The impact of domestic constraints on export behaviour of small and medium-sized firms in Indonesia

This paper empirically investigates a domestic business environment and tests its impact on the export behaviour of small and medium-sized enterprises (SMEs) engaged in manufacturing in Indonesia. It is based on a SME survey conducted by the World Bank in 2009 which identified critical domestic business environmental aspects perceived by entrepreneurs such as labour, infrastructure, regulations, economic and market variables. A conceptual framework linking these domestic environment variables to export intensity is developed and tested for statistical magnitude. Results indicate that international shipping, business licensing and permits, access to a pool of skilled labour, access to land use, and access to alternative sources of external finance significantly affect SMEs' export intensity. Negative relationships between these domestic environment variables and export behaviour demonstrate the need for the government to support efforts to increase the global competitiveness of Indonesian business and create a conducive economic and political environment by improving the supply chain system and infrastructure, transforming the training and education sector to conform with market demand, trimming down licensing procedures and disseminating export procedures and their alterations in order to increase performance of manufacturing SMEs in Indonesia.