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Abstract
The purpose of this study is to determine the effect of capital, labor, and resources on the technical efficiency production of SMEs in West Sumatra and to see whether the SMEs production in West Sumatra is technically efficient. The type of data used in this study is panel data for 19 regencies/cities in West Sumatra from 2015 to 2021 using the Stochastic Frontier Analysis (SFA) approach. This research examines production efficiency technically at SMEs in the West Sumatra region. The result of this study indicates that the production factors of capital and resources have a positive and significant effect on the production of SMEs in West Sumatra, while labor has a negative and insignificant effect on the production of SMEs in West Sumatra. The result of the technical efficiency calculation shows that the mean level of technical efficiency of the SMEs production in West Sumatra from 2015 to 2021 is 0.543 or 54.3 percent, which means that production in SMEs is technically inefficient. This research implies that the government can compile regulations and road maps that can increase the productivity of SMEs in the West Sumatra region, and for SMEs to be able to engage more broadly with sustainable programs for production efficiency such as attending training and business guidance, using the rural business credit program from the government, as well as establishing cooperation partners for raw materials with other SMEs.
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References
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- Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Carlo Application to Data : Evidence and an Employment Equations. Oxford University Press, 58(2), 277–297. https://doi.org/10.2307/2297968
- Badan Pusat Statistik. (2019). Profile of Micro and Small Industries in West Sumatra Province. Badan Pusat Statistik Provinsi Sumatera Barat. https://doi.org/6104006.13
- Badan Pusat Statistik. (2020). Profile of Micro and Small Industries in West Sumatra Province. Badan Pusat Statistik Provinsi Sumatera Barat. https://doi.org/6104006.13
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- Hanafi, R. (2017). Analysis of the Efficiency of Using Production Factors in Small and Medium Furniture Industries in Pekanbaru City. Jurnal Online Mahasiswa Fakultas Ekonomi, 4(1), 883–897. https://jom.unri.ac.id/index.php/JOMFEKON/article/view/12964
- Ho, T. Q., Yanagida, J. F., & Illukpitiya, P. (2014). Factors Affecting Technical Efficiency of Small- holder Coffee Farming in the Krong Ana Watershed , Vietnam. Asian Journal of Agricultural Extension, Economics & Sociology, 3(1), 37–49. https://doi.org/10.9734/AJAEES/2014/6599
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- Kleine-Moellhoff, P., Braun, A. T., Reichenberger, V., & Seiter, S. (2018). Approach to enable a material efficiency-strategy for small and medium sized manufacturing enterprises. Procedia CIRP, 69, 787-792. https://doi.org/10.1016/j.procir.2017.11.106
- Le, V., Vu, X. B. B., & Nghiem, S. (2018). Technical efficiency of small and medium manufacturing firms in Vietnam: A stochastic meta-frontier analysis. Economic Analysis and Policy, 59, 84-91. https://doi.org/10.1016/j.eap.2018.03.001
- Loku, A., Loku, N., & Baftiu, N. (2021). Small and Medium Enterprises: Importance for the Kosovo Economy. Technium Social Sciences Journal, 1(3), 215–221. https://doi.org/2668-7798
- Mankiw, N. G. (2019). Principles of Economics (ninth). Harvard university. www.cengage.com/highered
- Meeusen, W., & Broeck, J. Van Den. (1977). Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error. International Economic Review, 18(2), 435–444. https://doi.org/10.9734/AJAEES/2014/6599
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- Minangsari, F., Robiani, B., & Mukhlis, M. (2019). The Efficiency of the Pharmaceutical Industry in Indonesia: A Stochastic Frontier Approach. Jurnal Ekonomi Pembangunan, 17(2), 49–58. https://doi.org/10.29259/jep.v17i2.8949
- Moehadi. (2021). The Effect of Labor and Raw Materials on Production Results at Home Industry Tofu in Kabunan Village, Balen District, Bojonegoro Regency, Indonesia. International Journal of Arts and Social Science, 4(6), 111-114.
- Mohammed, M. J., Alyaseen, M., & faez hasan, M. (2023). Role of Company’s Efficiency Measure in achieving return: Iraq’s Private Banks Case. Technium Social Sciences Journal, 39(1), 377–392. www.techniumscience.com%0ARole
- Ndubisi, N. O., Zhai, X. A., & Lai, K. H. (2021). Small and medium manufacturing enterprises and Asia's sustainable economic development. International Journal of Production Economics, 233, 107971. https://doi.org/10.1016/j.ijpe.2020.107971
- Ngatindriatun, Saraswati. L. A., Hardiyansyah., & Aries. (2018). Production Efficiency Analysis for Empowerment Strategy of Troso Weaving Craft Micro, Small, and Medium Enterprises (SMES) in Jepara Central Java. Pertanika Journal of Social Sciences & Humanities, 26(March), 193-198.
- Niemeyer, C. L., Gehrke, I., Müller, K., Küsters, D., & Gries, T. (2020). Getting Small Medium Enterprises started on Industry 4.0 using retrofitting solutions. Procedia Manufacturing, 45, 208-214. https://doi.org/10.1016/j.promfg.2020.04.096
- Ogawa, K. (2023). Technical inefficiency and firm behavior: A panel study of small and medium Japanese manufacturing firms. Social Sciences & Humanities Open, 7(1), 100388. https://doi.org/10.1016/j.ssaho.2022.100388
- Okumu, I. M., & Buyinza, F. (2018). Labour productivity among small-and medium-scale enterprises in Uganda: the role of innovation. Journal of Innovation and Entrepreneurship, 7(1), 1-17. https://doi.org/10.1186/s13731-018-0095-2
- Özbuğday, F. C., Fındık, D., Özcan, K. M., & Başçı, S. (2020). Resource efficiency investments and firm performance: Evidence from European SMEs. Journal of Cleaner Production, 252, 119824. https://doi.org/10.1016/j.jclepro.2019.119824
- Pérez-Gómez, P., Arbelo-Pérez, M., & Arbelo, A. (2018). Profit efficiency and its determinants in small and medium-sized enterprises in Spain. BRQ Business Research Quarterly, 21(4), 238-250. https://doi.org/10.1016/j.brq.2018.08.003
- Radlińska, K. (2023). Some Theoretical and Practical Aspects of Technical Efficiency—The Example of European Union Agriculture. Sustainability, 15(18), 13509. https://doi.org/10.3390/su151813509
- Rahim, A. (2016). Basic Economic Theory with Equation Function Models (Research case studies) (M. Hasan (ed.); 1st ed.). PKBM Rumah Buku Carabaca Makassar.
- Salas-Velasco, M. (2018). Production efficiency measurement and its determinants across OECD countries: The role of business sophistication and innovation. Economic Analysis and Policy, 57(March), 60-73. https://doi.org/10.1016/j.eap.2017.11.003
- Susanti. (2021). The performance of Micro, Small and Medium Enterprises sector in the era of ASEAN-China Free Trade. Technium Social Sciences Journal, 17(3), 194–211.
- Thiede, S., Posselt, G., & Herrmann, C. (2013). SME appropriate concept for continuously improving the energy and resource efficiency in manufacturing companies. CIRP Journal of Manufacturing Science and Technology, 6(3), 204-211. https://doi.org/10.1016/j.cirpj.2013.02.006
- Tinneke, L., Kolanus, O., Rumate, V. A., & Engka, D. S. M. (2020). Factors that Influence the Income of Micro and Small Enterprises (UMK) in Manado City. Jurnal Pembangunan Ekonomi Dan Keuangan Daerah 21(4), 46–62. https://doi.org/10.35794/jpekd.32837.21.4.2020
- Walter, N. (2008). Microeconomic Theory Basic Principle and Extensions. South-Western Cengage Laerning.
- Wati, R., Rohmah, M., & Rahmadani, R. (2021). The Influence of Raw Material Availability on the Income of Roof Tiles Craftsmen in the Village of Gedung Rejo BK IX Belitang Oku Timur. UTILITY: Jurnal Ilmiah Pendidikan Dan Ekonomi, 5(01), 24–34. https://doi.org/10.30599/utility.v5i01.1168
- Wu, S. H., Lin, F. J., & Perng, C. (2022). The affecting factors of small and medium enterprise performance. Journal of Business Research, 143, 94-104. https://doi.org/10.1016/j.jbusres.2022.01.025
References
Aigner, D., Lovell, C. A. K., & Schmidt, P. (1977). Formulation and Estimation of Stochastic Frontier Production Function Models. Journal of Econometrics, 6(1), 21–37. https://doi.org/10.1016/0304-4076(77)90052-5
Aldida, B., Santosa, P. B., Iesp, J., Ekonomika, F., & Diponegoro, U. (2013). Analysis of Production and Efficiency of Handwritten Batik Small and Medium Industries (IKM) in Semarang City. Diponegoro Journal of Economics, 2(1), 1–10. https://doi.org/http://ejournal-s1.undip.ac.id/index.php/jme
Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Carlo Application to Data : Evidence and an Employment Equations. Oxford University Press, 58(2), 277–297. https://doi.org/10.2307/2297968
Badan Pusat Statistik. (2019). Profile of Micro and Small Industries in West Sumatra Province. Badan Pusat Statistik Provinsi Sumatera Barat. https://doi.org/6104006.13
Badan Pusat Statistik. (2020). Profile of Micro and Small Industries in West Sumatra Province. Badan Pusat Statistik Provinsi Sumatera Barat. https://doi.org/6104006.13
Badan Pusat Statistik. (2021). West Sumatra Province in Figures 2021. Badan Pusat Statistik Sumatera Barat. https://doi.org/1102001.13
Case, K. E., Fair, R. C., & Oster, S. M. (2017). Principle of Microeconomics (12 (ed.); Global). United Stated of America.
Hanafi, R. (2017). Analysis of the Efficiency of Using Production Factors in Small and Medium Furniture Industries in Pekanbaru City. Jurnal Online Mahasiswa Fakultas Ekonomi, 4(1), 883–897. https://jom.unri.ac.id/index.php/JOMFEKON/article/view/12964
Ho, T. Q., Yanagida, J. F., & Illukpitiya, P. (2014). Factors Affecting Technical Efficiency of Small- holder Coffee Farming in the Krong Ana Watershed , Vietnam. Asian Journal of Agricultural Extension, Economics & Sociology, 3(1), 37–49. https://doi.org/10.9734/AJAEES/2014/6599
Irmawati, S. (2016). The Analysis on Leading industries in Central Java Province. JEJAK: Jurnal Ekonomi Dan Kebijakan, 8(2), 215-228. doi:http://dx.doi.org/10.15294/jejak.v8i2.6172
Jiang, R., Kang, Y., Liu, Y., Liang, Z., Duan, Y., Sun, Y., & Liu, J. (2022). A trust transitivity model of small and medium-sized manufacturing enterprises under blockchain-based supply chain finance. International Journal of Production Economics, 247, 108469. https://doi.org/10.1016/j.ijpe.2022.108469
Kleine-Moellhoff, P., Braun, A. T., Reichenberger, V., & Seiter, S. (2018). Approach to enable a material efficiency-strategy for small and medium sized manufacturing enterprises. Procedia CIRP, 69, 787-792. https://doi.org/10.1016/j.procir.2017.11.106
Le, V., Vu, X. B. B., & Nghiem, S. (2018). Technical efficiency of small and medium manufacturing firms in Vietnam: A stochastic meta-frontier analysis. Economic Analysis and Policy, 59, 84-91. https://doi.org/10.1016/j.eap.2018.03.001
Loku, A., Loku, N., & Baftiu, N. (2021). Small and Medium Enterprises: Importance for the Kosovo Economy. Technium Social Sciences Journal, 1(3), 215–221. https://doi.org/2668-7798
Mankiw, N. G. (2019). Principles of Economics (ninth). Harvard university. www.cengage.com/highered
Meeusen, W., & Broeck, J. Van Den. (1977). Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error. International Economic Review, 18(2), 435–444. https://doi.org/10.9734/AJAEES/2014/6599
Mia, M. A., & Soltane, B. I. B. (2016). Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries. Economic Analysis and Policy, 51(September), 32-45. https://doi.org/10.1016/j.eap.2016.05.003
Minangsari, F., Robiani, B., & Mukhlis, M. (2019). The Efficiency of the Pharmaceutical Industry in Indonesia: A Stochastic Frontier Approach. Jurnal Ekonomi Pembangunan, 17(2), 49–58. https://doi.org/10.29259/jep.v17i2.8949
Moehadi. (2021). The Effect of Labor and Raw Materials on Production Results at Home Industry Tofu in Kabunan Village, Balen District, Bojonegoro Regency, Indonesia. International Journal of Arts and Social Science, 4(6), 111-114.
Mohammed, M. J., Alyaseen, M., & faez hasan, M. (2023). Role of Company’s Efficiency Measure in achieving return: Iraq’s Private Banks Case. Technium Social Sciences Journal, 39(1), 377–392. www.techniumscience.com%0ARole
Ndubisi, N. O., Zhai, X. A., & Lai, K. H. (2021). Small and medium manufacturing enterprises and Asia's sustainable economic development. International Journal of Production Economics, 233, 107971. https://doi.org/10.1016/j.ijpe.2020.107971
Ngatindriatun, Saraswati. L. A., Hardiyansyah., & Aries. (2018). Production Efficiency Analysis for Empowerment Strategy of Troso Weaving Craft Micro, Small, and Medium Enterprises (SMES) in Jepara Central Java. Pertanika Journal of Social Sciences & Humanities, 26(March), 193-198.
Niemeyer, C. L., Gehrke, I., Müller, K., Küsters, D., & Gries, T. (2020). Getting Small Medium Enterprises started on Industry 4.0 using retrofitting solutions. Procedia Manufacturing, 45, 208-214. https://doi.org/10.1016/j.promfg.2020.04.096
Ogawa, K. (2023). Technical inefficiency and firm behavior: A panel study of small and medium Japanese manufacturing firms. Social Sciences & Humanities Open, 7(1), 100388. https://doi.org/10.1016/j.ssaho.2022.100388
Okumu, I. M., & Buyinza, F. (2018). Labour productivity among small-and medium-scale enterprises in Uganda: the role of innovation. Journal of Innovation and Entrepreneurship, 7(1), 1-17. https://doi.org/10.1186/s13731-018-0095-2
Özbuğday, F. C., Fındık, D., Özcan, K. M., & Başçı, S. (2020). Resource efficiency investments and firm performance: Evidence from European SMEs. Journal of Cleaner Production, 252, 119824. https://doi.org/10.1016/j.jclepro.2019.119824
Pérez-Gómez, P., Arbelo-Pérez, M., & Arbelo, A. (2018). Profit efficiency and its determinants in small and medium-sized enterprises in Spain. BRQ Business Research Quarterly, 21(4), 238-250. https://doi.org/10.1016/j.brq.2018.08.003
Radlińska, K. (2023). Some Theoretical and Practical Aspects of Technical Efficiency—The Example of European Union Agriculture. Sustainability, 15(18), 13509. https://doi.org/10.3390/su151813509
Rahim, A. (2016). Basic Economic Theory with Equation Function Models (Research case studies) (M. Hasan (ed.); 1st ed.). PKBM Rumah Buku Carabaca Makassar.
Salas-Velasco, M. (2018). Production efficiency measurement and its determinants across OECD countries: The role of business sophistication and innovation. Economic Analysis and Policy, 57(March), 60-73. https://doi.org/10.1016/j.eap.2017.11.003
Susanti. (2021). The performance of Micro, Small and Medium Enterprises sector in the era of ASEAN-China Free Trade. Technium Social Sciences Journal, 17(3), 194–211.
Thiede, S., Posselt, G., & Herrmann, C. (2013). SME appropriate concept for continuously improving the energy and resource efficiency in manufacturing companies. CIRP Journal of Manufacturing Science and Technology, 6(3), 204-211. https://doi.org/10.1016/j.cirpj.2013.02.006
Tinneke, L., Kolanus, O., Rumate, V. A., & Engka, D. S. M. (2020). Factors that Influence the Income of Micro and Small Enterprises (UMK) in Manado City. Jurnal Pembangunan Ekonomi Dan Keuangan Daerah 21(4), 46–62. https://doi.org/10.35794/jpekd.32837.21.4.2020
Walter, N. (2008). Microeconomic Theory Basic Principle and Extensions. South-Western Cengage Laerning.
Wati, R., Rohmah, M., & Rahmadani, R. (2021). The Influence of Raw Material Availability on the Income of Roof Tiles Craftsmen in the Village of Gedung Rejo BK IX Belitang Oku Timur. UTILITY: Jurnal Ilmiah Pendidikan Dan Ekonomi, 5(01), 24–34. https://doi.org/10.30599/utility.v5i01.1168
Wu, S. H., Lin, F. J., & Perng, C. (2022). The affecting factors of small and medium enterprise performance. Journal of Business Research, 143, 94-104. https://doi.org/10.1016/j.jbusres.2022.01.025