Executive Summary

Data from coil centers in Indonesia exhibited that the most significant customer of coils come from automotive industry around 60% and the rest is from non-automotive industry. Several factories have invested in factories and local research facilities. To tackle these issues and potencies, this study explores potential demand from MSME’s for coil product. This study will discuss more details about MSME’s and its issues toward demand for coil product such as potential derivative product innovation for steel-based products. It will add novelty and insights from MSME’s development and steel industry’s literature in Indonesia. In respect of alloy steel, the MSME’s currently have 88% share in long products and they even hold 100% share in stainless steel segment of long products. In Indonesia, there is new category for explaining MSME’s which Micro level enterprises or below small enterprises. So, if we talked about MSME’s in Indonesia then it includes the micro or MMSME’s. Following to the categorizations, MSM’s in Indonesia has significant role to the economic performance.

Based on descriptive and empirical evidence about potential demand from MSME’s for coil center, we can conclude several things are:

  • Indonesia steel industry rely on imported steel because of its quality and requirements in some industry such as automotive and electronic.
  • Potential demand for coil center is medium enterprises because of minimum order due to economies of scale.
  • The most possible way to capture micro and small is find aggregator such as big companies or association.

Based on In-Depth Interview, FGD and comprehensive analysis of the available data, several solutions related to link steel product to MSME’s are:

The solution to linkage MSME’s and steel industry

1          CSR program for MMSME’s

2          Special pricing for MMSME’s

3          Seeking potential MMSME’s

4          Arrangement between MMSME’s and big company (creating business   aggregator)

5          Creating potential product (non-seasonal) for MSME’s

 

  1. CSR program for MSME’s

CSR program for MSME’s distributed through investment and providing working capital for steel-based MSME’s. Since CSR funding from steel companies is limited, government must give support especially for micro and small steel-based MSME’s. Besides that, training and marketing support also provided for MSME’s to introduce steel industry characteristics. In practice, big company or Government must conduct MSME’s screening to ensure that they are good MSME’s that are eligible for training and marketing support from big company. Thus, it can result on their mobility to grow bigger (in term of asset and growth).

 

  1. Special pricing for MSME’s

Special price for steel material is important for MSME’s. Steel material is expensive for MSME’s since many of raw materials source come from import. Without special price, MSME’s cannot afford to buy raw material since they are not yet economic efficient. This special price can be CSR part to avoid loss from steel company if they set low price.

 

  1. Seeking potential MSME’s

Steel company needs strategy to search potential MSME’s. It because steel industry categorized as mother of industry which has MSME’s as end users. The most important thing is steel company must search which potential role of MSME’s to industry that categorize by level of MSME’s, MSME’s asset and revenue, MSME’s product characteristics and the role of steel company to MSME’s.

On the MSME’s side, although MSME’s have few advantages in steel products in terms of established technology, they could still make specialized products using less well-known technology, which is not traditionally used by large companies. In order to reach this stage, they would be expected to keep a close watch on market demand and focus their capital, technology and human resources to develop their own products that are not as widespread on the market (Lili, 2009)

 

  1. Creating arrangement between MSME’s and big company (creating business aggregator)

Linkage between MSME’s and big company must be created (business aggregator). Arrangement between MSME’s and big company is created. For example: seeking which part is MSME’s part and which part is big company part in Toyota manufacturing company. Non hi-tech product should be sent to MSME’s with negotiable price between MSME’s and Toyota manufacturing company. However, the practice is difficult since manufacturing company such as Toyota manufacturing company has regulation from country of origin to use part of their product from their country of origin or from subsidiary.

A partnership with large steel companies could be another option for MSME’s. A large organization could allocate its capacity of lower value-added products out to other bodies and concentrate on the development and production of added-value products. The smaller market players could take over the low technology capacities and achieve the impact scale of large companies. Partnerships with large steel companies could also extend the sales networks of small and medium steel plants which could then enter new market domains. In this way, a win-win situation could arise (Lili, 2009).

 

  1. Creating potential product (non-seasonal) for MMSME’s

In order to create sustainability for MSME’s, steel company must suggest product that suitable (non-seasonal product) for MSME’s through training and MSME’s assessment. Steel company and MSME’s also seek market together. It is because if steel-based MSME’s sustain, it can increase their demand to steel product.

Becoming competitive is a stipulated necessity of the day. Creating non-seasonal products gives SME the ability to leverage its scalable competence (e.g. in product design and radical process innovation) in a cooperative network through fast and feasible access to complementary partner assets. Non seasonal products inputs of large organization are mainly from MSME’s and hence improved quality and cost at subassembly level can surely bring value products to the ultimate customer (Thakkar et al., 2012).