Managing and operating an SME is difficult and involves making hundreds of complex decisions, some of them almost constantly. One reason why SMEs may suffer from relatively low labour productivity is that they may not be well managed (Bloom et al. 2010). While owners may abound in initiative and drive, they may not be making optimal decisions about how to invest, manage finances, hire workers, access capital or market their products. Although it is difficult to measure managerial ability, the IMK 2013 and WBES 2009 surveys allow us to understand differences in managers’ gender, age and educational attainment. Nearly 60 percent of micro and small firms were operated by men and 40 percent were operated by women. However, as we show in figure 5, women were more likely to operate the smallest micro firms. More than 46 percent of micro firms were operated by women, while only 16.1 percent of small firms were operated by women and even fewer medium-sized firms were operated by women.9 Men were more likely to be operating larger SMEs.
Some of the variation by gender is explained by variation in industries. For instance, women managed 82 percent of micro and small textile producers and 51 percent of micro and small garment firms. However, less than 4 percent of micro and small firms producing furniture were managed by women.
Figure 5 Gender of micro, small and medium-sized firm managers and operators
SOURCE: Authors’ calculations using IMK 2013 data.
There were no significant differences between the ages of managers of micro firms, small firms and medium-sized firms. However, micro and small firms tended to be operated by managers with relatively low levels of formal education, while medium-sized firms tended to be operated by people with higher levels of education (figure 6). More than 84 percent of micro firm managers and 63.5 percent of small firm managers did not complete secondary school. Only 25.4 percent of medium-sized firm managers did not complete secondary school. Few micro firm managers had attained higher levels of education. Less than 5 percent had acquired a bachelor degree or higher. For small firm managers, these figures were better but less than 8 percent had at least a bachelor’s or associate’s degree. However, almost one-quarter of medium-sized firm managers had a bachelor’s degree or higher.
One possible explanation for these trends in educational attainment is that individuals started firms because they were forced to leave school to make ends meet (Margolis 2014). If this is the case, such individuals should not be considered entrepreneurs per se; they started firms because they were severely constrained. Continuing education was either not possible because they could not afford to continue or not desirable because available opportunities to use acquired skills were limited. Although our survey data are limited in their ability to shed light on this hypothesis, evidence on the distribution of education by age provides some insight.
Figure 7 plots data on the relationship between educational attainment and age, using IMK 2013 data. Each bar reports the percentage of managers of micro and small firms with different levels of educational attainment; within an age bracket, the bars sum up to 100 percent. This graph shows that the highest rates of uncompleted primary school are concentrated in the older age groups, particularly the 51–60 and 61+ age brackets. Furthermore, older entrepreneurs were less likely to have completed high school than younger entrepreneurs. This suggests that when older entrepreneurs were making educational decisions, they may have been severely constrained and started their businesses out of necessity rather than by choice. It could also reflect that when older individuals made educational decisions, they had limited opportunities for schooling. For example, Duflo (2001) describes a massive school construction programme in Indonesia in the 1970s; individuals making their decisions before this programme was implemented may not have had as much access to education as they would have today.
Female 0 20 40 60 80 P er cen t of F ir ms Small Micro Medium Male
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Micro, Small and Medium-sized Enterprises in Indonesia
Figure 6 Educational attainment of micro, small and medium-sized firm managers and operators
SOURCE: Authors’ calculations using IMK 2013 and WBES 2009 data
NOTE: The education codes between these surveys were slightly different; the IMK 2013 survey does not ask about vocational school.
However, younger age cohorts have higher education levels and more than 30 percent of those aged 21–30 had finished high school. This could suggest that in recent years, people are more likely to have started firms by choice rather than out of necessity. However, it could also reflect the changes in government education policy, such as the introduction of mandatory primary education and increased school construction which could be changing educational attainment over time.
Figure 7 Educational attainment of micro and small firm managers and operators, by age group
SOURCE: Authors’ calculations using IMK 2013 data.
NOTE: All micro and small firms are used in the analysis. We include the 16-20 age group to capture older youth who have started a business.
Primary School No Primary School Middle School Secondary School Vocational School Associate/Bachelors Masters or Doctorate Percent of Firms Small Medium 0 10 20 30 40 Micro P er cen tage of F ir ms Primary School No Primary School 16-20 21-30 31-40 41-50 51-60 61+ 0 20 40 60 Higher Education Secondary School Middle School
Figure 8 uses WBES 2009 data to plot the highest level of education obtained by firm managers against the registration status of the firm; this figure is plotted only for SMEs. In this survey, respondents were asked in what year, if ever, the firm formally registered. If the respondent gave a year, we defined the firm as registered. This figure shows that managers of registered firms had higher educational levels than managers of unregistered firms. Nearly 30 percent of registered firms were managed by people with a university degree and 2.7 percent of registered firms were managed by people with a postgraduate degree. However, only 3.7 percent of unregistered firms were managed by people who had a university degree and no unregistered firms had managers who had attained a postgraduate degree. At the same time, 36.4 percent of unregistered firms were managed by people who had completed only primary school while for registered firm owners this was only 10.4 percent. These differences in educational attainment suggest that entrepreneurs with higher education levels are more likely to register their firms.
Figure 8 Educational attainment of small and medium-sized firm managers and operators, by registration status
SOURCE: Authors’ calculations using WBES 2009 data
Another way to assess the ability of managers is to examine their years of experience. Table 4 reports the distribution of the year that SMEs began operation. This table shows that a substantial percentage of SMEs are new to doing business. Approximately 8.5 percent of micro and small firms began operations in the past three years and 36 percent of micro and small firms began operations in 2004 or later, so they have less than 10 years of experience. In any given year, the distribution of experience reflects firm entry, survival and exit so it is difficult to interpret this on its own. That said, the significant portion of SMEs that began operation in the past three years suggests that many SMEs may enter and exit within a short time frame. Such patterns of entry and exit are normal, even in developed countries. For instance, using establishment-level panel data from the United States, Kerr and Nanda (2009) report that between 1977 and 1998, 42 percent of firms created survived for three years or less. Nearly 95 percent of these short-lived, churning entrants are small firms with fewer than 20 employees.10
10 Existing data sources do not allow researchers to track the performance of Indonesian SMEs over time, so it is hard to describe patterns of entry and exit and to understand the survival probabilities of SMEs.
Primary School No Education Secondary School Vocational Training University Degree Graduate Degree Not Registered Registered 0 10 20 30 40 50
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Micro, Small and Medium-sized Enterprises in Indonesia
Table 4 Distribution of year started for micro, small and medium-sized firms
Year started
Micro and small firms Medium-sized firms Number Percent Number Percent
1970 or earlier 108,925 3.2 991 4.9 1971–1980 251,932 7.4 921 4.55 1981–1990 512,116 15.1 5,050 24.96 1991–2000 962,233 28.3 9,378 46.35 2001–2010 1,274,740 37.5 3,895 19.25 2011–2013 289,379 8.5 Total 3,399,325 100.0 20,325 100.0
SOURCE: Authors’ calculations using IMK 2013 and WBES 2009 data