Empirical Evidence of Geographic Expansion of Sales by Small and Medium Enterprises

This article examines how small and medium enterprises (SMEs) expand sales markets geographically, using gross profit data from the Indonesian formal and informal firms with relatively low technology. The results from multinomial logistic estimation with four levels of domestic markets and foreign markets indicate that the critical factors for entering distance markets differ depending on the jurisdiction or geographic distance between existing and new markets. The most important factor for low-level expansion, that is, market entry in a province outside the home region or city of the SME concerned, is productivity level. On the other hand, market entry beyond the home province, including foreign markets, requires a certain size and capacity of the firm and certain relationships with business partners, but not productivity level. These findings suggest that the provision of different types of policy support to SMEs, relevant to their stage of market expansion, could be beneficial.