INSTITUTIONALIZING RURAL COOPERATIVES: THE ROLE OF KOPERASI DESA MERAH PUTIH (KDMP) IN STRENGTHENING SMEs AND MARKET COMPETITION

Abstract

This study examines the role of Koperasi Desa Merah Putih (KDMP) as an institutional instrument for strengthening micro, small, and medium enterprises (SMEs) in rural areas, while simultaneously assessing its implications for market competition. Grounded in the frameworks of cooperative theory, institutional economics, and the Structure–Conduct–Performance (SCP) paradigm, this research explores the dual function of KDMP as both an empowerment mechanism and a potential market actor. A quantitative approach was employed using survey data collected from 100 SMEs and existing cooperatives in Central Java, Indonesia. Logistic regression models were applied to analyze three key dimensions: partnership preference, perceived competition intensity, and SME ecosystem development. The findings reveal that partnership decisions are positively influenced by business capacity but negatively associated with firm competitiveness, indicating that KDMP primarily attracts moderately capable yet less competitive enterprises. Furthermore, perceptions of increased competition are significantly driven by innovation orientation and business constraints, suggesting that KDMP stimulates dynamic rather than purely structural competition. In terms of ecosystem development, enabling and inhibiting factors play a more critical role than formal institutional variables, highlighting KDMP’s function in addressing structural market barriers. The study concludes that KDMP operates as both a market-correcting institution and a development accelerator, particularly in contexts characterized by institutional voids. However, its effectiveness depends on governance quality and policy design to avoid unintended market distortions. This research contributes to the literature on cooperative-based development and provides policy insights for balancing SME empowerment with fair competition in emerging economies.