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Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 239
THE ROLE OF CREATIVE ECONOMY TO SUPPORT FAMILY BUSINESS
(Case Study of Small Medium Family Business in Palembang)
Etty Susilowaty1)
Pandu Adi C2)
Dedi Rianto Rahadi3)
1) 2) 3) Faculty of Business, Management Major
University President, Jababeka, Jababeka Indonesia
ABSTRACK
Big companies begin as a small business that run by a family. It runs profesionally so it
manage not only grow but became conglomerates. Family can manage by family members or
professional or both by family members and professional. Small and Medium Entreprises
mostly managed by by family members. In our research we find that SME that run by
families gives result below their own target and expectations. Our research object are 80
SME in Palembang that operate in various fields. Our research method is qualitative
descritive. Our findings that most of family business revenue are below 100 millions. These
firm are establish in average are less than 2 years. Most of our SME sample is still run by
first generations. Internal challenges that face by SME are development of product, funding
and technology. Meanwhile external challenges are competition, market condition and
volatility of raw materials. Our suggestions are family business need to use creativity to
innovate in order to make family business sustainble until next generations.
Keyword: Family business, creative economy, SME
BACKGROUND
Palembang Industrial Board stated that each year SME in Palembang is increase in average
3,66 percent. Number of SME increase from 31.344 in 2013 became 32.706 in 2014. SME
are crucial to urban communities because they unemployed people who otherwise became
social burden. SME categories as household firm, trade and services. SME mostly run by
families and experiencing both downturn and upturn in economy cycles. Most of the times
this cycles make the result is below their own expectation.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 240
Family business begin with people who related to each other, where each of members
are parts of their parent business. Handler (1994) and Lansber (1986), there are so few
numbers of native Malayan can last for generations. Previous research on native Malayan
business commonly not sustain and cannot last long. Of course, until now we can see some of
Malayan business that still striving like, Fikri Collection, Cek Ipah, Cek Ilah, Zainal Songket.
Zainal Songket is a third generation entrepreneur from Cek Ipah family that trade songket.
Family business is separate to two elements, they are families and business with each
had their own characteristics. Family is a comprehensive system that consist of parent and
child (nuclear family) and then there is grandchild in second generation. Family had
conservative nature, it tend to resist change keep up a steady condition. In other words,
family orientation is inward looking. Though there are families that market oriented and take
every opportunity that exist in market. These are outward looking families. Business is an act
of resources use to gain economic profit or other benefits. Business has different
characteristic with market and it is not easy to join these two systems. Ward and Aronoff
(2002), firm could be categorized as family business if there are at least two families that run
the firm. Donnelley (2002) in his book The Family Business, states that firm named as family
business if there are two generation from the family that involved and controlling firm
financial decision. In business term, there are two types of family business. First, family
business that runs by professional executive outside from families. Second, family business
that runs by founder‟s families
(Susanto et.al. 2008).
In the process of running family business, it is often there is conflict of interest
between running the firm and families needs. Ideally, there is balance between these two. In
reality, family consideration are more dominant than professional consideration. Management
are more like to see in looking than out looking toward future business prospect. Their time
wasted for more for internal family matter because of different opinion that arise. The rise of
internal conflict will consume time and energy. Management issues put aside this conflict
resolution process. Also family consideration is one of reason that management averse to
change. Their reason is current management system is a tradition and it is important to keep
family intact. Ideally a business is dynamic in facing changes.
Small Medium sized family business run by less professional manager. These factors
have consequences such as sustainability of firms. Also this manager are usually still under
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 241
strong influence of the family members and make decision based on favourites of the family.
This research purposes are to analyse development of creative economy and how it can
support family business sustainability. The idea of creative economy is how creativity can
add value to a product in marketplace. Creative economy can help a firm product to evolved
and avoiding stagnant sales. Researcher hopes that by using creative economy mindset that
combine modern method and traditional value, family business could face the increasing
competition era.
LITERATURE REVIEW Creative economy is depend and based on human capital or some literature also called as
creative capital. Creative economy need human resources that had creativity and able to
translate it into goods and services with high economic value. The production process could
follow industrial economic approach but in the beginning it need to start with idea and
creativity. According to Simatupang (2007)
“Creative industry that based on talent, skills and creativity that had potential to increase
welfare through supply of intellectual creation.” Meanwhile, The UK‟s definition of creative
industries based on personal creativity to create wealth through development of intellectual
capital. Thirteen sectors that included are: advertising, architecture, art and antiques, craft,
design, fashion, movie, interactive game software, music, performing art, publishing,
software, television and radio. We can summarize that creative economy is user creativity in
changing products or services into a unique offering by using information technology to gain
competitive advantage.
Family Business According to PWC, family business in Indonesia is experiencing higher growth compare to
global average in 2013. Competition make Indonesian firm had to adapt faster develop
innovation, and professionalism in operating their business. Creative industries is one option
to support family business sustainability. In Indonesia, example of successful family business
are: Maspion, Ciputra, Nyonya Meneer, Sido Muncul and Lippo.
SME toolkit defines family business as firm where most vote in the hand of founder
and their successor. PWC define family business as firm where most of voting rights in
founder hand or people who acquire firm, such as spouse, parent or successor. At least there
are family representative that involved in management or firm administration.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 242
Another limitation of family business stated by John L Ward and Craig (2003).
Family business is firm that consist of two or more family member that look after firm
financial condition. Robert Donnely (2002) an organization could named as family business
if their involvement at least two generation that could affect firm decision-making. We can
say, family business is a business that runs by nuclear family members, that involved first
and second generation, and so forth with sustainability as goal.
Robert G Donnelley (2002) categorized family business into two distinction. First,
Family Owned Enterprise (FOE), a family owned business that managed by professional
manager from outside of the family. In this type, family still hold ownership but only held
small or insignificant role in managing business. This type also serves as logical continuation
from family business that in the beginning runs by the owner. Second type of family business
is company that continuously held by their founder and generations after it. In this type,
important place inside the firms are held by family members.
In 2014, PWC conduct survey of family business in Indonesia. Survey shows, more
than 95 percent of Indonesian family are family business. That survey also shows that more
than 40 thousands rich people in Indonesia or about 0,2 percent of total population running
family business. Total wealth
of these people are up to 134 trillion rupiah or about 25 percent Indonesian Gross Domestic
Product. In case of go public companies, families hold 25 percent of firm shares and at least
one of family member had directorship role. Survey also show that more than 60% family
business had one and two successors. Majority of family business put their family member as
Director (47 percent) or Finance Director (23 percent) and other strategic roles. This act also
serves as learning tools and control for the family. In Indonesian family business 52 percent
of its Board of Director consist of family member and 48 percent are outside the family.
Majority family business management is family and only 13 percent is owner that not
involved in management. In case of succession more than 50 percent of family business is
planning to keep ownership to next generation but still involved professional to run firm
working. Meanwhile 25 percent planned not to involved outside management in firm
succession.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 243
Small Medium Family Business
Small and Medium Enterprise have important roles in econnomy (Bank Indonesia,
2015). There are many questions about family business in SME. The main question is
whether Small Medium Family Business could follow the track of well established family
business? How about management for Small Medium Family Business? In general Small
Medium Enterprise divided based on family involvement and non family involment
(Gabrielsson and Huse, 2005). Small Medium Family Business also could also divided into
ownership of family members (Dhewanto et.al, 2012)
In Indonesia, Laws that regulate Small Medium Enterprise is Law nomor 20 year
2008. The law stated that company is categorized as Small Medium Entreprise is they are run
by a person or people with certain wealth and revenue.” Based on that law, Small Medium
Enterprise that involved in songket business in Palembang is quite numerous. Industrial and
Commerce Chamber of Palembang (2011), there are 150 owner of songket business in
Palembang. Each songket business have around 5 to 10 craftmen. These craftment are mostly
housewifes around songket business. Songket business is mostly are run in families,
generation after generation.
RESEARCH METHODS
Research methods are rules, activities and rules that used by a discipline. Research
methods also a theoretical analysis about how things get done. Research also mean a
systematic approach to increase amount of knowledge in a specific field to reach a
conclusion for a problem. Made Winartha (2006) descriptive analytic method is research
method that describe, and summarizing conditions from various data. These data gathered
through interview or observation in field.
Object of this research are 80 Small Medium entrepreneur in Palembang. Our
informant is first and second generation. This research using first and second generation
because it based on family business definition. This research will try to explain and analyse
Small Medium family business around Palembang area.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 244
RESULT AND DISCUSSION
Our respondent profiles shows that there are 31 respondents who have revenue more than 50
millions and 37 respondent with revenue more than 51 until 100 millions a year. There are 9
respondent that have revenue between 102 and 200 millions and 3 respondent with revenue
between 201 and 500 million. This result shows that revenue runs by family is still relatively
low and need to increase from micro level to small and medium. Revenue could be increase
through creative economy based on it sector. Micro business could innovate through product
quality, sales channel and services.
Table 1. Revenue
Revenue
37
31
9
3
<50 Juta 51 s/d
100 101 s/d 201 s/d
> 501
Juta
Juta 200 Juta 500 Juta
Second table shows firm with age less than 2 year are 35 respondent, 2 up to 5 years
as many as 28 respondent, 5 up to 10 years are 15 respondent and less tha 10 years are 2
respondent. This shows that most of respondent is growing firms and not yet reach maturity
stages.
Table 2. Firm Age
Firm Age
35 28
15
2
< 2 Tahun 2 s/d 5 Tahun 5 s/d 10 tahun > 10 tahun
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 245
Third table shows business sector. Most common business sectors are culinary,
fashion, trade, craft and services. Result also shows that the main choices are still culinary
and fashion.
Table 3. Business Sector
Business Sector
32
23 15
5 5
Perdagaan Jasa Kuliner Kerajinan Fesyion
Table 4 shows most of family business dominated by first generation that just starting
their business. There are only 4 small businesses that run by second generation and all them
arechildren of the founder.
Table 4. Succession in Small Medium Family Business
Successors
76
4
Generasi 1 Generasi 2 Generasi 3
Table 5 shows an internal problem faced by family business is complex, where respondent
face more than one problems. Product development and business sustainability are the main
challenge of family business. This condition need to dealt by family business management by
being creative and creative so firm can sustain until next generation. Second problem faced
by family business is financial limitation. This happen because small medium family business
have limited access to banks. Legal and license, business ownership, and collateral became
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 246
barrier to related with banks.Though there are also family business that do not have these
issues because they have high revenue and run professionally. Limited use of technology also
act as barrier for small medium family business. Technology that they used is still a
conventional ones. It includes technology to produce and technology to marketing it. Human
resources problem is not main problem because small medium family business are labor
intensive and not capital intensive.
From those internal problem, family business need to increase the usage of technology as
basis of creative economy to better producing better product and services. Human resources
are also need to educated because they are successor of family business.
Table 5. Internal Challenges faced by Small Medium Family Business
315 Internal Challenges
310 312
56
Pengembanga
n Ketersedian Ketersedian
Keterbatasa
n
Bisnis/produk Keuangan Teknologi SDM
Table 6 shows external problem face by family business are various. Almost all problem that
existed became their problems. Competition, market condition and price of raw materials are
dominant problems that faced by family business. In order to deal with this problem by
choosing market segment that had big prospective.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 247
Table 6. External Problem that faced by Small Medium Family Business
External Problems
298 313 303
10 14
DISCUSSION
Family business especially Small Medium Enterprise are more prone to face
competition. Family business success usually short periods and enjoyed by first
generation. Though it faced by complex problems, family business are struggling to
survive because they are main source of income for the families. There are fundamental
difference between family and non family business like graph below:
Table 7. Difference between Family Business and Non Family Business
Family Business Non Family Business
Main goal is firm sustainibility. Main goal is to maximize firm value in short term.
Main considertaion are wealth preservation and
Main consideration are investor expectation represented by
Commissioner and Director.
owner reputation.
Risk philosophy of family business is to protect
and maintain risk at minimum level. Risk philosopy is high risk high return.
Strategy toward adaptation Strategy toward growth
Management focus on basic improvement Management focus on innovation.
Most important stakeholder are customer and Most important stakeholder is shareholder and management.
employee.
Business consider as asset that could be closed
Business as social institution. down and sold.
Leader as a governing Leader as personal charismatic character
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 248
From survey, not all family business are poor managed. There are family business
that manage better than non family business. Many reason that figure management quality.
Those factors are strategy, family culture, managerial skill. Based on observation, many
conglomerates firm in Indonesia are family owned. This conglomerate firm start from
small family business that growth continually and became big. In the beginning, the
management pattern are uncomplicated. All family member put their effort to make
business continue to grow. There are cultural value, religion and philosophies that build
by first generation that given to second generation and so on.
Challenges start to occur when family business start to grow and need helps from
outside people. Family members started to need helps from employee and others. If these
conditions not run professionally, there could be cultural clash and conflict. In one hand
family members emphasis on family interest meanwhile business matter force family
business to become professional. This matter solved by respected family member as
founder to decide family business sustainability.
Creative economy could be a choice for a family business with small medium size to
keep up and increase its business prospect. For example, culinary business can use famous
brand name like “Pempek Palembang”, just like “Padang restaurant”. How a family business could manage
and design the well-known brand such as “Pempek Palembang” could be accepted not only in
Palembang but all over Indonesia. Some Small Medium Family Business uses its attribute as
“family matters” in communication and marketing. Fashion and Songket family businesses
use family names such as Zainal Songket, Cek Ipak, Cek Ilah, Fikri collection and others.
Family business put these attributes to differentiate between these family business with other
firm. They feel proud with family identities and therefore put their identity toward business.
They promote this family identity to all stakeholder such as suppliers, employee, future
employee dan of course customer. Other reason are family identity could inspire and grow
positive value to other family member and especially next generation family member. Those
values are commitment, integrity, trust, quality orientation, and care to customer.
Graph 1 shows clear concept and courage to transform family business in SME to
become creative economy industry. By using creative economy their product could be useful
to society and customer. It also could increase sustainability for their family business.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 249
FAMILY BUSINESS
SEKTOR UMKM
TRA
NFO
RM
ASI
CREATIVE
ECONOMY
WANT TO
Concept Transformation
Familiy Business to
Creative Economy
Graph 1. Transformation from Small Medium Family Business to Small Medium
Family Business that using the power of creative economy
SUMMARY AND SUGGESTION
Small Medium Family business is the family source of income and it needs to sustained.
Small Medium family business reduce poverty rate and unemployment. That is why it is
important for families to think forward and see that their family business it is not temporary
but need to sustained until next generation. Creative economy could be one of solutions. Of
course it is also need support by government. The next generations also play a critical role. If
the next generations had the capabilities that proven, family business could grow with
creative economy. There are needs for knowledge transfer from first generation to second
generation and so on.
Proceeding 2nd Sriwijaya, Economics, Accounting, and Business Conference 2016
ISBN 979-587-627-9 250
REFERENCES
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Scorebook. Marietta: Family Enterprise Publisher. Gabrielsson, J., & Huse, M. (2005). „„Outside‟‟ directors in SME boards: A call for
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