Developing Business Strategies for Featured MSMEs in North

Sumatera: SWOT Analysis Approach

Prihatin Lumbanraja, Ritha F. Dalimunthe and Elisabet Siahaan

Faculty of Economic and Business, Universitas Sumatera Utara, Medan, Indonesia

Keywords: Competitiveness, Internal Capabilities, External Condition, Enterprises, Strategic Planning

Abstract: The role of micro, small and medium enterprises is always important to support the country’s economic

growth. As the market emerge and become larger, the competition within these enterprises has also risen to a

new stage. One of the key to formulate strategies to improve the enterprises’ competitiveness is through

SWOT analysis which employ internal capabilities and external condition assessments. This study aimed to

evaluate the current situation of MSMEs in Medan as well as their adaptative strategic planning. A number

of 300 MSMEs were participated in this research. This paper conclude that despite the vast opportunities

based on external analysis, our MSMEs were forced to maintain stability and take a baby steps to build their

own competitiveness as they also vulnerable with many weaknesses. Thus it is important not to tempted with

vast opportunities but maintain business stability and continuously improve the weakesses and translate them

to strengths.

1 INTRODUCTION

Micro, Small and Medium Enterprises (MSMEs)

acted as the backbone of the national economy are

still categorized as vulnerable to the development of

their businesses. Many businesses have to end

because of mismanagement and turmoil in market

demand. In this case, the achievement of business

competitiveness needs to be endeavored so that

businesses can last longer and contribute to

Indonesia's national development.

Indonesia and other ASEAN countries has agreed

to enter the new era of trade, Free Trade Agreement

(FTA) between ASEAN countries. It practically has

been applied since the begining of 2016. FTA without

a doubt increase the competition between

organization which can now freely trade with another

organization between countries. World economics

forum (2016) conclude that Indonesia’s

competitiveness index went down from 34th to 37th

in 2016. The situation also affecting Micro, Small and

Medium Enterprises (MSMEs) which lead to

downgrade of their product both for quality and price.

Micro, Small, and Medium Enterprises played the

most important role to support economic

development in almost all countries as they gave the

major contribution for economic development

(Anggadwita and Mustafid, 2014). According to

Indonesia Statistics Bureau (2015), MSMEs

contributed for around 60% of GDP and absorb more

that 97% labour forces. Asian Productivity

Organization (2015) stated that the most important

role of MSMEs is to act as main core in economic

development and productivity. In line with the

statistics bureau, MSMEs was believed as the major

contributor toward one’s GDP. World Bank (2018)

stated that one key to sustainable growth of

economics was the growth of MSMEs in one’s

country. The growth will remain stable as long as it

supported by healthy MSMEs development. Despite

their importance to support economics growth,

MSMEs lack of managerial practice to help them to

develop their competitiveness.

In their quest to achieve and maintain

competitiveness, many of MSMEs learning to be

involved in a strategic planning. Strategic planning is

a way to help an organization be more productive by

helping guide the allocation of resources in order to

achieve goals. It is a strategic management tool. In

other words it is a part of strategic management. In

fact, strategic planning is a key to successful strategic

management.

MSMEs in the city of Medan in essence have

quite well implemented the analysis of strength in

business competition through the five forces method.

284

Lumbanraja, P., Dalimunthe, R. and Siahaan, E.

Developing Business Strategies for Featured SMEs in Nor th Sumatera: SWOT Analysis Approach.

DOI: 10.5220/0009202602840290

In Proceedings of the 2nd Economics and Business International Conference (EBIC 2019) - Economics and Business in Industrial Revolution 4.0, pages 284-290

ISBN: 978-989-758-498-5

However, in the implementation of managing

business activities, the analysis carried out does not

have an impact on the formulation of strategies or the

next steps that will be implemented by business actors

in increasing the competitiveness of their businesses.

The mapping results indicate that in general MSMEs

in the city of Medan pay close attention to strengths

and relationships with suppliers, customers, and new

entrants to the business. They pay less attention to

issues related to business competition and substitute

goods. Analysis conducted by business actors is

generally natural. The steps taken based on the

analysis results are also generally spontaneous, there

is no good planning in managing business

competition.

Most of strategies were formulated based on

internal and external business analysis. One of the

most common strategic planning tools that used to

evaluate internal and external capabilities was SWOT

analysis, the Strength, Weaknesses, Opportunity, and

Threat (Osita et al. 2014). The first step in strategic

planning to achieve competitiveness was to identify

and evaluate the strategic factors, the SWOT, and

help organization to realize their full potential

(Houben, 1999). The strategic management oftenly

used to establish long-term activities of the business

(Yuksel and Dagdeviren, 2007). By conducting an

external analysis, an organization identifies the

critical threats and opportunities in its competitive

environment. It also examines how competition in

this environment is likely to evolve and what

implications that evolution has for the threats and

opportunities an organization is facing. While

external analysis focuses on the environmental

threats and opportunities facing an organization,

internal analysis helps an organization identify its

organizational strengths and weaknesses. It also helps

an organization understand which of its resources and

capabilities are likely to be sources of competitive

advantage and which are less likely to be sources of

such advantages. Based on SWOT Analysis,

organizations can choose the appropriate strategy.

In order to evaluate MSMEs competitiveness, it is

important to understand their internal capabilities and

external distrubance as in SWOT Analysis. Thus,

study aimed to evaluate the application of SWOT

analysis within MSMEs in Medan. The study focused

on mapping the SWOT analysis within industry to

identify their strength, weakness, opportunity, and

threat in the modern market.

This research was conducted in an effort to

improve business competitiveness; not only survive

in competition, but also take advantage of

opportunities by penetrating international markets, at

least the ASEAN regional market. Strong

competitiveness makes the market stronger.

Consumers will not easily switch to imported

products. Conversely, if MSME competitiveness is

weak, their position will soon be replaced by

increasingly intense business competition.

2 LITERATURE REVIEW

SWOT analysis is a business analysis method that can

be used by each business entity in determining the

steps to be taken in the future to achieve maximum

business growth. Although called by the term

analysis, the SWOT analysis is not an analysis, but

rather the process of identifying internal and external

conditions of the company. Rangkuti (2011) states

that the results of the SWOT analysis are lists of the

company's strengths, weaknesses, opportunities and

threats. This list is then analyzed again to develop an

optimal strategy in the future.

Team FME (2013) described the use of a SWOT

analysis to identify situations that occur in the

company. Analysis of the company's situation is done

by looking at the internal conditions and external

conditions of the company. Internal conditions are

conditions that can be controlled by the company,

while internal conditions cannot be controlled by the

company. Strengths and weaknesses are part of the

company's internal analysis. Opportunities and

threats are part of the company's external analysis.

The literature review surrounding the SWOT

analysis is based on two main elements, namely

internal factors which are then grouped into strengths

and weaknesses and external factors which are then

grouped into opportunities and threats. Munizu

(2010) applied four internal aspects that were used as

the basis for operational evaluations of MSMEs,

namely aspects of human resources, financial aspects,

technical and production aspects and marketing

aspects. These four aspects will be the basis for

evaluating the internal factors of the business actors

in this study.

External factors are various things whose growth

and development are beyond the ability of the

business to control them. These external factors

include political, economic, social and cultural

aspects, technological aspects, the role of

government, the role of financial institutions. These

aspects will be used as a basis in evaluating whether

these aspects become opportunities or threats for

business actors. The basic strategy of SWOT analysis

can be summarized in Figure 1.

Developing Business Strategies for Featured SMEs in North Sumatera: SWOT Analysis Approach

285

Figure 1. Basic SWOT Analysis Strategy

3 RESEARCH METHOD

3.1 Research Time

This study was conducted in Medan, North Sumatera,

Indonesia from April through August 2019. There is

no specific reason to conduct the research in mean

time. However we focused in Medan as the capital of

North Sumatera in which has the most developed and

maintained MSMEs.

3.2 Participant

There were no adequate data for registered MSMEs

in 2019 which force the use of non-random sampling

in this study. A non-random sampling technique and

the use of stratified-convenience sample were

employed in this study. There are six featured

MSMEs in Medan, classifed as Batik, Leather,

Rattan, Food, Embroidery, and Souvenirs. Each

MSMEs group were represented by fifty business

units to participated in this study. A number of 300

MSMEs in total were participated in this study, which

implying the final sample size of 300 MSMEs

participated in this study. The subject for this study

was the MSMEs’ owner.

3.3 Data Collection Method

Self-administered questionnaires were employed

during our research. The questionnaires were based

on the literature review in which adopted to satisfy

our needs and mindset of MSMEs. Furthermore, in

order to avoid biases, we conducted interview based

on the questionnaires. The questionnaires included

items that measured internal and external condition of

MSMEs by using five-point Likert scales.

Characteristics such as educational attainment, sex,

and opinion toward strategic planning were collected.

The distrubuted questionnaires were identical and

were merged into a single dataset for our study

purpose.

3.4 Data Analysis Method

The SWOT analysis approach in this study uses a

combination of concurrent embedded model

methods, which are research methods that combine

the use of qualitative and quantitative research

methods together, where qualitative research methods

are the primary methods and quantitative research

methods as secondary methods. Quantitative

approaches are used to evaluate whether internal

factors of business actors include strengths or

weaknesses; This approach is also used to evaluate

external factors whether included in opportunities or

threats.

4 RESULT AND DISCUSSION

4.1 Demographic

The demographics of the study participants were

presented with the aim of seeing a general picture of

the research sample. The characteristics of the

participants in this study were grouped based on the

characteristics of the respondents in this study based

on the business group, the sex of the business actor,

the level of the last education, and the approach to

strategy development. A summary of the respondents'

characteristics is presented in Table 1.

Table 1. Demographic Participants

N PERCENTAGE

SMES

CLASSIFICATION

300

252

84,00%

80,67%

15,00%

15,67%

1,00%

3,67%

SEX

300

189

63,00%

73,00%

111

37,00%

30,33%

EDUCATIONAL

ATTAINMENT

300

5,00%

7,00%

15,67%

11,67%

190

63,33%

66,00%

10,00%

10,67%

4,00%

3,33%

2,00%

1,33%

EBIC 2019 - Economics and Business International Conference 2019

286

N PERCENTAGE

STRATEGIC

PLANNING

ADAPTATION

300

226

75,33%

85,33%

24,67%

14,67%

Table 1 provides a general description of MSMEs

in Medan that were sampled in this study. In general,

it can be stated that the majority of respondents are

microenterprises. The manager or owner of the

business unit is generally male. The most recent level

of education of the sampled business actors is

generally high school graduates, and most of the

study participants did not have a plan for their

business strategy..

4.2 Matrix Internal Factory Analysis

Summary (IFAS)

This study uses an equal weighting from each aspect

of the review on internal factors. Because all the

weights used are the same, the final score of each

internal factor comes from the evaluation used.

Classification based on strengths and weaknesses is

done by the middle value method, where the value

<3.0 will be grouped as weaknesses and above those

values are grouped as strengths. An evaluation of

internal business factors in Medan is summarized in

Table 2.

Table 2. Internal Factor Analysis

Internal

Capabilities

Indicator Score Classification

Human

Capital

Entre

reneurial 4,21 Stren

Motivation 3,98 Stren

Skills 2,21 Weakness

Visionary 2,33 Weakness

Financial Intern

Bud

etin

2,01 Weakness

Financial

Literac

2,91 Weakness

Financial

Recording

2,80 Weakness

Financial

Mana

ement

2,84 Weakness

Technical /

Operational

Materials 3,75 Strength

Production

acit

2,99 Weakness

Tools and

Machiner

2,15 Weakness

Quality

Control

2,90 Weakness

Market Product

Develo

ment

4,11 Strength

Internal

abilities

Indicator Score Classification

Distribution /

Chaneling

3,05 Strength

Pricing 2,95 Weakness

Promotion 2,80 Weakness

4.2.1 Strengths

The results of the evaluation of internal factors from

businesses in Medan generally indicate that there are

five things that are the strengths of businesses in

Medan. Entrepreneurial spirit, the evaluation carried

out indicates that there are a lot of creative ideas that

are owned by entrepreneurs in the city of Medan.

These ideas are also supported by the willingness to

take business risks. In terms of business motivation,

business actors have an unyielding attitude in running

a business and are supported with targets to be

achieved when carrying out business operations. In

terms of raw materials, businesses in the city of

Medan already have a stable supply of raw materials

related to good quality. This can encourage the

achievement of good product quality (Tobing,

Fathorazz, & Wulandari, 2018). From the marketing

aspect, businesses have strengths in terms of product

development as a realization of their creative ideas

and have a relatively good distribution channel.

4.2.2 Weaknesses

Behind the various strengths that have been described

previously, this business in Medan has various

weaknesses that make it vulnerable to external

exploitation and competition. In terms of business

resources, many of the businesses experience

constraints from the technical abilities of their

employees in running the business as optimal as

possible. In other words, the company's human

resources are generally uneducated and untrained.

The ability to see business opportunities (feasibility

study) owned is relatively low. Interesting ideas that

are not supported by good analysis in encouraging

and optimizing existing opportunities. All financial

aspects of a business in Medan City, on average, are

classified as weaknesses for the business. Many

businesses are difficult to develop with 'capital'

constraints that businesses do not want to try from

internal loans or retained earnings. Recording and

financial separation generally does not occur,

resulting in poor financial performance. Unclear

financial management also drives problems in the

financial aspect. In terms of the technical aspects of

production, equipment owned by business operators

Developing Business Strategies for Featured SMEs in North Sumatera: SWOT Analysis Approach

287

is generally simple and leaves plenty of room for

performance improvement. Unclear production

capacity makes the production system not run

efficiently. In addition, quality control is relatively

low among micro and small businesses. From the

marketing aspect, the weakness of the business in the

city of Medan lies in determining the price which

generally refers to the prevailing general price

regardless of the feasibility of the price with the

quality of the product. Besides promotion is often

considered as a cost-oriented activity rather than

investment to attract customers (Kartawinata &

Wardhana, 2013).

4.3 Matrix External Factory Analysis

Summary (EFAS)

This study uses an equal weighting from each aspect

of the review on internal factors. Because all the

weights used are the same, the final score of each

external factor comes from the evaluation used.

Classification based on opportunities and threats is

done by the middle value method, where the value

<3.0 will be classified as a threat and above that value

is classified as an opportunity. Evaluation of external

business factors is summarized in Table 3.

Table 3. External Factor Analysis

External

Aspect

Indicator Score Classification

Politic,

Economy, and

Social Aspect

Politic condition 3,06 O

ortunit

Economic

condition

3,84 Opportunity

Social facto

3,33 O

ortunit

Consumer

ehaviou

4,67 Opportunity

Governmental

Aspect

Public services 4,11 O

ortunit

Enterprise

incubato

3,12 Opportunity

Enterprise

empowerment

3,54 Opportunity

ulation 3,12 O

ortunit

Financial

Institution

Aspect

Financial

Assistance

3,75 Opportunity

Monitoring and

Evaluation

2,12 Threat

Develo

ment 3,11 O

ortunit

Partnershi

2,90 Threat

Competition Local com

etition 2,11 Threat

Internationalization 2,05 Threat

Free Trade 2,54 Threat

4.3.1 Opportunities

The political, economic and social conditions of the

business environment in Medan are relatively

conducive to business and business development.

Although this year's political turmoil is felt to be quite

strong, the conditions evaluated indicate that it is in a

category that is conducive to the leading cluster

business in Medan. The biggest opportunity is

obtained from the consumptive behavior of the

community which really makes the market in Medan

City very potential for various businesses. The role of

the government also provides promising

opportunities for business actors. Many business

development service units are provided by the

government for business conduciveness. The FTA

Center was opened in 2018 to help export

communities, especially micro, small and medium-

sized businesses by utilizing existing trade

agreements between countries. Regulations

established by the government tend to be pro-

business, such as tax relief to support the business

spirit of the community. In terms of financial

institutions, financial institutions provide benefits to

access to capital and also help the development of

human resources of business people through money

seminars.

4.3.2 Threats

The threat from the business environment in Medan

originates from business competition. Access to the

free market is essentially a double-edged sword

which will be an opportunity as well as a threat to

business people. Studies conducted indicate that the

current sharpness of the policy is more directed at

threats to the local market where businesses do not

want and are able to optimize the use of these

markets.

4.4 The Strategic Formulation

4.4.1 Strength-Opportunity Strategy

This strategy emerged as a product of a particular

company or business unit's perspective by optimizing

its strengths by exploiting the opportunities that exist.

The right strategy for the S-O quadrant is to focus on

exploiting opportunities by optimizing the strength of

the business (Inayati & Prasetya, 2017).

The main strengths of businesses in Medan are the

entrepreneurial spirit and good raw materials and

product development. The combination of these

strengths can form a variety of variations that build

market trends or improve the quality of market tastes

through product development and quality product

variants. As a control in this plan, an increase in

quality control efforts is needed. In addition, the

weaknesses that exist in the feasibility study need to

be improved so that they do not give morning losses.

EBIC 2019 - Economics and Business International Conference 2019

288

4.4.2 Strength-Threat Strategy

The perspective on this S-T strategy is to focus on

strength while avoiding threats that might occur in the

business environment. In other words, businesses

must be able to master the slogan of keeping up the

good work without being affected by threats that can

reduce the strength of the business (Anggraeni,

Mawardi, & Sunarti, 2018).

One strategy that can be developed from the

conditions of MSMEs in Medan is by continuing to

strive for the best quality products from the best raw

materials while still competing at the level of the

global market and the free competition market.

Businesses should not be shaken because competition

is getting tougher with new players. It should not

cross the minds of business actors that local products

will always be inferior to foreign products. Good

work that has been owned by the business must be

continuously improved. In addition, innovation can

be applied in optimizing strength while transforming

existing threats into business opportunities.

4.4.3 Weakness-Opportunity Strategy

The perspective of the W-O strategy is basically

determining the priority scale of what is to be done in

optimizing market opportunities that exist in the

external environment (Prastika & Sadjiarto, 2018).

The strategy that appears dominant in this region is

the use of access to capital from the government and

financial institutions in an effort to develop the

business. Opportunities that exist also cover

weaknesses and transform them into a potential step

in developing business. In addition, the government's

concern in developing and fostering business can be

access in developing business skills while building

better relations between the trainees.

4.4.4 Weakness-Threat Strategy

The strategic perspective on a combination product

between W-T is a defensive strategy or a defense

against the vulnerability of the business owned and

various threats that can exploit the existing

weaknesses. Business competition as the main threat

from businesses in the city of Medan must be

maintained and taken into account by continuing to

maintain the quality of production, building on

existing skills, and preparing price and promotion

strategies in order to survive the increasingly fierce

competition with the free market.

5 CONCLUSION AND

RECOMMENDATION

Based on our focus group discussion, there were The

current paper set out to analyze the internal and

external factor of MSMEs in Medan as the basic

approach for a strategic planning to improve their

competitiveness. It should be pointed out that the

current study suggested that our MSMEs take a

sustainability approach as they must not exploit the

current opportunities with many weaknesses. They

should take a baby steps to grow, transforming

weaknesses to strengths while slowly take the

opportunities. This paper also showed that many of

our MSMEs were vulnerable as their internal

capabilities has a lot of room for improvements. We

should take note that these condition were not

compared with other MSMEs so we could not stated

that it will be a problem yet. However this result

suggested that MSMEs should take it into their

consideration to build up their internal capabilities to

maximize the opportunities in near future.

ACKNOWLEDGMENTS

The authors gratefully acknowledge that the present

research is supported by Ministry of Research and

Higher Education. The support is under the research

grant PDUPT for year 2019

REFERENCES

Anggraeni, P., Mawardi, M. K., & Sunarti. (2018). Analisis

swot pada umkm keripik tempe amel malang dalam

rangka meningkatkan daya saing perusahaan. Jurnal

Administrasi Bisnis, 43(1), 104–113.

Badan Pusat Statistik. (2015). Industri Mikro dan Kecil,

accessed from bps.go.id

Houben, G., Lenie, K., Vanhoof, K., A. 1999. Knowledge-

based SWOT-analysis system as an instrument for

strategic planning in small and medium sized

enterprises, Decision Support Systems, 26, 125–135

Inayati, T., & Prasetya, H. (2017). Perumusan strategi

dengan analisis swot pada usaha mikro kecil menengah

(. Seminar Nasional Manajemen Dan Bisnis, 3, 217–

231.

Kartawinata, B. R., & Wardhana, A. (2013). Marketing

Strategies and Their Impact on Marketing Performance

of Indonesian Ship Classification Society. International

Journal of Science and Research, 4(2), 2319–7064.

Retrieved from www.ijsr.net

Munizu, M. (2010). Pengaruh Faktor-Faktor Eksternal dan

Internal Terhadap Kinerja Usaha Mikro dan Kecil (

Developing Business Strategies for Featured SMEs in North Sumatera: SWOT Analysis Approach

289

UMK ) di Sulawesi Selatan. Jurnal Manajemen Dan

Kewirausahaan, 12(1), 33–41.

Osita, I.C., Onyebuchi, I., Justina, N. 2014. Organization’s

stability and productivity: the role of SWOT analysis

an acronym for strength, weakness, opportunities and

threat. International Journal of Innovative and Applied

Research, 2(9), 23-32

Prastika, M., & Sadjiarto, A. (2018). Analisis SWOT Usaha

Mikro Kecil Menengah (UMKM) Di Industri Kreatif

Sarang Lebah Salatiga. Ecodunamica, 1(3).

Rangkuti, F. (2011). SWOT and Balanced Scorecard.

Jakarta: PT Gramedia Pustaka Utama.

Team FME. (2013). SWOT Analysis: Strategy Skills. ebook:

Free Management Ebook.

Tobing, D. S. K., Fathorazz, M., & Wulandari, G. A.

(2018). Mapping the Competitive Advantage of

MSMEs in East Java, Indonesia. Jurnal Dinamika

Manajemen, 9(1), 23–32.

https://doi.org/10.15294/jdm.v9i1.14649

World Bank. (2018). Global Economic Prospects 2018:

Trade, Regionalism, and Development

World Economic Forum. (2016). Global Competitiveness

Report 2013-2015. [Online]

http://reports.weforum.org/

Yuksel, I., Dagdeviren, M. (2007). Using the analytic

network process (ANP) in a SWOT analysis–A case

study for a textile firm, Information Sciences, 177,

3364–3382

EBIC 2019 - Economics and Business International Conference 2019

290