Empowering MSMEs in Indonesia: The Strategic Role of Universities in Fostering Innovation and Sustainability

1. Introduction

Micro, Small, and Medium Enterprises (MSMEs) play a strategic role in national and regional economies. In addition to being the primary drivers of economic growth, MSMEs contribute significantly to job creation. Empirical studies reveal that 90% of global trade is driven by MSMEs. In Indonesia, MSMEs act as a barometer of the nation’s economic health, contributing 53.3% to the national Gross Domestic Product (GDP) and serving as a key solution to addressing unemployment at both national and regional levels. (D. Rahadian, D. R., et al. 2024). Despite their significant contributions, MSMEs face numerous challenges, including limited access to capital, product innovation, marketing, and technology. These factors hinder their ability to enhance competitiveness, especially amidst the challenges of regional and global free trade agreements such as the ASEAN Economic Community (AEC) and the World Trade Organization (WTO). 1 In this context, strengthening the competitiveness of MSMEs through region-based advantages has become a vital policy aligned with the National Long-Term Development Plan (RPJPN) 2005–2025. A critical strategy to achieve this goal involves the active role of universities in providing both internal and external assistance to MSME actors.

University support, including training programs, mentoring, innovation development, and access to modern technology, has proven effective in enhancing the capacity and sustainability of MSMEs (Harsono, B., P, I., Napitupulu, H., Napitupulu, S., & Saiful, S., 2025). Additionally, collaboration between universities and MSMEs through programs such as Student Entrepreneurial Development (P2MW) and technological grants has resulted in significant impacts, such as improving operational efficiency and expanding market reach.

The study aims to evaluate the impact of university assistance on MSMEs, including aspects of capital, marketing, and innovation, while formulating relevant strategies for MSME development in addressing global economic challenges. (Affandi, A., et al., 2020).

2. Literature Review

Small Businesses are Essential to Study for Economic Growth

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in Indonesia’s economy, contributing significantly to employment generation and overall economic growth. Several theories explain their importance, including Inclusive Growth Theory, which posits that MSMEs drive economic inclusivity by creating opportunities for small entrepreneurs and reducing income inequality (Wahyudi, A. S., Yulivan, I., & Rahman, A. 2024).

Theory highlights that MSMEs enhance market competition and foster innovation, leading to more efficient resource allocation. Additionally, Digital Transformation Theory emphasizes the role of digital technology and e-commerce platforms in ensuring MSMEs remain competitive in the modern economic landscape (Wijaya, L. I., Zunairoh, Z., Izharuddin, M., & Rianawati, A. 2025).

Regarding regulations, Government Regulation No. 7/2021 establishes MSME classifications based on capital and annual revenue while also providing guidelines for business licensing (Kurniawaty, Y., Arie, M., Riza, M., & Liman, P. D. 2024).

The Job Creation Act (Omnibus Law) simplifies the business registration process and offers incentives to facilitate the formalization of MSMEs. Furthermore, Policies from the Ministry of Cooperatives and MSMEs focus on financial assistance, training programs, and digitalization efforts aimed at fostering MSME growth (Koesrianti, K., & Tanega, J. (2024). These regulatory frameworks are designed to create a supportive business ecosystem, strengthen MSME competitiveness, and promote sustainable economic development in Indonesia.

In Indonesia, Micro, Small, and Medium Enterprises (MSMEs) are categorized based on their net assets and annual revenue, as outlined by government regulations. Micro enterprises have net assets of up to IDR 50,000,000 and annual revenue not exceeding IDR 300,000,000. Small enterprises fall within a net asset range of IDR 50,000,000 to IDR 500,000,000, with annual revenue between IDR 300,000,000 and IDR 2,500,000,000. Meanwhile, medium enterprises possess net assets ranging from IDR 500,000,000 to IDR 10,000,000,000, with annual revenue between IDR 2,500,000,000 and IDR 50,000,000,000 (Hidayati, I., Sudarmiatin, S., & Hermawan, A. (2023). These classifications are essential for determining eligibility for government support, financial assistance, and business development initiatives, ensuring that MSMEs can thrive within Indonesia’s economic framework.

Micro Small and Medium Enterprises (MSMEs) play a critical role in promoting economic growth on both national and regional scales. Globally, MSMEs contribute approximately 90% of total trade (Harvie, C. 2019).

Their contribution to employment, as empirical studies suggest, is significant, making MSMEs a vital source of job creation internationally. In both developed and developing nations, including Indonesia, MSMEs have proven to be instrumental in addressing unemployment challenges.

In Indonesia, MSMEs are pivotal to national economic health. They not only contribute to industrial growth but are also a major source of Gross Domestic Product (GDP). According to the National Long-Term Development Plan (RPJPN) 2005-2025, strengthening national competitiveness through regional economic advantages is a priority (Jenar, S. 2023).

One of the key measures in achieving this is through SME development. Research indicates that Indonesia’s SMEs are responsible for job creation and GDP growth, with the Ministry of Cooperatives and SMEs reporting a national value-added contribution of IDR 1,778.75 trillion in 2006, representing 53.3% of the national GDP.

Studies show:

• The majority of MSMEs produce consumer goods, especially non-durable items.
• Many MSMEs rely heavily on non-bank financing due to limited access to banking services.
• MSMEs generally specialize in niche products, focusing solely on specific goods or services.
• The rise of new SMEs often stems from layoffs in the formal sector.

Given challenges such as global economic crises and free trade agreements, including WTO, AFTA, APEC, and ASEAN Economic Community (AEC), MSMEs must adapt to remain competitive. However, MSMEs face significant barriers, including limited capital and financial access, as most business owners rely on self-funding. Loan acquisition from banks or financial institutions is hampered by strict administrative and technical requirements.

Solutions Framework for Sustainability Consistent empowerment processes focusing on training, capital support, and marketing are crucial to ensuring the sustainability of SMEs. This study employs a qualitative research method, analyzing secondary data from literature on university support for SMEs in Indonesia, including academic publications and other relevant sources. The research incorporates critical reflection and comprehensive analysis of challenges and theories to address core issues.

Reswari, T. R. W. (2023) in studies stated that collaboration with the Ministry of State-Owned Enterprises highlights significant findings. Of SMEs surveyed, 72.47% faced challenges, while the remaining 27.53% operated without significant issues. Common problems identified include:

• Limited capital (51.09%).
• Marketing constraints (34.72%).
• Raw material shortages (8.59%).
• Workforce challenges (1.09%).
• Transportation and distribution difficulties (0.22%).
• Other issues (3.93%).

• In the study, highlights areas like technology adaptation, working capital, marketing strategies, innovation, entrepreneurship, and financial access as core focus areas (Hendrawan, S. A., Chatra, A., Iman, N., Hidayatullah, S., & Suprayitno, D. 2024). For Central Java, the potential of MSMEs lies in processing industries, agriculture, forestry, fisheries, and animal husbandry sectors. However, MSMEs struggle with innovation and competition, limiting their market reach and human resource capacity (Putri, E. P. 2024).
• In recent years, universities in Indonesia have provided significant support to SMEs. For instance, in 2020, 27 universities received IDR 2.7 billion in grants to empower MSMEs through technology. Initiatives like the Student Entrepreneurial Development Program (P2MW) also engage hundreds of campuses in fostering innovative and socially impactful businesses (Qin, X., Zhang, D., Zhao, Y., & Li, J. 2015)
• A study by Wahana Visi Indonesia (WVI), Yanto, & Warsid. (2023), key areas identified included:

• Capital support (44%).
• Marketing assistance (16%).
• Access to production resources (9%).
• Skill and knowledge development (5%).

Research Objectives

• What types of internal and external support can universities provide to Indonesian SMEs?
• What are the impacts of university support on MSME development in Indonesia?
• Why is university-provided internal and external support critical for SMEs?

MSMEs are a cornerstone of national and regional economic growth. While they play a significant role in job creation and GDP contribution, they face challenges such as limited capital, marketing barriers, and lack of access to modern technology. Addressing these issues requires substantial empowerment, with universities playing a crucial role. Internal assistance, such as training, innovation development, and mentorship, paired with external support like technological aid, market access, and public policy advocacy, enhances SME competitiveness. This qualitative research aims to evaluate university contributions to empowering MSMEs, offering sustainable and globally adaptive strategies.

3. Research Methodology

The use of multiple research methods is crucial in analyzing the impact of university-provided support for MSMEs in Indonesia, as it ensures a comprehensive and multidimensional understanding of the subject (Raymond, M. M. 2023). Perspectives, providing contextual insights into their challenges and the types of assistance required. Likewise, focus group discussions (FGDs) facilitate collaborative discussions among MSME actors, academics, and stakeholders, generating well-rounded perspectives on effective support mechanisms.

Meanwhile, quantitative methods contribute to empirical analysis by using surveys to systematically assess the effectiveness of assistance programs and measure their impact on MSMEs. Statistical analysis further enhances this approach by identifying patterns and relationships within the collected data, enabling researchers to draw objective conclusions and make informed recommendations.

Integrating mixed methods, such as combining interviews with surveys, enhances the depth of analysis by linking qualitative insights with quantitative findings, leading to a more holistic understanding of MSME support dynamics. Case studies provide detailed examinations of specific universities or regions, demonstrating how internal and external initiatives influence MSME development. Additionally, document analysis allows researchers to review university policies and MSME reports, offering secondary data that complements primary research findings.

Table 1. Measurable to University support, we are using a comparative analysis method to assess the differences before and after university support for MSMEs. More specifically, the methodology could involve:

• Survey Research – Collecting data from MSMEs before and after university intervention, measuring key business aspects like revenue growth and technology adoption.
• Case Study Approach – Examining specific MSMEs that received university support, analyzing changes in their business strategies and outcomes.
• Quasi-Experimental Method – Comparing two groups: MSMEs that received university support versus those that did not, to determine causal impacts.
• Statistical Analysis – Using tools like regression analysis or paired sample t-tests to quantify the significance of changes.

The multi-method approach, researchers ensure a well-rounded evaluation of MSME support strategies, enabling policymakers and institutions to implement more effective and evidence-based interventions that foster sustainable growth and development for MSMEs in Indonesia.

Table 1. Key Indicators and Statistics on MSMEs in 2023.

Indicator	Value	Significance
Total Number of MSMEs	66 million units	Represents a major sector of Indonesia’s economy
Contribution to GDP	61% (IDR 9,580 trillion)	MSMEs play a dominant role in national economic output
Employment Contribution	117 million workers (97% of labor force)	MSMEs are crucial for job creation and economic stability
Registered MSMEs in OSS System	8.71 million units	Formalized MSMEs benefit from regulatory and financial support

Number of MSMEs: 66 million units, Contribution to GDP: 61% of the national GDP, valued at IDR 9,580 trillion, Employment Contribution: 117 million workers (97% of the labor force), registered MSMEs in OSS System: 8.71 million units.

Table 1. Key Indicators and Statistics on MSMEs in 2023.

Indicator	Value	Significance
Total Number of MSMEs	66 million units	Represents a major sector of Indonesia’s economy
Contribution to GDP	61% (IDR 9,580 trillion)	MSMEs play a dominant role in national economic output
Employment Contribution	117 million workers (97% of labor force)	MSMEs are crucial for job creation and economic stability
Registered MSMEs in OSS System	8.71 million units	Formalized MSMEs benefit from regulatory and financial support

Number of MSMEs: 66 million units, Contribution to GDP: 61% of the national GDP, valued at IDR 9,580 trillion, Employment Contribution: 117 million workers (97% of the labor force), registered MSMEs in OSS System: 8.71 million units.