16 - Competition Law and SMEs in Indonesia

Summary

The major form of competition regulation in Indonesia is to be found in the Competition (Anti-Monopoly) Law of 1999. A number of other regulations also have an impact on the sector. The Competition Law is intended to help small and medium-sized enterprises (SMEs) by ensuring that they have an equitable opportunity to participate in the economy, fostering a healthy business environment, and protecting them from unfair business practices by larger firms. Current competition issues facing SMEs today include the imbalance and abuse of a dominant position by large chain stores in the retail sector; the conflict between traditional and modern market stores; legacy issues and market distortions from the Soeharto era; and implementation of competition principles at the local and regional levels.

Introduction

Indonesia is not only the largest economy in Southeast Asia, but it is also one of the largest democracies in Asia. As a country with a very big population of more than 250 million people, creating employment has been a persistent policy challenge. For this reason, small and medium-sized enterprises (SMEs) are considered very crucial to the national economy, as they are the largest employment creator, especially amongst women and the ranks of the lowest skilled. Successive Indonesian governments have provided a wide range of programmes to assist small-scale enterprises, and since the 1997–98 economic crisis, SMEs in Indonesia have received more serious attention, as they turned out to be more resilient than larger firms in responding and thriving in difficult times. This government support is also reflected in Article 50h of Indonesia's Competition Law No. 5/1999, which exempts small-scale enterprises from the provisions of the Law (KPPU 2007).

This chapter provides an overview of the current competition environment for SMEs in the Republic of Indonesia. It begins by defining and explaining some of the contemporary features of its SME sector, and then outlines the main elements of the national competition (antimonopoly) law. It examines some of the current problems and cases being dealt with, and concludes with a suggestion for future research into this new field.

MSMEs in Indonesia: Definition and Key Characteristics

One common definition of SMEs in Indonesia is based on the National Law (No. 20 of 2008) on Micro, Small and Medium Enterprises (MSMEs).