Increasing Industrial Competitiveness in Rural Areas through

Institutions Strengthening and Human Resource Development

Heri Nurranto

, and Fajar Kurniadi

Faculty of Education and Social Science, Universitas Indraprasta PGRI, Jakarta -Indonesia

Keywords: Competitiveness, business institutions, human resource development

Abstract: This analysis aims to improve the competitiveness of Small and Medium Enterprises in the regions by

implementing strategies for strengthening business institutions and developing human resources. This

analysis is based on direct observation, especially in small businesses of palm sugar producers and etawa

goat milk farmers in Kebonharjo, Samigaluh, Kulonprogo, Yogyakarta. The research method used is

qualitative research method that combines of qualitative data and literature review. Data were obtained from

direct observation and interviews with respondents who were considered to be able to represent information

and understand the problems by Small and Medium Enterprises in Kebonharjo, namely the village head

(lurah) and several other village officials, head and secretaries of farmer groups, etawa goat milk breeders,

palm sugar producers and activists of Small and Medium Enterprises in the regions. The results of the study

indicate that the two types of businesses that have been carried out in the area have not been optimal in

carrying out product innovations. Various obstacles such as access to marketing, farmer motivation, level of

managerial knowledge and steep mountainous geographical conditions have resulted in slow distribution

processes. based on existing problems this research offers two conceptual strategies for creating product

innovation and competitiveness Small and medium enterprises are strategies to strengthen business viability

and empower human resources through increasing knowledge and skills.

1 INTRODUCTION

Entering the digital era or many people say the

current era of globalization, competition between

businesses is becoming more open. As a result, a

strong company or organization can continue to

defend itself and master and improve marketshare,

while entrepreneurs who have low strength will find

it difficult to maintain their business consistency and

experience a faster decline until finally they cannot

run their business. In advanced economies,

opportunities for careers and promotions will be

increasingly limited only to people who have higher

education, quality people for knowledgeable work

(Drucker, 2006:247).

Small and Medium Enterprises (SMEs) are part

of business actors who also play a competitive role.

SME are still the type of business that is popular and

became the foundation of life for the people of

Indonesia. In addition, its role in economic growth

in Indonesia in the growth of Gross Domestic

Product (GNP) is very large.

The Ministry of Cooperatives and MSMEs in

the 2017 achievements report states that MSMEs

have contributed to the National GDP of Rp.7,005

trillion or about 62.57% of total GDP. The

description of the contribution is 38.90% micro

business, 9.73% small business and 13.95% medium

business.

The strategic role is expected to be a momentum

for economic growth in Indonesia to be stronger

starting from the root (micro economic) and not only

macro policies that often become practical policies

in an effort to tackle the impact of the global

economic. Looking at its large role, it is important

for all parties to be able to see more closely what

and how the problems or obstacles experienced by

small entrepreneurs. The reality of SMEs that are

bankrupt, low capital, products that are less varied,

use of traditional tools and lack of market access still

occur in many small and medium entrepreneurs in

Indonesia.

Nurranto, H. and Kurniadi, F.

Increasing Industrial Competitiveness in Rural Areas through Institutions Strengthening and Human Resource Development.

DOI: 10.5220/0009501307170722

In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pages 717-722

ISBN: 978-989-758-432-9

717

The development of SMEs needs more attention

from all parties, both the government, the business

community, financial institutions and banks,

universities and other parties so that the strength of

SME becomes more resilient and able to compete in

today's digital era.

The existence of the Asean Economic

Community (MEA) ensures that MSMEs must be

stronger in their needs to strengthen their position.

SMEs need a large role from various elements, for

example by strengthening partnerships with the

private sector and the public sector to create an

independent economy. MEA becomes a threat as

well as an opportunity for MSMEs in Indonesia to

be able to grow a role in regional and national

economic growth. Strengthened by the concept of

regional autonomy, at least the position of MSMEs

in the regions can be more fully concentrated by

empowering local area resources to create regional

special products. for local governments, this is when

strengthening regional competitiveness through the

full strength of MSMEs that grow and develop in

their regions.

The strategy to strengthen business institutions

and the development of Human Resources is a

strategy that can be implemented by regional and

central government in reviving and strengthening

MSMEs in Indonesia. With these strategies, it is

expected that competition currently dominated by

large companies does not erode the opportunities of

MSMEs to develop their potential and strength to be

able to compete.

2 THEORICAL FRAMEWORK

The definition of rural industry is narrow, namely in

small scale industries and households (IKRT).

Sajogyo and Tambunan (Kuncoro, 2014: 293) Rural

industries are a form of transition between artisan

industries and modern industries. In Indonesia, rural

industries tend to be connoted with or as a tool for

rural development (with small-scale industries and

households) and open parts of modern industrial

development. White (Kuncoro, 2014: 295)

classification of rural industries lies in the criteria of

resource-based industry which is contrasted with

foot loose industry. Resource-based industry is

supportive and has a multiplier effect on the

agricultural and industrial sectors based in rural

areas, while foot loose industries tend to create an

enclve economy, namely the lack of integration of

industries concerned with other industries in the

economy.

Therefore the limitations of rural industries are

small industries whose resource base is in rural

areas, including agro-industry and various industries.

With regard to rural industries, at least rural

industries can be identified as micro, small business

and medium-sized businesses.

After the 2010 ASEAN Free Trade Area

(ACFTA) in 2015 entered the era of the ASEAN

Economic Community (AEC) or in the future in

2020 Indonesia must deal with other Sree Trade

Area forums such as APEC which demand the

Indonesian economy, including MSMEs must strive

to position themselves in the market. At present

Indonesia's position in the Asean Economic

Community is ranked 36th globally and 4th place

among ASEAN countries (World Economic Forum,

2018.)

The main concept of the MEA is to create

ASEAN as a single market and unity of production

base where there is free flow of goods, services,

factors of production, investment and capital and the

elimination of tariffs for trade between ASEAN

countries. Through strengthening this collaboration

it is hoped that it can reduce poverty and the level of

economic inequality among ASEAN countries

through a number of mutually beneficial cooperation

(Wilantara and Susilawati, 2016 : 16). The WEF

considers that Indonesia has a competitive level in

general at the top level, but it is still low in terms of

technological preparedness and labor market

efficiency which still ranks Indonesia as 96th in the

world rankings.

Empowerment of MSMEs is a comprehensive

process that is an active process between motivators,

facilitators and community groups that need to be

empowered through increasing knowledge, skills,

providing various facilities and opportunities to

achieve access to natural resource systems in

improving community welfare (Sumodiningrat and

Wulandari, 2015: 20) . The empowerment process

should include enabling (creating a conducive

atmosphere), empowering (strengthening

community capacity and capability), protecting

(protection from injustice), supporting (guidance and

support) and foresting (maintaining a conducive

condition to stay balanced).

Technological advances affect the cycle of

human resource competence. Expertise in the form

of skills, knowledge and work attitudes obtained at

this time, is not necessarily still valid in the future or

is still up to date when technology has changed

procedures, forms and functions (Silitonga,

2017:68).

Dubois and Miley (Sumodiningrat and

Wulandari, 2015: 19) argue that the basics of

empowerment include:

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

718

a. Empowerment is a collaborative process between

client and work executant mutually beneficial.

b. The empowerment process views the client system

as a component and ability that provides a way to

source of income and provide opportunities.

c. The client must feel himself as a free money agent

can influence

d. Competence gained and improved through life

experience, a strong special experience than the

state that states what is being done

e. Empowerment includes the path to sources of

income and the capacity to use these sources of

income effectively

f. The empowerment process is a dynamic,

synergistic, ever changing and evolutionary

problem that always has many solutions

g. Empowerment is the achievement through parallel

structures of individuals and the development of

society.

The concept of corporate entrepreneurship or

intrapreneurship is needed to increase the growth of

MSME entrepreneurs. Rosabeth Kanter (Dhewanto,

2013:7) Through the concept of corporate

entrepreneurship or intrapreneurship within the

company will be able to increase company revenue

and be able to make the company survive in difficult

economic conditions.

According to the Law in Indonesia No. 20 of

2008, article 38 paragraph 2 that, coordination and

control of empowerment of Micro, Small and

Medium Enterprises is carried out nationally and

regionally which includes the formulation and

integration of policies and programs,

implementation, evaluation, and general control of

the implementation of MSMEs empowerment

including business partnership management and

financing of MSMEs.

The Medium Term Development Plan (RPJM)

in the 3rd Indonesia (2015-2019) development of

MSMEs is directed to strengthen overall

development by emphasizing the development of

economic competitive advantage based on available

human resources, quality human resources and the

ability of science and technology(Bapenas, 2015).

3 RESEARCH METHOD

This study uses a research and development

approach (R & D)of qualitative research. The

method used is exploratory and evaluative method to

identify various symptoms and root problems that

occur in small dan medium enterpreneurs of

inovations strategies and development of products

milk etawa and palm sugar in Kebonharjo,

Samigaluh, Kulonprogo Yogyakarta.Research

procecessing with direct observations, interview,

questionare and reference study.

Data be collected from our respondents who

were considered to be able to represent information

and understand the problems by Small and Medium

Enterprises in Kebonharjo, namely the village head

(lurah) and several other village officials, head and

secretaries of farmer groups, etawa goat milk

breeders, palm sugar producers and activists of

Small and Medium Enterprises in the regions.

6 months of research implementation, starting from

April to October 2018. This analysis is a

development of our research that measures the level

of innovation of etawa and palm sugar products in

the same place.

4 RESULT AND DISCUSSION

Profile of Kebonharjo Rural Industry From 2017 the

village report Kebonharjo Village, District

Samigaluh, Kulon Progo Regency, the village

revenue of Rp. 19,726,435, -, village funds Rp. 852

526 000, -, tax-sharing and regional retribution Rp.

38,453,744, village fund allocation of Rp. 709 770

189, - aid kotaRp district. 195,000,000, and other

income of Rp. 15,987,854, -so that the total income

of the village of Rp. 1,690,387,081, -. The fund

allocation is for rural development 61.2% (Rp.

1,034,547,777, - the organization of village

government, 32.7% to Rp. 553 101 398, -, fostering

civic Rp. 73.53105 million, - as well as the

empowerment of Rp. 29,206,856, -.

Kebonharjo Village has considerable potential

to become one of the villages that gives birth to

SMEs with a characteristic of local wisdom. Of the

10 hamlets in the village there are various kinds of

products and concentrations of each hamlet's

business.

Table 1: Business Distribution in Kebonharjo

Village

No Sub-Village

Business Category

1 Jarakan

Nature tourism, fishing,

welding workshop

2 Gowok Milk Etawa

3 Kaliduren Palm sugar, contruction,

local foods

4 Dungsambuh

Coconut fiber and local

food

Increasing Industrial Competitiveness in Rural Areas through Institutions Strengthening and Human Resource Development

719

5 Kedunggupit

goat breeders and

construction

Good

6 Gebang

bamboo, wood and coconut

fiber craft.

7 Pelem goat breeders

8 Jeringan

goat breeders and plant

nursery

9 Kleben

plantations, vegetables and

culinary

10 Pringtali ecotourism and temple

Source : Internal Data Kebonharjo, 2018

The Kebonharjo government in 2017 has

allocated a community empowerment fund of Rp.

29,206,856, -. From the totalk it was used for the

activities of the capacity of village heads, village

officials and village consultative bodies of Rp.

4,512,000, productive business and economic

training activities Rp. 15,831,856, agricultural

business training activities Rp. 1,910,000,

entrepreneurship training activities Rp. 5,577.00, -

and the capacity building activities of social

institutions amount to Rp. 1,376,000.

The large potential of the industry in

Kebonharjo village also has several weaknesses

which until now are still a major problem

developing the industry in the countryside. Some of

the fundamental weaknesses faced by business

people in the village of Kebonharjo are that some

people have not yet managed their business in total,

how to produce which are still traditionally very

traditional, geographic relative steep, lacking

business motivation, depending on natural

superiority, low capital, access distribution and

marketing, substantive economic activities and

community comfort in the natural comparative zone.

Strengthening Business Institutions

In the face of changing macroeconomic landscapes

at the local, national and global levels, forcing each

local government in Indonesia to begin reviewing

their approaches and perspectives in managing their

regions (Kertajaya dan Yuswohady, 2005:4).

Strengthening business institutions in the regions is

one of the important things to encourage innovation

in MSMEs in enhancing regional competitiveness.

The strategy to generate product innovation and

competitiveness of SMEs in Kebonharjo Village,

especially etawa goat milk and palm sugar, this

study offers two (pillars) strategies, namely business

institutional strategies and human resource

development strategies.

The business institutional strategy is based on

the scope of SME business problems that range from

the level of resistance to change, the perception of

capital / capital, the delay in adapting to changes in

the business environment and the attachment of old

patterns in conducting business. So based on this

problem the strategy to deal with internal changes in

etawa goat milk farmers is to find and optimize the

farmers' intellectual capital, integrate with the

natural environment, culture and build a network of

partnerships or cooperation on the right goals or

targets in developing etawa goat milk business.

In the business institutional strategy, we can see

4 (four) main dimensions, namely internal change,

environmental intellectual capital and business

networks. Each of these dimensions can be

implemented with concentrated goals as outlined

below.

a. Internal changes

The strategy that can be applied to internal

changes is that SME businesses in Kebonharjo

Village must be able to respond to false

opportunities. Relevant parties are needed, for

example village government or programs run by

educational institutions and experts to provide

understanding of business opportunities, for

example involving them in various scientific

meetings or marketing and business management

training programs.

Through the program, the result is the

motivation of SME entrepreneurs to move to carry

out business activities in total so that

entrepreneurs are not tempted by other types of

businesses that are new to the trend or as if they

have greater opportunities than the business

currently being run.

The second implementation is to provide

learning to the younger generation or provide

training and increase knowledge or share business

experience with the younger generation. While the

third strategy is that SME entrepreneurs both

etawa goat milk and palm sugar must be able to

determine their business performance standards.

This is also a form of business vision that has a

clear and measurable target.

Overall, the institutional strategy on the

internal change dimension aims for small

businesses to focus on doing business, efficiency,

creating sustainable businesses between

generations, encouraging innovation, stimulating

independence and stimulating increased

production / productivity volumes.

b. Intellectual Capital

The government and the people of Kebonharjo

Village must have sufficient intellectual capital,

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

720

that is, everything that is a non tangible or non-

physical asset and resource of an organization or

business.

The implementation of strategies that can

stimulate the strengthening of intellectual capital

is to increase knowledge and skills of human

resources, strengthen organizational structure and

organizational culture as organizational capital

and accurate flow of information / communication

as a form of information capital that is useful for

business development. In addition, intellectual

capital can also be done by adopting technology to

stimulate creativity, productivity and compliance

with applicable laws.

Intellectual capital strategy targets that can be

implemented by the Kebonharjo Village

Government or those who have interests as far as

possible are able to grow business professionals,

improve mental and knowledge entrepreneurs,

foster business motivation, business / product

innovation, inspiration and open access to

business opportunities, prioritize strong business

visions and able to create a good organizational /

business culture.

In addition, the target of the success of the

intellectual capital strategy can provide access to

market expansion (marketshare), develop

partnership strategies, strengthen and access

capital, and encourage expertise in making

appropriate business strategy decisions.

The various strategies and target targets were

carried out so that goat milk and palm sugar or

other products in Kebonharjo Village were

regional / market-based products. It takes business

intelligence that is owned by businesses and

governments to create various SME strategic

targets. In the end, SMEs will be able to create

products that have quality and value to meet

customer desires so that they form a regional

brand equity.

c. Environment

Environmental aspects are an important factor in

the growth and development of business

enterprises run by small communities, especially

in the Village of Kebonharjo, Samigaluh,

Kulonprogo. So that a strategy for environmental

analysis is needed by understanding comparative

advantage and the balance of the natural

environment and socio-cultural environment.

Understanding of comparative advantages

reinforced by business ethics and the expected

knowledge of targets in this environmental

strategy can create a balance of nature /

ecosystems, environmental care, sustainable

regional development, local wisdom and strong

social responsibility.

d. Business Network

Business network strategies can be implemented

by collaborating to create quality, horizontal

cooperation between SME entrepreneurs and or

cooperatives and vertical cooperation.

The implementation of these strategies is

directed to the success of SMEs to create products

that have quality standards, competitiveness of

regional / distinctive products, business

communities, business clusters, reduce operating

costs. The strategic application of SMEs in

Kebonharjo Village can create the image of

regional brands as a means of competitiveness,

foster marketing relationships, one village one

product, be able to run supply chains, ensure

continuity of availability of raw materials and

expand market access both nationally and

globally.

Human Resource Development Strategy

In enhancing the competitiveness of regional SMEs,

the government and SMEs can implement the

concept of human resource development strategies

in 2 (two) key dimensions, namely the dimensions of

continuous education and training.

a. Education

The education dimension is an important factor in

strengthening and creating the quality of human

resources (HR). The implementation of strategies

that can be implemented in the education

dimension is to improve the managerial

capabilities of SMEs and business assistance and

strengthen SME business strategies.

The target of the implementation of the

strategy is to increase management / managerial

knowledge and understanding, sensitivity and

skills in dealing with business problems and

knowledge and understanding of new business

strategies. Success in implementing strategies in

the right dimensions of education can stimulate

and bring forth business innovation and enhance

business creativity.

b. Training

The training dimension is interrelated with the

education dimension, where training emphasizes

measurable skills for SMEs in the region. It takes

parties who partner with the government or

business people in implementing education and

training strategies. Some implementations that can

be implemented in training strategies are

Incubator-based training, core competencies,

needs-based training, cooperation-based,

Increasing Industrial Competitiveness in Rural Areas through Institutions Strengthening and Human Resource Development

721

professional training and the concept of two-way

or participatory training.

The target of this training is to improve

competency, expertise, negotiation /

communication, confidence and understanding of

competency standards. Training must be carried

out in a directed and continuous manner so that

the implementation of the training is in accordance

with the needs / on target to foster SMEs that are

ready to compete with strong HR capacity.

Education and training in business strategies for

SMEs must also be able to form a broader network /

market and establish strong SME partnership

commitments with partner parties. The openness of

SME business actors to the problems faced can

encourage governments, institutions or private

companies to implement training programs on target

or effectively so that internal weaknesses can be

strengthened comprehensively. Another goal of the

training strategy is to increase the expertise and

understanding of SMEs in the division of tasks or

areas of cooperation that will be carried out in the

concept of a win-win solution partnership.

5 CONCLUSIONS

Based on the description of conclusions as follows:

1. The competitiveness of rural industries is

enhanced through the implementation of

strategies to strengthen institutions that support

SME businesses and develop human resources

appropriately and sustainably as needed

2. Strengthening Strategy Business institutions can

be focused on the dimensions of internal

change, intellectual capital, the environment and

business partnership networks.

3. The HR development strategy can be carried out

a strategy that focuses on the dimensions of

education and training focused on the problems

faced by SMEs in a sustainable manner.

4. It takes the role of the regional government, the

central government, educational institutions or

other parties to develop and empower

communities in professional business activities

as a means of competitiveness

REFERENCES

Dhewanto, Wawan (2013) Intrapreneurship :

Kewirausahaan Korporasi. Bandung :

Rekayasa Sains

Drucker, F Petter alih Bahasa Natalia R Sihandrini

(2006) Classic Drucker : Dari Sang Penemu

Manajemen. Jakarta : Bhuana Ilmu Populer

Kertajaya, Hermawan dan Yuswohady (2005)

Attracting Tourists Traders Investors. Jakarta

: Gramedia

Kuncoro, Mudrajad. (2014)Otonomi Daerah. Jakarta

: Penerbit Erlangga

Silitonga, Parlagutan (2017) Manajemen UMKM

dan Sumber Daya Manusia. Yogyakarta :

Penerbit Andi

Sumodiningrat, Gunawan dan Ari Wulandari. 2015.

Menuju Ekonomi Berdikari.Yogyakarta :

Media Pressindo

Wilantara, F Rio dan Susilawati (2016)Strategi dan

Kebijakan Pengembangan UMKM. Bandung :

Refika Aditama

World Economic Forum (2018) The Global

Competitiveness Report 2018. Avaliable at :

http://reports.weforum.org/global-

competitiveness-report-2018/

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

722