Untapped Potential of Manufacturing MSEs in Bali Amidst the Covid-19 Pandemic

The macro health impact of the COVID-19 pandemic that resulted in an economic slump in Bali exposed the need for economic development outside the tourism sector. Manufacturing Micro and Small Enterprises (MSEs) is one sector that contributes significantly to the economy, export value, and employment, particularly during moments when the tourism sector is down. This study aims to determine the performance of manufacturing MSEs during 2018-2021 using Cobb-Douglas stochastic frontier production function analysis. The Technical Inefficiency (TE) value of manufacturing MSEs in Bali was 22.24% over 2018-2021. The impact of COVID-19 on each ISIC and business location has a varied impact on the production value of MSEs Manufacturing. The gender of the business owner, financial service, age of workers, and source of raw materials are inefficiency variables that significantly affect production value. However, the training received by manufacturing MSEs had no significant effect. The findings from this study can be used as a basis for government policy in further developing the untapped potential of manufacturing MSEs in Bali regarding impacts upon Bali's tourism sector during the pandemic.


INTRODUCTION
The macro health shock due to COVID-19 was felt across all sectors globally.However, with restrictions on people's movements, the impact was especially felt by those predominately tourism-dependent economies.This condition was particularly true in the context of Bali.The pandemic exposed the fragilities of the economy in the province and the need to identify other potential sectors for growth.The increasing trend of manufacturing's contribution to the Bali economy over 2018-2021 indicates that Bali's manufacturing has the potential to be developed (BPS Province of Bali, 2022).The manufacturing sector in Bali has much potential, and this can be seen from the absorption of the number of manufacturing workers who occupy the third largest position after the agricultural and wholesale sector in August 2020 (BPS Province of Bali, 2020).Bali's manufacturing potential is also evidenced by data on manufacturing exports, wherein manufacturing accounts for the most significant percentage of the total (BPS Province of Bali, 2022).Based on the 2016 Economic Census results, the number of manufacturing businesses in Bali was 116,000, with 87.89% manufacturing Micro and Small Enterprises (MSEs) (see Figure 1).The contribution of the manufacturing sector to the Balinese economy can be seen from the consistent increase in the manufacturing industry's contribution during 2019-2021 to the Bali economy when other sectors experienced fluctuations.However, the fact that the percentage contribution of manufacturing is still below other sectors indicates that the potential of manufacturing MSEs needs to be studied in order to review their performance and the potential growth of manufacturing MSEs in Bali in the future.This study uses data from the Annual Micro and Small Industry Survey (IMK Tahunan) conducted by the Central Agency on Statistics (BPS).BPS uses the International Standard Industrial Classification (ISIC) to classify manufacturing business fields in the Annual IMK survey.Some previous studies that examined manufacturing performance used technical efficiency for evaluation and policy-making material (Al-Durgham & Adeinat, 2020).Estimations of the efficiency of companies in Jordan with a stochastic frontier showed an average technical efficiency value of 74% from 2009-2017.Other research related to manufacturing conducted in Malaysia (Fahmy-Abdullah et al., 2021) found that the technical efficiency value was 81% in 2015 and showed that technical inefficiency factors such as the level of education and training could reduce the weight of company inefficiency.In Indonesia, a study conducted by (Astanto et al., 2022) on manufacturing companies using data from 2010-2014 indicated a technical efficiency value of 88.15%.The stochastic frontier production function has been widely used in various fields of processing manufacturing (Akite et al., 2022;Lu et al., 2022), agriculture (Akite et al., 2022), health (Sickles et al., 2022), taxation (Fisseha, 2022;Mohanty et al., 2022) This study complements research conducted by (Purwa, 2022), who evaluated manufacturing micro and small enterprises (MSEs) in Bali based on two-digit ISIC business types by showing that the results of the pandemic had an impact on the total income of Manufacturing MSEs in Bali using a stochastic frontier production Cobb-Douglas function.(Purwa, 2022) examines how the gender and age of entrepreneurs, capital ownership, Micro Credit Program (KUR), and internet usage all affect the production value of manufacturing MSEs in 2019-2020 using IMK Tahunan data.Conversely, this study will examine other variables that have not been studied by looking at the business location (Sarbagita and non-Sarbagita) of manufacturing MSEs, the impact of cooperative and bank loans, managerial, production, and marketing training, and the source of raw materials used on the production value of manufacturing MSEs.
In addition, this study examines the relationship between the value of TE and the production value of manufacturing MSEs in Bali using data from 2018-2021.This  (Nicholson & Synder, 2008).Cobb Douglas SFA in this study was used to describe the relationship of the independent variable (X), namely fixed capital, Number of workers, business location (Sarbagita and non-Sarbagita), International Standard Industrial Classification (ISIC), macro health shocks, and Technical Inefficiency on the dependent variable (Y), namely the production value of the MSEs business.This research uses the Maximum Likelihood Estimation (MLE) as follows: where Where: Y i = Business production value of MSEs X 1 = Fixed capital of MSEs business X 2 = Number of business workers in the MSEs X 3 = Business location MSEs (Sarbagita and non-Sarbagita) X 4 = Two digits ISIC X 5 = Health macro shock V i = A random variable that cannot be controlled U i = Non-negative random variable or called technical inefficiency Z i = Technical Inefficiency Technical efficiency (TE) of the company using the following formula: Efficiency results from a company's effectiveness, is evaluated regularly to determine its performance.Efficiency is one of the parameters used to measure the performance of a person or business unit by measuring factors of production and how the performance of an industrial industry is achieved.In this case, the more efficient a business is, the better the business performance so far in using existing resources.This study used R statistical software.

RESULTS AND DISCUSSION
Figure 2 shows the production value of manufacturing MSEs before and during the macro health shock.Based on the decrease in the value of the first quartile, median, and third quartile of MSEs business conditions, this figure also shows a decrease in the production value generated by manufacturing MSEs businesses.This data shows that the COVID-19 pandemic impacts the decline in the production value of manufacturing MSEs in Bali.This condition is the case for both Sarbagita and non-Sarbagita, even though the production value of the MSEs business in the Sarbagita area is higher than that of non-Sarbagita.Nevertheless, these two business locations experience a decrease in production value when macro-health shocks occur, as shown in Figure 3.  Table 2 shows the result of Cobb Douglas SFA with MLE by using R statistical software.Table 2 shows the significant estimation results for the Cobb-Douglas SFA.The interpretation of the estimated dummy coefficient in this study was used to see the independent variable's significance (Giles, 2011).Fixed capital and the number of workers were discovered to have a positive impact on production.A 1% increase in fixed capital increases the production value by 0.10%, and a 1% increase in the number of workers increases the production value by 0.67%.Meanwhile, the impact of macro health shocks on production value showed a negative result (-33.55%).The business location in the Sarbagita area positively impacted the production value by 55.33%.When viewed from KBLI, it shows that KBLI with codes 1, 2, 3,4,5,6,8,9,10,12,and 20,namely ISIC 11 (Beverage), ISIC 12 (Tobacco Processing), ISIC 13 (Textile), ISIC 14 (Apparel), ISIC 15 (Leather), ISIC 16 (Wood), ISIC 17 (Paper), ISIC 18 (Printing), ISIC 20 (Chemicals Products), ISIC 21 (Pharmaceuticals), ISIC 23 (Other Non-Metallic Mineral Products), and ISIC 32 (Other Manufacturing) has a significantly different effect on the production value of the reference category, ISIC 10 (food).ISIC 32 (Other Manufacturing) with the main product in Bali called the banten (Balinese Hindu needs), and the Banten equipment industry has a negative effect on the production value of MSEs businesses (-34.71%).ISIC 11 (Beverage) with its main product Balinese arak, ISIC 12 (Tobacco Processing) with its primary product tobacco, ISIC 13 (Textile) with its main product Balinese woven cloth (Tenun), ISIC 14 (Apparel) with its main product kebaya clothes and apparel, ISIC 15 (Leather and Leather Goods and Footwear) with its main product Balinese dance wear, ISIC 16 (Wood) with its main product of Balinese handicrafts, ISIC 17 (Paper and Paper Products) with its primary product paper packaging goods, ISIC 18 (Printing) with its main product of printing, ISIC 20 (Chemicals and Chemical Products) with its main product of incense, ISIC 21 (Pharmaceuticals) with its main product loloh/jamu, ISIC 23 (Other Non Metallic Mineral Products) with its main product bricks (batako) and, ISIC 32 (Other Manufacturing) with its main product Banten, are business types that significantly affect the business value of MSEs, but the impact is still negative compared with reference category ISIC 10 (Food).
The technical inefficiency in the estimation results above is interpreted using calculations by multiplying the results again by -1 because technical inefficiency is a negative form in the Cobb-Douglas SFA.The male gender of the business owner has a significant positive impact on the production value by 21.66% compared to the female business owner.MSEs businesses located in buildings still have a significant adverse effect on the production value by -46.10%, or in other words, MSEs businesses located in permanent buildings increase the value of technical inefficiency compared to those located in non-permanent/semi-permanent buildings.
Another finding obtained from this estimate is that MSEs businesses participating in the Micro Credit Program (KUR), cooperative services, and Bank services have significant results that have a positive effect on the production value of 37.66%, 36.67%,13.98%, and 19.76% or significantly has an impact on reducing the weight of technical inefficiencies in the model.Concerning human resources, this estimate yields results: MSEs businesses with the majority of workers in the 15-64 year age group (productive age group) have a positive effect on the production value of = 37.20% compared to MSEs businesses where most workers are under 15 years old.The source of raw materials for MSEs in Bali, such as from foreign sources, has a significantly different impact compared to MSEs businesses that source raw materials from Bali or other provinces in Indonesia.MSEs businesses that use raw materials from Bali and other provinces in Indonesia contribute negatively to the production value of MSEs businesses, respectively by -80.92% and -40.12%, with the comparison category being foreign sources of raw materials.
The average technical efficiency of MSEs in Bali from 2018 to 2021 is 22.25%.This fairly low-efficiency value indicates that the efficiency value of manufacturing MSEs in Bali still needs to be improved to maximize performance.The technical efficiency value of MSEs business in Bali has a positive relationship with the production value of the MSEs business.Figure 5 shows that the relationship of TE value to production value is positive.A rise in the value of technical efficiency can improve Manufacturing MSEs company performance, allowing for an increase in production value (Figure 5).Improving the business performance of MSEs can be accomplished by reducing variables that significantly affect the value of inefficiency.Macro health shocks caused by the Covid-19 pandemic negatively affected MSE businesses in Bali by -33.55%.This result shows that Bali's MSEs manufacturing experienced a negative impact from the pandemic.However, the decline did not reach 50% of the pre-pandemic production value, which means that Bali manufacturing MSEs survived the Covid-19 pandemic.Manufacturing MSEs have made various business adaptations to persevere during the Covid-19 pandemic (Abdallah, 2021;Ardolino et al., 2022;Liu et al., 2021).When viewed based on business location, the Sarbagita area (Denpasar City, Badung, Gianyar, and Tabanan Regencies) has a more excellent production value of 55.33% compared to other districts in Bali.This condition shows that the location of the business in an integrated urban area affects the production value obtained by MSEs manufacturing.Several related studies regarding the relationship between business location and business success have also been conducted and resulted in the same thing wherein the business location has a significant positive effect on business success (Alkusani & Ilmafa'ati, 2021;Kakooza et al., 2023).
During the macro health shock, ISIC manufacturing MSEs experienced production value changes.Manufacturing MSEs with ISIC 10 (Food), ISIC 11 (Beverage), ISIC 12 (Tobacco processing), ISIC 26 (Computers, Electronic, and Optical products), ISIC 27 (Electrical Equipment), and ISIC 31 (Furniture) experienced an increase in production during the macro health shock.This fact shows that Balinese people, during the health macro health shock, consumed more food and beverages from the production of manufacturing MSEs, and due to the impact of restrictions on social activities, the purchase of computers and furniture also experienced an increase in demand.ISIC 32, which produces Balinese Hindu needs called upakara is the most significant business in Bali, whose production value is still under food manufacturing.This condition is similar to ISIC 21, which produces loloh (herbal drink), ISIC 13 which produces kain tenun (Balinese woven cloth), ISIC 14 with kebaya (Balinese woman cloth), ISIC 15 with Balinese dance clothing, and ISIC 16 with Bali wood handicraft, is a production with local wisdom of Bali which has the potential to be developed as an export commodity due to uniqueness that can not be found in other regions.The high selling power of products with local wisdom in micro and small businesses was found in previous studies such as those conducted by Ningsih et al. (2019) and Gunawan (2017).
Fixed capital and the number of workers were discovered to have a significant positive impact on production.This result shows that manufacturing MSEs in Bali is still labor-intensive and requires more fixed capital to grow.The fact that managerial, production, and marketing training do not significantly affect the production value of manufacturing MSEs in Bali also indicates that the government needs to create new programs related to appropriate training for manufacturing MSEs in Bali.Studies related to human resources, which have an essential influence on the progress of manufacturing businesses, have also been studied by Rabiu et al. (2020) and Muogbo et al. (2013).
The male business owner has a significant positive impact on the production value by 21.66% compared to the female business owner.There is a difference in MSE business challenges, with a higher proportion of female entrepreneurs suffering competitive problems than male entrepreneurs.Gender disparity exists; male business owners are socio-culturally viewed as superior to female business owners, indicating that women still have fewer options for managing MSEs than males.This condition is inextricably linked to Balinese women's numerous responsibilities in their traditional everyday lives and the family sphere.Other study results showed that women's rural businesses are not significantly smaller than those of men.Women's income is lower and more sensitive to business and industry variables (Tillmar et al., 2022).Anggadwita et al. (2022) showed that social perceptions are issues that women consider in entrepreneurship.Balinese women have limited access to entrepreneurship due to differences in access to technology and marketing amid a culture of gender inequity (Setini et al., 2020).
MSEs businesses located in permanent buildings have a more inefficiency value than those that operate in non-permanent/semi-permanent buildings.This result is related to the fact that MSEs businesses in Bali earn less money than they should while using semipermanent for business.This condition is also associated with renting a non-permanent business location, which is cheaper than a permanent one, especially if it is in a strategic place.This result is in line with previous research which shows that manufacturing enterprises pay attention to strategic factors in determining a business location (Ellram et al., 2013).
The Micro Credit Program (KUR), cooperative services, and bank services have significant results that positively affect the production value.Macro health shocks cause MSEs businesses to require capital to continue operations; however, the micro-credit program (KUR), cooperative services/assistance, and bank services/assistance have proven to reduce the value of MSEs business inefficiency.Therefore, the financial assistance program for MSEs businesses in Bali should be developed evenly in the future so that the benefits become apparent in MSEs businesses in Bali.Several related studies also find that financial support is effective for MSEs financial support to grow (Kakooza et al., 2023).
MSEs businesses with the majority of workers in the 15-64 year age group (productive age group) have a positive effect on the production value of 37.20%, and this result shows that workers in the productive age group (15-64 years) have a more efficient impact on MSEs businesses in Bali because older workers have lower scores in ability than younger workers (Børing & Grøgaard, 2023).The source of raw materials from Bali and other provinces in Indonesia contributes negatively to the production value of MSEs businesses, with the comparison category being foreign sources of raw materials.This condition is related to MSE businesses in Bali that use raw materials from abroad, which are contract manufacturing businesses whose raw materials come from original equipment manufacturers (OEMs) located abroad.The high value of contract manufacturing with low risk makes contract manufacturing more efficient than others.This result aligns with research (2019), which states that future contract manufacturing is a promising business in India (Børing & Grøgaard, 2023).
The average technical efficiency of MSEs in Bali from 2018 to 2021 is 22.25%.Manufacturing MSEs in Bali needs to be improved to maximize performance.The relationship of TE value to production value is positive.A rise in the value of technical efficiency can improve Manufacturing MSEs company performance, allowing for an increase in production value.Improving the business performance of MSEs can be accomplished by reducing variables that significantly affect the value of inefficiency.The TE value of manufacturing MSEs needs to be increased again by making the right policies to develop the potential of manufacturing MSEs in Bali.Market mechanism strategy and government policy intervention can increase manufacturing productivity.
Based on the results of this study, in order to increase the potential of Bali's manufacturing MSEs, new policies are needed.Firstly, increasing access to information related to financial assistance, cost efficiency, and business development for manufacturing MSEs, especially for women business owners and businesses located in non-Sarbagita.Secondly, assistance related to marketing, production and managerial strategy for MSEs in manufacturing businesses, especially those that produce products with Balinese local wisdom.Thirdly, improve the quality of human resources by providing training programs and marketing strategies that are right on target according to the manufacturing sector being cultivated.

CONCLUSION
The results of this study indicate that the impact of the COVID-19 pandemic shows the same pattern, namely a decrease in production value in the Sarbagita and non-Sarbagita regions.However, when viewed based on ISIC, it shows a different pattern in each ISIC for production value.Based on the results of Cobb-Douglas SFA, the COVID-19 pandemic, Sarbagita region, and several ISIC categories significantly affect the production value of manufacturing MSEs.Male business owners, non-permanent business locations, financial assistance from KUR, cooperatives, and banks, productive workers aged (15-64) years, and raw materials from abroad in manufacturing activities increase the efficiency of manufacturing MSEs in Bali.Managerial training, production, and marketing activities were found to have little influence on the manufacturing efficiency of MSEs.The TE value of 22.25% indicates a need for policies related to improving the efficiency of MSEs in the processing industry sector in Bali by paying attention to variables that significantly affect the efficiency of manufacturing MSEs and variables that do not.
Policies related to equal access to information on capital assistance, cost efficiency, and business development, assistance related to marketing, production, and managerial strategies for improving the quality of human resources of manufacturing MSEs need to be considered for maximizing the potential of manufacturing MSEs in Bali, particularly as a critical element of locally relevant disaster and pandemic preparedness plans.

Figure 1 .
Figure 1.The Number of Workers, Percentage of Goods Exports, Distribution of Gross Regional Domestic Product of Bali at Current Market Prices, by Industry (Percent), 2017-2021

Figure 2 .
Figure 2. Production Value of MSES Enterprises Based on Macro Health Shock Conditions

Figure 3 .
Figure 3. Production Value of MSES Enterprises by Business Area in Macro Health Shock Conditions

Figure 4 .
Figure 4. Production Value of MSES Enterprises Based on ISIC in Macro Health Shock Conditions

Figure 5 .
Figure 5. MSEs Business Production Value Based on Technical Efficiency study aims to describe the condition of manufacturing MSEs based on business location (Sarbagita and non-Sarbagita) and ISIC during the COVID-19 pandemic.Besides that, this research also examines what variables affect the production value of Manufacturing MSEs in Bali.Finally, this research measures the technical efficiency (TE) value of manufacturing MSEs in 2018-2021 in Bali.