
industry-based MSMEs.
Recommendation
Based on the above conclusions, the recommended suggestion is that fruit processing industry
operators need to maximize their participation in training or courses organized by government departments
or agencies. This is done to enrich the knowledge and skills of business operators to compete both nationally
and internationally. Government policies should focus on enhancing and developing the competencies of
MSMEs operators and must be able to control market competition so that MSMEs are not defeated by large-

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scale businesses, both nationally and internationally. The upcoming research will involve the following
steps, following the strategic measures outlined in the research roadmap:
1. Development of a marketing strategy model for agro-based MSMEs in facing the ASEAN Economic
Community (AEC).
2. Analysis of factors influencing the efforts to develop agro-based MSME clusters towards business
sustainability and in anticipation of the implementation of the ASEAN Economic Community (AEC).
3. Formulation of marketing strategies based on the entrepreneurial marketing concept that aligns with the
characteristics of agro-based MSME clusters.
4. The research findings will be widely disseminated through publication in scientific journals, both
national and international.
5. The research results will also be disseminated/recommended to relevant parties, especially local
government, as input for policy solutions. If necessary, the government is encouraged to organize
seminars or symposiums related to the research findings.

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