Nowadays it is no secret that many companies are collaborating. However, not only large businesses, cooperation is also carried out by small, micro and medium enterprises (MSMEs). This form of cooperation is known as a partnership. Yes, the partnership program is one of the policies currently being promoted by the government through Law (UU) Number 11 of 2020 concerning Job Creation (Job Creation Law). Broadly speaking, this partnership is intended to protect and empower MSMEs. Then, launching from the official website of the Ministry of Finance, the government also has a target of digitizing 50 million MSMEs by 2024, and this partnership program is also considered to be able to help meet these targets. In running this partnership program, MSMEs can choose one of the various partnership patterns available. Of course, this not only brings benefits to the MSMEs themselves but also to large companies, because the parties to the partnership will benefit. So, what are the partnership patterns that apply to MSMEs so that they can work with medium and large businesses? Let’s see the explanation below.
What is Partnership?
Before reaching an agreement, it is better for MSME actors to know what the meaning of the partnership itself is so that they do not carelessly establish partnerships with other parties. Partnerships are cooperation carried out directly or indirectly between MSME actors and large businesses. In accordance with the provisions in Article 1 of Law No. 20/2008 on MSMEs (MSME Law), partnerships must be carried out on the basis of mutual need, trust, strengthening, and benefit. Meanwhile, explained in the book Business Partnership by Muhammad Jafar Hafsah, partnership is a business strategy carried out by two or more parties within a certain period of time to achieve partnership. This partnership upholds the principle of mutual need and encourages each other. Then, according to Ian Linton in his book entitled Partnership Achieving Mutual Benefit, partnership is a way of doing business where suppliers and customers trade (sell) with each other to achieve common business goals. Thus, a partnership is a cooperation in conducting business activities which is a business strategy with the aim of developing the business more broadly.
Form of MSME Partnership Cooperation
The form of partnership has actually been expressed in the MSME Law. However, there are several provisions amended by the Job Creation Law. The changes are outlined in more detail in one of its derivatives, namely Government Regulation (PP) Number 7 of 2021. The various forms of partnership in question include:
Core-plasma
In the core-plasma partnership, there are two types of partnership relationships, namely:
- Large enterprises as core with MSMEs as plasma; or
- Medium-sized enterprises as the core with MSEs as the plasma.
An example of a company implementing an inti-plasma partnership is between smallholder oil palm plantations (as plasma) and large private plantations (as nucleus). Quoted from the official website of the East Kalimantan Provincial Plantation Office, a partnership program with a nucleus-plasma pattern has been implemented for oil palm farmers in East Kalimantan. This is done as one of the efforts to improve the welfare of oil palm farmers.
Subcontracting
In the subcontracting partnership pattern, there are two types of partnership relationships, namely:
- Large enterprises as contractors with MSMEs as subcontractors; or
- Medium-sized enterprises as contractors and MSEs as subcontractors.
Support provided by large businesses as contractors can take the form of:
- Ease of working on part of the production and/or components;
- Ease of obtaining raw materials;
- Improved technical production knowledge;
- Technology;
- Financing; and
- Payment system.
Franchise
The conditions are as follows:
- Large businesses act as franchisors and MSMEs act as franchisees.
- Medium-sized enterprises act as franchisors and MSEs act as franchisees.
- Large businesses that expand their business by franchising provide opportunities and prioritize MSMEs that have business capacity and feasibility.
- However, MSMEs can enter into a partnership with a franchise pattern as a franchisor.
An example of a franchise is between PT Indomarco Prismatama which is a domestic retail company, acting as a franchisor and various MSMEs can become franchisees. Another example is Kebab Turki Baba Rafi (KTBR) which is one of the subsidiaries of PT Sari Kreasi Boga Tbk, acting as a franchisee. Meanwhile, other MSMEs can become KTBR franchisees.
General Trade
This pattern can be done in the form of marketing cooperation and provision of business locations from MSMEs by large businesses that are carried out openly.
Distribution and Agency
The terms of this pattern are as follows:
- Large enterprises grant special rights to market goods and services to MSMEs.
- Medium-sized enterprises give MSEs special rights to market their goods and services.
An example of agency is PT Tiki Jalur Nugraha Ekakurir (JNE), which organizes partnership programs with agency patterns for MSMEs.
Supply Chain
The implementation of this partnership pattern involves MSMEs and large businesses in a series of activities, which include:
- Management of product movement carried out by the company with raw material providers.
- Distribution of products from companies to consumers.
- Management of raw material availability, raw material supply, and fabrication process.
The terms of cooperation between MSMEs and large businesses in this pattern include:
- Large businesses act as recipients of goods and MSMEs act as providers of goods.
- Medium-sized enterprises act as recipients of goods and MSEs act as providers of goods.
Reporting from cnnindonesia.com, an example of a supply chain partnership pattern is the mentoring program of PT Astra International Tbk. one of Astra’s foundations depends on MSME metal craftsmen who make simple tools for assembling cars or motorbikes.
Profit Sharing
The provisions of this pattern include:
- MSMEs act as executors who run businesses that are financed or owned by large businesses.
- MSEs act as executors who run businesses that are financed or owned by medium-sized enterprises.
- Parties who partner with a profit-sharing pattern contribute according to their abilities and resources and are agreed upon by both parties to the partnership.
- The amount of profit or loss sharing borne by the parties must be based on the agreement.
Operational Cooperation
The conditions are as follows:
- MSMEs with large businesses run businesses that are temporary until the work is completed.
- MSEs with medium-sized businesses run businesses that are temporary until the work is completed.
Joint Venture (Joint Venture)
Provisions under the joint venture pattern include:
- Local MSMEs can enter into business partnerships with large foreign businesses.
- Local MSEs may enter into business partnerships with foreign medium-sized enterprises, by carrying out joint economic activities by establishing a new business entity in the form of a legal entity in accordance with the provisions of laws and regulations.
Outsourcing
The conditions are as follows:
- Micro, small, or medium-sized enterprises may partner with large enterprises to do work or parts of work outside the main work of large enterprises;
- A micro or small enterprise may partner with a medium-sized enterprise to perform work or parts of work outside the main work of the medium-sized enterprise.
- Large businesses act as owners of work and MSMEs act as providers and executors of work services.
- Medium-sized enterprises are the owners of the work and MSEs are the providers and executors of work services.
What are the Benefits of MSME-Large Business Partnerships?
Partnerships between MSMEs and large enterprises have a number of benefits for both parties. Here are some of the key benefits of MSME partnerships with large enterprises:
Access to a Broader Market
MSMEs can utilize the networks and infrastructure of large enterprises to tap into larger and broader markets. In this partnership, large enterprises can help MSMEs to penetrate markets that are difficult to reach independently.
Increased Production and Capacity
MSMEs often have limited resources and production capabilities. By partnering with large enterprises, they can increase their production capacity and utilize more efficient technologies and methods.
Knowledge and Technology Transfer
These partnerships allow MSMEs to learn best practices, latest technologies and management know-how from large enterprises, helping to improve product quality and operational efficiency.
Financial and Resource Support
MSMEs gain access to financial resources and additional capital needed to expand their business from large enterprises.
Brand and Reputation Enhancement
Partnerships with large enterprises can provide the benefits of a stronger brand, helping to improve MSME reputation and customer trust. With mutually beneficial partnerships, MSMEs can overcome their limitations, while large enterprises can gain access to the innovation and growth potential offered by MSMEs.
The Importance of Contract Agreements for MSME Partnerships
Every cooperative relationship requires a contract or agreement to ensure that what has been agreed upon can run smoothly and conducively, as is the case with partnerships. In accordance with the provisions in PP No. 7 of 2021, MSME partnership agreements are made in writing in Indonesian. However, if one of the parties is a foreign person or legal entity, the agreement is made in Indonesian and a foreign language. The partnership agreement between two businesses or MSMEs contains starting from what products are offered, the rights and obligations of the parties, force majeure conditions, to dispute resolution. Not only that, the partnership agreement also contains the term of the cooperation undertaken, whether it will be valid continuously or only apply for a certain period of time. By making an agreement, it will indirectly prevent and minimize problems in the future, because usually the contract contains what sanctions will be imposed on parties who violate their obligations.
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Therefore, the implementation of a business partnership relationship can run well and smoothly because this agreement is binding and guarantees all parties involved to carry out their obligations and get their rights.
KH Contact
KH Friend, are you also one of the MSME players who are interested or currently undergoing a partnership with your business partner? If so, then don’t miss out on always ensuring product quality and fulfilling the applicable provisions, including making a contract agreement, yes! Moreover, now the arrangement is even easier thanks to the Legal Contract! We provide the most complete agreement contract making services for all types or patterns of partnerships, such as cooperation agreements, profit sharing, franchising, joint ventures, distribution, outsourcing, and so on. Take it easy, because making an agreement at Kontrak Hukum is guaranteed to be affordable and easy with only 48 hours completed, 100% online without face to face! Let’s run a partnership safely and smoothly by visiting the KH Services – Cooperation Contract page. If you have questions about other business needs, you can also consult for free at Tanya KH or via direct message (DM) to Instagram @kontrakhukum.
