Global Value Chain and the Competitiveness of SMEs: A Case Study of Herbal Medicine Businesses in Batu City

Abstract

Background: MSMEs play a crucial role in Indonesia’s economy but face challenges in global competitiveness due to limited resources and capabilities. Participation in Global Value Chains can help overcome these barriers, and the herbal medicine sector—especially in Batu City—has strong potential for international expansion due to growing global demand and abundant local resources. Aims: This study aims to examine the role of Global Value Chains (GVCs) in enhancing the competitiveness of small and medium enterprises (SMEs) in the herbal medicine industry in Batu City, Indonesia. The research seeks to identify the structure of the value chain, analyze the challenges faced by herbal SMEs in integrating into global markets, and explore strategies that can strengthen their competitiveness and participation in global value chains. Study Design: This research employs a qualitative research design using a case study approach to gain an in-depth understanding of the dynamics of herbal SMEs within the context of global value chain participation. Place and Duration of Study: The study was conducted in Batu City, East Java, Indonesia, which is known as a center for herbal plant cultivation and traditional herbal product development. Data collection was carried out over a period of several months during the research process Methodology: Data were collected through in-depth interviews with owners of herbal SMEs, direct observation of production activities, and documentation review related to business operations, marketing strategies, and product development. The collected data were analyzed using qualitative descriptive analysis to identify patterns, challenges, and opportunities related to SME integration into global value chains Results: The findings indicate that participation in global value chains can improve the competitiveness of herbal SMEs by increasing product quality, expanding market access, and encouraging innovation. However, several challenges hinder their integration into global markets, including limited financial resources, technological constraints, inadequate managerial capabilities, weak international networks, and difficulties in obtaining certification and meeting international standards Conclusion: The study concludes that strengthening the participation of herbal SMEs in global value chains requires a comprehensive strategy involving technological upgrading, improvement of product quality and certification, development of market networks and partnerships, enhancement of managerial capabilities, and stronger government and institutional support. These efforts can help herbal SMEs move toward higher value-added activities and improve their competitiveness in both domestic and international markets.