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Effendi, S.A.; Sukoharsono, E.G.; Purwanti, L.; Rosidi, R. Village Business Sustainability in Indonesia. Encyclopedia. Available online: https://encyclopedia.pub/entry/49757 (accessed on 03 May 2024).
Effendi SA, Sukoharsono EG, Purwanti L, Rosidi R. Village Business Sustainability in Indonesia. Encyclopedia. Available at: https://encyclopedia.pub/entry/49757. Accessed May 03, 2024.
Effendi, Soelchan Arief, Eko Ganis Sukoharsono, Lilik Purwanti, Rosidi Rosidi. "Village Business Sustainability in Indonesia" Encyclopedia, https://encyclopedia.pub/entry/49757 (accessed May 03, 2024).
Effendi, S.A., Sukoharsono, E.G., Purwanti, L., & Rosidi, R. (2023, September 28). Village Business Sustainability in Indonesia. In Encyclopedia. https://encyclopedia.pub/entry/49757
Effendi, Soelchan Arief, et al. "Village Business Sustainability in Indonesia." Encyclopedia. Web. 28 September, 2023.
Village Business Sustainability in Indonesia
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This entry is adapted from the peer-reviewed paper 10.3390/su151813703

Village-owned enterprises are expected to be a forum for village business groups to develop their economic potential. The village-owned enterprises runs a business that resembles the business fields of the villagers. This situation has unconsciously created a sense of competition for both parties. The atmosphere of competition between the two business entities has the potential to hinder the growth of the village’s local economy. Village-owned enterprises evaluate their business activities and build a cooperation network for the sustainability of rural businesses.

village-owned enterprises partnership competitor village economy village business sustainability

1. Introduction

Rural areas have gradually changed for the better since the law on villages Number 06/2016 was implemented by the government in Indonesia. Several aspects of rural areas have improved, such as the availability of village infrastructure. The community uses village roads to facilitate the mobilization of socio-economic activities. Other public facilities, such as agricultural roads for harvesting-produce distribution, are also focused on improving the village government’s support of food security [1][2]. In addition, empowerment and development programs for rural communities are part of the government’s attention in their goal of implementing human development and social culture in rural areas [3].
Community economic empowerment based on local village potential is one of the government’s orientations to promote the economy in rural areas, including the development of tourist villages [4] and home industry businesses [5]. The government encourages the formation of village business units, or other designations such as village-owned enterprises, to become economic institutions for rural communities. Village-owned enterprises are business units with legal entities that receive their initial capital from the village government to drive the village economy [6]. The government hopes that village-owned enterprises can become an engine that drives the economy in rural areas. Therefore, the government encourages every village in Indonesia to have a village-owned enterprise. The number of village-owned enterprises continue to grow from year to year as shown in the following data.
The number of village-owned enterprises has increased from 2014 to 2022. In 2022, the number of village-owned enterprises reached 60,417 units (Source: Ministry of Villages, Development of Disadvantaged Regions, and Transmigration). Table 1 shows that village-owned enterprises have spread almost to all village areas, recorded to be 83,821 throughout Indonesia. The increase in village-owned enterprises, spread throughout Indonesia, is expected to encourage increased economic activity in rural areas.
Table 1. Data on the development of village-owned enterprises in 2014–2022.
Year Title 
2014 1022 Units
2015 11,954 Units
2016 18,466 Units
2017 39,149 Units
2018 45,549 Units
2019 51,091 Unit
2020 51,134 Unit
2021 57,288 Unit
2022 60,417 Unit
Village-owned enterprises’ capital comes from the village governments’ capital participation. The village government’s capital participation follows the village law, which stipulates that the village budget can be used for investment activities in village-owned enterprises. Investment in village-owned enterprises occurs so the village government can stimulate community economic activities through the village business unit. As Widiastuti revealed, capital participation from the village government aims to empower the economy of village communities through village-owned enterprises as social enterprises (2019).
Village-owned enterprises are not just economic institutions but have a social enterprise dimension [7]. By the definition of a social enterprise, village-owned enterprises prioritize rural communities’ economic interests rather than institutions’ economic interests. Village-owned enterprises have social enterprise characteristics and are different from profit-oriented private enterprises. Prioritizing the community’s economic interests is an example of the implementation of social enterprise characteristics in village-owned enterprises [8].
Village-owned enterprises are projected to become economic pillars that can provide added value to rural businesses [9]. However, these enterprises need help in realizing these expectations. The limited quality of human resources managing village-owned enterprises creates a gap between implementation and regulation ideals [10]. Competence and limited experience in managing social enterprises have implications for the selection of business activities that could be more synergistic and even lead to competition. The competition that unconsciously arises due to the economic activities of village-owned enterprises (social enterprises) is a new field that still needs to be studied comprehensively by previous researchers in the socio-economic context in Indonesia.

2. Partnership in the Context of Village Business

Community homogeneity in rural social systems results in strong kinship ties [11]. Similar cultures, socio-economic backgrounds, and family ties are inherent social capital in rural social systems, including village communities. Social capital manifests in gotong royong activities [12], distribution of agricultural work [13][14], and other activities where residents participate in village development together [15]. Cooperation and togetherness are important parts of the social system of rural communities.
The attitude of collectivism manifested in gotong royong activities represents a sense of togetherness in rural life [12] with knitted cultural ties [16]. In addition to this, the nuances of togetherness can also be felt in the domestic sphere, through reciprocal “giving” actions between villagers. The practice of reciprocal exchange in social activities and within the fabric of the family has become a tradition of rural communities in Indonesia.
The communitarian social characteristics of rural communities cause social relations to grow and become a pattern in the living environment of rural residents. Likewise, in some village communities in Indonesia, social relations take shape and become part of social activities.
Social capital in the village community system has the opportunity to transform into economic capital. Partnership-oriented economic system building, with participatory democratic values [17] and rural business sustainability [18], is a foundation for village enterprises to become social enterprises.
Sustainability-oriented cooperation is a concern in studies of public-private cooperative relationships [19], three-way partnerships between academics, service providers, and regulators [20], and triangular cooperation, which face global challenges [21]. In the rural context, cooperation is formed through internal and external social relations. Internal relations are relationships between economic groups in the village area and external networks of formal institutions outside the village [22]. The pattern of internal and external social relations can be replicated in village enterprises to realize sustainable social enterprise.
Partnerships will make business governance better [23]. Collaboration allows each party to improve its capabilities [24][25]. This thinking is in agreement with research results which state that cooperation can create motivation to maximize benefits for the group and other partners [26]. Individuals and groups actively compete to be more generous than others when profit opportunities are obtained through cooperative partnerships [27]. Such thinking, when applied to the business activities of village owned enterprises, can have implications for rural economic growth.

3. Competition in the Context of Small and Medium Enterprises

Individuals, as social creatures, cannot be separated from the relationship of cooperation and competition with each other. On the one hand, competition is a social movement mechanism that does not always have negative connotations. Competition for resources is a concern in the study of ecological life [28]. Economics is one field that pays attention to the practice of competition in business activities.
Competition is a subject of research in economics, information systems, management and organization, and marketing research [29]. Small- and medium-sized enterprises involve all these aspects and are the concern of researchers. Research with the subject of small and medium enterprises focuses on aspects of competitive advantage and marketing orientation [30][31][32], competition and business sustainability with an emphasis on technology [31][33], and strengthening human resources for productivity [34]. In addition, other researchers also recognize that small and medium enterprises play an important role in poverty control and the country’s economy, including at the rural scale [35][36].
Many small and medium enterprises develop and grow in rural areas [37]. The source of raw materials is one reason why small and medium enterprises are widely spread in rural areas [38][39], apart from certain reasons such as the need and special expertise in batik cloth production [40][41]. These small businesses, especially home-industry food-based businesses, depend on crops. Many agricultural and plantation products are produced in rural areas, connecting the value chain with small businesses. Although recognized as contributing to the regional economy, small enterprises face barriers such as capital [42][43], marketing, and technology [44], following recent developments.

4. Village-Owned Enterprises

Over the past five years, village funds allocated by the central government to village governments have successfully brought changes to rural areas in Indonesia [45][46]. The rural development program using village funds has resulted in improved village infrastructure that can support local economic activities. Establishing and operating village economic institutions are also a focus of utilizing village funds [47][48].
Village-owned enterprises are economic institutions that aim to improve the village economy. Economic institutions belonging to the village government have the authority to manage the village’s potential to improve the rural economy. Village-owned enterprises have the authority to manage village economic potential for the benefit of rural communities. Village communities have an economic interest in village-owned enterprises, so this economic institution should apply the sharing-economy principle. The sharing-economy principle is that the community keeps the main priority in providing economic benefits.
Community-based development is a model that provides opportunities for the community to participate in rural development [49]. The participation of community elements in village business development can encourage a sense of shared responsibility. Community participation in village budget planning activities [50], and community participation with village-owned enterprises [51], can encourage the achievement of common goals.
Community participation in village business development aims to safeguard the community’s interests in the activities of village-owned enterprises. Community participation in the development of village-owned enterprises is an effort to empower and create economic growth in rural areas [52]. Thus, the awareness of all parties of strengthening community participation in rural local economic development is essential, especially for village-owned companies.
Villagers have equal opportunities to participate in development activities. The community is not only the object of development benefits but is also a subject, specifically, as an implementer of the development. The village community becomes a partner of the village government in realizing village development [53]. Community involvement in rural economic development is one of the rights that village business entities need to pay attention to for the sustainability of rural businesses.
Economic development occurs with various activities, but these efforts still need to provide satisfactory results for the community, so that the benefits of village-owned enterprises are visible. This situation causes the level of community participation in developing the village-owned enterprise entity to be improved. Managing village-owned enterprises with communities that do not cooperate can inhibit business growth [54].
Businesses in fields similar to small businesses in villages cause community participation and trust in village-owned enterprises to decrease. Similar business fields cause competition between the two businesses [55]. Without realizing it, village-owned enterprises become competitors that make it difficult for the small businesses of villagers to develop, so the purpose of village-owned enterprises as a driver of the village economy has yet to be realized.

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Subjects: Business, Finance
Contributors MDPI registered users' name will be linked to their SciProfiles pages. To register with us, please refer to https://encyclopedia.pub/register :
Soelchan Arief Effendi
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Eko Ganis Sukoharsono
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Lilik Purwanti
,
Rosidi Rosidi
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Update Date: 28 Sep 2023
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