Small and Medium Enterprises in the Early Stage of Pandemic:

Challenges and Opportunities

Herninanjati Paramawardhani and Trio Yonathan Teja Kusuma

Industrial Engineering Department, UIN Sunan Kalijaga, Yogyakarta, Indonesia

Keywords: Small and Medium Enterprises, Business Resilience, Pandemic.

Abstract: Covid 19 is seen as a thread for business and has an enormous aftermath globally. This study highlights the

impact of Covid -19 to the small and medium-sized enterprises, specifically during the early stage of the

pandemic in 2020. The research occupies survey method to collect 2013 small businesses scattered in 14

districts in the City of Yogyakarta. The aim is to depict the state of small and medium enterprises during the

pandemic and provide solution in order to create more resilience business. The result shows that 37,47% of

the samples are forced to do some efficiency by cutting off some of their workers. The ability to produce is

decreased up to 50%, as a result, their income is affected. However, in some types of industry, the sales and

rate of productions are increased as the impact of Covid -19. In this study, some challenges are found to be

faced by all respondents such as difficulties to market their products, decrease in demand, and the most classic

problem is financial aspects. The research proposes some steps that can be taken into account by the owner

of the business to increase their performance during the pandemic.

1 INTRODUCTION

COVID-19 has caused major impact, not only in the

health sector but also severely impact the global

economy, including micro, small, and medium

enterprises (SME). In addition, The Government of

Indonesia declared a large-scale social restriction on

activities in public places, access to the schools,

tourism places, and workspaces as well as the

limitation of opening hour for the non-essential

sectors. Further, some non-essential sectors besides

financial sector, health, and food suppliers are forced

to shut their business down for some periodic of time.

This condition puts the business players in to the

unbeneficial position which force them to limit their

economic activity and gain loss.

Before the outbreaks of COVID-19, Indonesia

was having such a good development of SME. This

condition was supported by the enormous number of

small businesses based on creativity, called creative

economic concept. This concept is suitable for

Indonesia’s characteristics where all products are

created based on ideas of uniqueness. This program

is fully supported by The Ministry if Tourism and

Creative Economy based on the strategic planning

2020-2024. It’s stated that the aim is to support and

strengthen the SMEs by having more than 700 units

of start-ups in tourism and creative economy sectors.

This number is expected to grow by 3500 units per

2024. This contributes to the economic resilience of

Indonesia (Kementerian Pariwisata dan Ekonomi

Kreatif, 2020).

However not that many research is done for SME

as the main object to be studied even though micro-

enterprises play a critical role in the Indonesia

economy by supplying 99.8% of the country

employment (Maksum et al., 2020). But, SMEs are

fragile, this sectors known as the most affected group

since they have limited resources to survive once

crisis hit (ASEAN, 2020) . Thus, this study will

examine the current condition of small businesses

during the early stage of COVID-19 and perform

SWOT analysis to help segment the opportunities and

threats which appear along the pandemic.

The remaining of the paper is structured as

follows. Fist, research method is elaborated in order

to give a brief explanation on how the study was

conducted. The propose is to get the correct stage and

keep the study on the right pace. In this part, some

limitations are identified such as the field of research,

the area chosen, and the type of SMEs. Second, the

findings are highlighted and discussed. The condition

of SMEs during the early stage of COVID-19 will be

Paramawardhani, H. and Kusuma, T.

Small and Medium Enterprises in the Early Stage of Pandemic: Challenges and Opportunities.

DOI: 10.5220/0010804400003348

In Proceedings of the 3rd Annual International Conference on Social Sciences and Humanities (AICOSH 2021), pages 69-74

ISBN: 978-989-758-603-3; ISSN: 2685-273X

described along with challenges and opportunities.

Lastly, SWOT analysis will be performed in the end

of paper in response to be resilience during the

pandemic, especially for small-business owners.

2 RESEARCH METHODS

A survey research design was occupied in this study,

with more than 2000 small and medium enterprises

were collected. This study is limited by scope as only

micro, small, and medium enterprises scattered in 14

districts in the city of Yogyakarta were studied. The

survey was conducted during the early stage of

Covid-19 pandemic in Indonesia.

The survey was designed and developed in

cooperation with The Industry and Trade Office in

Yogyakarta. A pilot survey was delivered to a small

sample of respondent to test the research tools

including the questions and survey structure. Open-

ended questions were used in order to collect as much

data and information needed related to the situation

occurred in the internal business of each industry

during the strike of pandemic.

During the observation and data collecting

process, interviews were also conducted in order to

deepen the information from the respondent.

Interviews and observations were used to enrich the

quality of data and perform triangulation to avoid any

bias. The survey followed four stages: observation,

respondent profiling by identifying the location of

small and medium enterprises in the city of

Yogyakarta, data collection, and analysis. The first

round of survey was conducted in March 2020. Some

adjustments in question lists were made in April and

May to meet the outbreak of Covid-19 in Indonesia.

The second wave of the survey was occurred in June

to November 2020.

Figure 1: Location identified in this study.

A total of 2013 valid surveys sample were

collected from 14 districts, the top five districts with

the greatest number of SMES are indicated in Table 1

and 2 along with the top five types of industries

identified from the survey.

Table 1: Location of industry identified in this study.

Districts Number of SMES

Kotagede 294

Ngampilan 282

Tegalrejo 280

Jetis 243

Mantrijeron 177

Table 2: Type of industry identified in this study.

Type of Industry Number of SMES

Food and processed food 1512

Clothing and apparel 151

Craft and jewelry 57

Leather based craft 35

Batik industry 33

There are several indicators measured in the

survey sheet, such as number of employees (Monitor,

2020) before and during the pandemic, labor wages

before and during pandemic, production capacity,

demand, and income of the business before and

during pandemic. Those indicators are determined

based on the preliminary study and result from the

observation stage. Those indicators are seen as

representative to describe the condition of the

business in general. The result of each indicator is

presented in Table 3.

3 RESULT AND DISCUSSION

Result attained from this study depicts the situation

faced by SMEs during the early stage of pandemic.

There are six indicators used in this study, namely

number of employees, labor wage, number of workers

laid off, production capacity, demand, and income.

Result can be seen in Table 3.

The small-scale business has a smaller number of

employees with maximum of 30 workers and

minimum of a worker. This typical SMEs are

common in the household scale industry which owner

is the worker itself (Maksum et al., 2020). In average

before the pandemic, each business requires two

AICOSH 2021 - The Annual International Conference on Social Sciences and Humanities (AICOSH) “Life After Pandemic: Perspectives,

Changes, and Challenges”

workers, however during pandemic most of them are

not hiring other workers then themselves. According

to the data, 3259 employees are work normally to

produce goods, however during pandemic the number

is decreased to 2029 employees, it creates a

percentage of 37.74% decreased in quantity as impact

of COVID-19. On average, the businesses globally

reported having reduced their worker by 39%, some

are closed and caused 47% employment down

(Bartik et al., 2020; Centre et al., 2020).

Table 3: Results.

Indicators Result

Number of Employee - 37.74%

Labor Wages Not Significant

Number of Employee laid

off (by gender)

Not Significant

Production Capacity - 49.26%

Demand Decreasing

Income Decreasing as impact of

production rate

In terms of gender, there is no significant

differences between number of man labor fired

compared to woman workers. In addition, there is no

significant changes for labor wages before and during

pandemic. This condition indicates that from the

perspective of small-business owner, cutting off their

worker(s) is seen as better and faster solution to

balance their financial position and being resilience.

Other impact of pandemic COVID-19 for SMEs

is the capability to produce product. In total, before

COVID-19 outbreaks, these small-business are able

to produce 636,225 items per unit amount. However,

during the first stage of pandemic the number is

reduced by almost half of it (49.26%). Lack of

demand is one of the factors that cause loss for small

business. They are unable to run their production

system and cause low utilization of production

capacity (Dai et al., n.d.). This condition creates

domino effect to the business, it begins with demand

reduction, low production rate, and finally business

owner unable to get proper income to run and

continue the business. As a result, it hurts the

financial aspect of the small-business. However, not

all business is facing the same loss, some even win

the game against pandemic (Perger et al., 2020).

3.1 The Potential Winners and Losers

According to the data analysis, it is known that there

are some winners and losers from COVID-19 as well

as small-business which has no significant impact due

to the widespread of the SARS-COV2 as seen in

Table 4.

Table 4: The Winners and Losers.

Type of Industry Category

Food and processed food (food for

souvenirs, dine in, and home scale food

business)

Losers

Clothing and apparel, craft and jewelry

industry

Not

significantly

impacted

Metal goods, textile, herbal/traditional

medicine, craft industry, batik, leather-

based craft, food and processed food

(with access to a delivery services)

Winners

Industries which produce food and processed

food are divided into two cluster, the winners and the

losers. SMEs that produced food for souvenirs (such

as Bakpia-traditional cake from Yogyakarta) severely

impact due to tourism regulations, as well as food and

beverages industry with focus on dine in

(Gunasegaran et al., 2020). They deal with the

regulations and difficulties to market their products.

However, some food businesses are win the market

by having access to the delivery services. This

phenomenon is also supported by the high demand

towards delivery services used by consumer,

especially on food and groceries (Kartono & Tjahjadi,

2021). The pandemic situation pushes business owner

to adopt innovative and proactive behavior. This

methods is believed allow SMEs overcome the crisis

and hopefully improve their performance (García-

Vidal et al., 2020).

The potential winners in this study are metal

goods, textile, handcraft industry, and food industry

which adapting to the new market behaviors. The

non-versatile products are not in a risk to survive

during pandemic, since it has long life shelf time and

can be kept longer in a finish goods inventory. In

addition, there is a new champion in this competition,

namely herbal or traditional medicine. This type of

industry is able to rise and gain more benefit from the

pandemic. In Indonesia, the usage of herbal and

traditional medicine is seen as alternative solution in

order to maintain health and immunity (Hartanti et al.,

2020; Nugraha et al., 2020). Some belief that this type

Small and Medium Enterprises in the Early Stage of Pandemic: Challenges and Opportunities

of remedies is safer compare to chemical drugs.

Further, based on some researches, traditional

medicine known as jamu has a potential role to deal

with COVID-19 (Hartanti et al., 2020; Hidayat et al.,

2020; Huang et al., 2020; Khadka et al., 2021;

Nugraha et al., 2020).

According to the observations and the result

gathered during the interview, at the early stage of

COVID-19 in Indonesia, some types of industry in

Yogyakarta are remained stable, such as clothing and

apparel, craft, and jewelry industry. These types of

products are not significantly affected by the

outbreaks, however some handcraft products used as

souvenirs may have different result in the future since

it is very dependent to tourism activity.

3.2 Major Challenges

This section examined major challenges faced by

SMEs during the early stage of pandemic from March

to November 2020. One of the main factors that

hinder small-business to survive during the pandemic

is lack of demand. The outbreaks hurt the financial

sector in Indonesia, including the people’s purchasing

power is decreased. This will affect the buying

behaviour and create new pattern of buying. People

will tend to produce their own needs or prioritize their

expenses to the more essential one. The business

owners also find it difficult to market their products.

Large-scale social restriction unable the small-

business people to sell their commodity unless they

are being more adaptive and flexible. Occupying

technology, social media, digital platform, and

marketplaces will be a good idea for them to adapt

and keep survive during the pandemic. However,

most of the SMEs in this study were categorized into

home scale industry where technology and

digitalization are another big homework for them.

Thus, marketing strategy during the disruption is

another major challenge for them.

Almost all business owners in this study admit

that it is difficult to continue their production since

they have no sufficient capital. Even so, the

government of Indonesia has provided financial

assistance for all small-business owners in the early

stages of the pandemic. The government distributed

Rp 2.4 trillion (US$162.9 million) for up to 1 million

small businesses across the country (Rahman, 2020).

Unable to access information related to training for

small-business owner is another issue need to be

taken care of. At the beginning of COVID-19

widespread, all countries around the globe were not

prepare enough to face the outbreak. They are focused

on handling the health and avoid loss as well as

performed risk management related to the early

impact of COVID-19 to the society. However,

information and access to the small-business to be

more resilience during the pandemic were not ready

to be shared and was in the stage of discussion. The

first regulation was the disbursement of financial help

for the SMEs in August 2020, 5 months after the first

case of COVID-19 occurred in Indonesia. It took

almost half year for the small-business owners to get

access for help from the government. At the

beginning, the purpose of financial assistance was to

help as many small businesses as possible which

struggle to survive the pandemic, so that micro

businesses will able to resume and improve their

businesses. Other than that, with social distancing

policies in place, most of information is usually

available via digital platform or websites, this is an

additional obstacle for small business actors

3.2 In Response to Pandemic

SWOT analysis is chosen to analyse the strengths,

weaknesses, opportunities, and threats from the

SMEs during the first strike of pandemic. This

framework will help SMEs to identify their current

gap, minimize risks and gain possibility to take

advantages and improving their business

performances. SWOT also works as tool to create

prevention and control strategy (Wang & Wang,

2020). Each aspect as seen in Table 5 was generated

during the interviews and observations.

Table 5: SWOT Analysis Matrix.

Strengths Weaknesses

SMEs are characterized

by their unique and

original products

Locally sourced

resources

Less complex business

structure and model

Clusters are available

based on the type of

industry

Lack of ingenuity

(technology and

digitalization)

Limited access to social

media

Opportunities Threats

COVID-19 changing

consumer behavior

E-commerce, social

media, and marketplaces

Delivery services

platform

The governments

financial assistance

Market decline

High unemployment rates

New competitors with

more advance technology

and ability to market their

product

Large-scale social

restrictions

AICOSH 2021 - The Annual International Conference on Social Sciences and Humanities (AICOSH) “Life After Pandemic: Perspectives,

Changes, and Challenges”

The strengths and weaknesses are attained from

internal business. Strengths are described as value

and what factors the business does particularly well.

In response to the pandemic, SMEs should establish

their priority based on the SWOT analysis. SMEs can

focus on their strengths and opportunity as priority.

Then, tackle threats and minimize the weaknesses.

By its nature, SMEs are characterized as business

that produce unique and original product. It usually

sources their raw materials locally. Further, these

small businesses also have simple organizational

structure and business model. These three

characteristics are important and need to be main

focus of SMEs to improve their performance. In

Yogyakarta specifically, each region or area usually

has their own industry clusters or groups based on the

local potential, such as Bakpia groups in Ngampilan,

batik industry group, and silver crafter group in

Kotagede. This kind of group helps SMEs to grow by

having easy and transparent access to information for

their business development. Normally government

announce any training or important notices through

the group’s coordinator in each area or region.

To enhance the business performance, SMEs are

urgent to improve their weaknesses. Nowadays, being

adaptive and flexible are the main power to be

resilience during the pandemic. The purpose is to gain

ability to be more prepare, respond and agile to

gradual changes and other disturbances. According to

current situation, most SMEs are struggle applying

technology and digital things in to their business.

Once this problem can be solved, they will gain new

value in their business. It creates a competitive

advantage and grows the market bigger. In addition,

implementing emerging technologies and innovation

has significant role to improve company’s

performance (Gregurec et al., 2021).

From the external factor point of view, lists of

opportunity and threats have been made. The

potential opportunities are attained externally, for

instance from government, technology and

innovation, and customer behaviour. Opportunities

are also important and need to be overlooked and

transformed into business strengths. One opportunity

needs to be considered is the changing of customer

behaviour. Due to social distancing regulations,

people tend to buying their needs online through e-

commerce, marketplaces, or other delivery platforms

available in the market. This new behaviour enlarges

the chance to small-business owner market their

commodities online and reach bigger market. The

delivery services also benefit a lot for small-business

owner. The ability to reach customer in no time and

the availability at any time help SMEs to market their

products. Once this combination can be mastered by

business owner, then the business will remain sustain

and become potential winners even in difficult times.

Listed factors from strengths and opportunities can be

used by small-business owner to overcome the threats

identified. Mastering technology and innovation

through the business, have unique and accessible raw

materials, understanding the customer behaviour are

some good points to eliminate threats and change

them into opportunity.

4 CONCLUSIONS

The aim of the study is to examine how SMEs are

surviving during the early stage of pandemic in

Yogyakarta. The impact of COVID-19 disruption

brought SMEs into a difficult phase. Cutting

employee, lack of demand, and low production

utilization are some effects mentioned by the owner

during the interview. However not all business is

facing loss, some are remained stable and even

become potential winner. One major challenge needs

to be address is the lack of technology and innovation

in the business. To help SMEs survive the next phase

of pandemic, the study proposes SWOT analysis to

highlight the strengths, weaknesses, opportunities,

and threats due to COVID-19 outbreaks. By

understanding their own situation, the SMEs owners

are able to prepare their business and being adaptive

towards any major changes and disruptions. As a

result, the unemployment rates can be reduced and

their business is able to survive and being resilience.

ACKNOWLEDGEMENTS

The authors would like to acknowledge to all help and

technical support provided by The Industry and Trade

Office in Yogyakarta during the early survey period.

We thank to all SMEs owners in the city of

Yogyakarta for the collaboration during the

observations, surveys, and interviews. We also thank

Department of Industrial Engineering, Faculty of

Science and Technology UIN Sunan Kalijaga

Yogyakarta for all support to finish the study and

publish the paper.

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AICOSH 2021 - The Annual International Conference on Social Sciences and Humanities (AICOSH) “Life After Pandemic: Perspectives,

Changes, and Challenges”