(12). Export-oriented small and medium industry clusters in Indonesia.pdf

8/10/2019 (12). Export-oriented small and medium industry clusters in Indonesia.pdf

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Export-oriented smalland medium industry clusters

in IndonesiaTulus Tambunan

Faculty of Economics, Center for Industry and SME Studies,University of Trisakti, Jakarta, Indonesia

Abstract

Purpose The Indonesian government has been trying to support the development of small andmedium enterprises (SMEs) in the country, as these enterprises are expected to play a crucial role notonly for employment creation but also for GDP formation and export development. The paper aims toaddress the following three questions. First, are networks important for the development of SME

clusters, especially for those involved in export activities? Second, in what type of clusters arenetworks well developed? Third, what is the role of government; does it also play as an importantnetwork for SME cluster development?

Design/methodology/approach This paper is based on an ongoing research on the importanceof networks in the development of export-oriented SME clusters in Indonesia. Although the paper alsodiscusses other important issues related to the development of SMEs in the country, i.e. constraintsfacing the enterprises and women entrepreneurs, the paper focuses on the importance of networks.

Findings First, SMEs are of overwhelming importance to Indonesia because they account for morethan 90 percent of all firms outside of the agricultural sector. Second, the main constraints faced bysmall entrepreneurs are, lack of finance and difficulties in marketing. Third, the representation ofwomen entrepreneurs in Indonesia is still relatively low which can be attributed to various factors,e.g. low level of education and lack of training opportunities that make Indonesian women severelydisadvantaged in both the economy and society. Finally, although in general Indonesia is not well

represented with small and medium industrial clusters that feed into global commodity chains, someclusters have gradually become export-oriented. Among many factors, well developed networksespecially with traders, trading houses, and foreign tourists are indeed an important factor for theirincreasingly export activities. Even these agents have played more important role than supports fromgovernment for their successful export.

Originality/value The paper examines the importance of networks for the export-oriented SMEclusters in Indonesia.

KeywordsSmall to medium-sized enterprises, Networking, Women, Entrepreneurs, Exports, Indonesia

Paper typeResearch paper

IntroductionIn the classical paradigm it is stated that the development of an economy depends on

two main factors (as explicitly included in a general Cobb Douglas productionfunction), namely labor and capital (with advanced technology embodied). Later, afterlooking at the development miracle in the so-called the newly industrialized Asiancountries, such as Chinese Taipei (Taiwan), Hong Kong China and South Korea inthe 1960s and 1970s, and the widening gap in development betweendeveloped/industrialized nations and less developed countries (LDCs), new thinkingemerged in the 1980s on the nature of economic development and factors determiningit. In this new paradigm, it is stated that in addition to the above two classical

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Export-orienteSME cluster

2

Journal of Enterprising CommunitiPeople and Places in the Glob

EconomVol. 3 No. 1, 20

pp. 25q Emerald Group Publishing Limit

1750-62DOI 10.1108/175062009109436


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production factors, there is also another crucial factor, namely entrepreneurship.Nowadays, the development of entrepreneurship together with human skillsimprovement have become two crucial factors for sustainable economic and socialdevelopment and for world leadership in all aspects of the modern state.

Recently, entrepreneurship development has been generally recognized as animportant impulse factor for the sustainable economic development in Indonesia. It isoften said that the lack of entrepreneurship has been the main cause for Indonesiasslow economic development compared with other Asian countries such as Malaysia,Thailand, China, South Korea, and Singapore. Realizing this, supporting small andmedium enterprises (SMEs) in Indonesia has been adopted as a strategy to developentrepreneurship in the country.

Entrepreneurship development has become more crucial to face the global businessenvironment which is changing dramatically. Traditionally, competition ininternational markets was the realm of large enterprises (LEs), while SMEsremained local or regional in scope. The removal of government-imposed barriers thatsegregated domestic and international markets, technological advances inmanufacturing, transportation, and telecommunications allow SMEs to activelyinvolve in global business activities either through trade or business collaborationswith foreign companies. This changing global business environment also createsopportunities as well as challenges to Indonesian SMEs.

The main aim of this paper is to examine the importance of networks for theexport-oriented SME clusters in Indonesia. Networking is a powerful tool for theentrepreneur in all sizes (Dubini and Aldrich, 1991), and for internationalentrepreneurs, networks, and cooperation are believed by some scholars to beessential to successful global oriented operations (McDougall and Oviatt, 2003). Firmsuse their networks to gain access to resources, to improve their strategic positions, tocontrol transaction costs, to, expand their market abroad, to learn new skills, to gain

legitimacy, and to cope positively with rapid technological changes[1]. For thesereasons, network analysis has been thus a powerful framework for internationalentrepreneurship researchers (McDougall and Oviatt, 2003).

To do this, first, the paper explains the importance of SMEs in the Indonesianeconomy. Second, it deals with the main constraints and challenges facing SMEs in thecountry. Third, it discusses types and current development of small industrial clustersin the country. Finally, with some case studies of export-oriented clusters, it examinesthe importance of networks for their increasingly export performance.

Definition of SMEsIn Indonesia, there are several definitions of SMEs, depending on which agencyprovides the definition. As this paper uses data from the State Ministry of Cooperative

and SMEs (Menegkop & UKM), the Department of Industry (MoI), and the CentralStatistical Agency (BPS), only definitions of these three government agencies arerelevant for the paper. Menegkop & UKM promulgated the Law on Small EnterprisesNumber 9 of 1995, which defines a small enterprise (SE) as a business unit with totalinitial assets of up to Rp 200 million (about US$ 20,000 at current exchange rates), notincluding land and buildings, or with an annual value of sales of a maximum of Rp1 billion (US$ 100,000), and a medium enterprise (ME) as a business unit with anannual value of sales of more than Rp 1 billion but less than Rp 50 billion. The Law

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transformed into LEs. This transformation process of firms by size may show a betterpicture about long-term entrepreneurship development.

The unit distribution by sector and size shows that Indonesian SMEs areconcentrated in agriculture, followed by trade, hotel, and restaurants as the second and

manufacturing industry as the third largest sector (Table II) In this latter sector, theyare involved mainly in simple traditional manufacturing activities such as woodproducts, including furniture, textiles, garments, footwear, and food and beverages.Only a small portion of total SMEs are engaged in production of machinery, productiontools, and automotive components. This is generally carried out throughsubcontracting systems with several multinational car companies such as Toyotaand Honda. This structure of industry reflects the current technological capability ofIndonesian SMEs, which are not yet as strong in producing sophisticatedtechnology-embodied products as their counterparts in other countries such asSouth Korea, Japan, and Taiwan.

In terms of output, the performance of SMEs is relatively good as the growth in SEsand MEs was, respectively, 3.96 and 4.59 percent in 2001 and increased to 5.38 and 5.44percent in 2006. LEs experienced, on the other hand, a growth rate of 3.04 percent andended up at 5.60 percent during the same period (Figure 1).

In total GDP, SMEs performed relatively better than their larger counterparts asthey accounted for more than 50 percent of total GDP during that period (Table III).SMEs output contribution to the annual growth rate of total GDP was also higherthan that of LEs. On average, the GDP growth share of SMEs was above 2 percent;whereas that of LEs was under 2 percent. Within SMEs, SEs appeared to be moreimportant than MEs as their GDP growth share was higher (Table V). SMEs outputcontribution to the annual growth rate of total GDP is also higher than that of LEs(Figure 2).

Constraints facing SMEsThe development of viable and efficient SMEs, particularly non-farm enterprises, ishampered by several constraints[2]. The constraints may differ from region to region,between rural and urban, between sectors, or between individual enterprises within asector. However, there are a number of constraints common to all SMEs. Thesecommon constraints faced by SMEs are the lack of capital, difficulties in procuring rawmaterials, lack of access to relevant business information, difficulties in marketing anddistribution; low technological capabilities, high transportation costs; communicationproblems; problems caused by cumbersome and costly bureaucratic procedures,especially in getting the required licenses; and policies and regulations that generatemarket distortions.

Size category 1997 1998 1999 2000 2001 2003 2004 2005 2006

PSEs 39704.7 36761.7 37804.5 39705.2 39883.1 43372.9 44684.4 47006.9 48822.9PMEs 60.5 51.9 51.8 78.8 80.97 87.4 93.04 95.9 106.7PLEs 2.1 1.8 1.8 5.7 5.9 6.5 6.7 6.8 7.2

Total 39767.3 36815.4 37858.1 39789.7 39969.995 43466.8 44784.14 47109.6 48936.8

Source: BPS

Table I.Total units of enterprisesby size category:1997-2006 (000 units)

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2000

2005

2006

Sector

SE

ME

LE

Total

SE

ME

LE

Total

SE

ME

L

E

Total

1.

Agriculture

59.2

3

2.2

2

1.20

59.1

1

55.8

6

1.7

4

0.85

55.7

5

53.6

8

1.5

7

0

.74

53.5

6

2.

Mining

0.3

8

0.6

7

1.18

0.3

8

0.5

0

0.6

9

1.60

0.5

0

0.5

4

0.5

8

1

.67

0.5

4

3.

Manufacture

6.5

7

14.9

1

33.57

6.5

9

5.9

5

14.3

0

36.98

5.9

7

6.5

6

15.8

2

35

.47

6.5

8

4.

Elect.,gasandwate

rsupply

0.0

3

1.0

2

3.08

0.0

4

0.0

3

0.9

7

2.98

0.0

3

0.0

3

0.9

0

2

.96

0.0

3

5.

Construction

0.3

1

3.6

3

4.42

0.3

2

0.3

4

4.0

8

4.30

0.3

5

0.3

3

3.5

2

4

.41

0.3

4

6.

Trade,

hotelandrestaurant

24.3

7

55.3

6

24.95

24.4

3

25.8

9

53.3

8

21.83

25.9

5

27.1

3

54.0

3

24

.11

27.1

9

7.

Transportandcommunic

4.7

0

2.8

9

3.88

4.7

0

5.5

4

4.4

8

4.67

5.5

3

5.5

2

4.4

6

4

.47

5.5

2

8.

Finance,rentandservice

0.1

3

11.1

4

20.60

0.1

5

0.1

3

11.2

2

18.06

0.1

6

0.1

5

10.5

1

17

.68

0.1

7

9.

Services

4.2

8

8.1

7

7.12

4.2

9

5.7

6

9.1

3

8.72

5.7

7

6.0

6

8.6

0

8

.50

6.0

6

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100

.0

100.0

Source:BPS

Table IUnit distribution of SME

by sector in Indonesi2000, 2005, and 200

(percen


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Tybout (2000) find that the manufacturing sectors of LDCs have traditionally beenrelatively protected. They have also been subject to heavy regulation, much of whichhas favored LEs. Accordingly, it is often argued that in these countries:

. markets tolerate inefficient firms, so cross-firm productivity dispersion is high;

. small groups of entrenched oligopolists exploit monopoly power in productmarkets; and

. many SMEs are unable or unwilling to grow, so important scale economies gounexploited.

In 2003, BPS conducted a survey on enterprises with 0 (i.e. self-employment units) to 19workers in the manufacturing industry. The enterprises are divided into twosub-categories:

(1) very small or MIEs, i.e. with 0-4 workers; and

(2) SEs, i.e. with 5-19 workers.

The findings as given in Table IV show that the main problems faced by the majorityof the respondents are lack of capital and marketing difficulties. In Indonesia, althoughthere are various government sponsored SME credit schemes, the majority of them,especially MIEs located in rural/backward areas never received any credit from banksor other financial institutions. They depend much on their own savings, money fromrelatives and credit from informal lenders for financing their daily business operations.In marketing, these enterprises usually do not have the resources to explore their ownmarkets. Instead, they depend heavily on their trading partners for marketing of theirproducts, either within the framework of local production networks andsubcontracting relationships or orders from customers.

Others include cumbersome and onerous business regulations and restrictions.Basically, these problems which hamper business activities in Indonesia reflect thepoor governance in Indonesia. One of the most egregious restrictive regulations whichhampered bona fide business in Indonesia, including SMEs, was the policy-generatedbarriers to domestic competition and trade. These policy-generated barriers includedthe barriers to inter-regional and inter-island trade and proliferation of several stateand private monopolies which proliferated during the late New Order (NO) era. Thepolicy-generated barriers to domestic competition and trade included barriers to entryin certain economic activities, officially sanctioned cartels and monopolies, price

Figure 1.Output growth ratesof SEs, MEs, and LEs,2001-2006 (percent)

0

1

2

3

4

5

6

7

8

2001 2002 2003 2004 2005 2006

SEMELETotal

Source:BPS

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controls, dominance of state-owned enterprises in certain sectors and preferentialtreatment for selected favoured LEs.

These barriers created rent-seeking opportunities which benefited well-connectedbusinessmen, but hurt the business of the large majority of bona fide businessmen,

including the numerous non-farm firms. Most of the policy-generated barriers to domesticcompetition and trade, both at the national and regional levels, were abolished after theAsian economic crisis as part of the structural reforms mandated by the governmentsagreements with the IMF. Unfortunately, after the introduction of regional autonomy inearly 2001, several restrictive regulations on domestic competition and trade werere-introduced by the regional governments. These onerous restrictive regulations haveworsened the business environment, including for the many SMEs. Although the SMEsare considered to be mostly owned and run by the economically weak groups in society,these enterprises, no less than LEs, are subjected to various illegal levies and so-calledcontributions, both at the central government level and the regional government levels.

Interestingly, although it is well general known from the literature on SMEs in

LDCs that the lack of adequate skills in such as production and management are alsoamong their major constraints, Table IV indicates that these surveyed enterprises didnot consider the lack of skills as a serious problem. However, this may be due to thefact that many of the respondents were not aware of this problem. Probably because

Figure 2.GDP growth contributionby size of firms, 2003-2006(percent)

1.88 1.97 2.24 2.15

0.78 0.830.94 0.91

2.12 2.222.5 2.42

0

1

2

3

4

5

6

2003 2004 2005 2006

LE

ME

SE

Source:BPS

SEs MIEs Total SEs and MIEs

Have no problem 46,485 (19.48) 627,650 (25.21) 674,135 (24.71)Have problem 192,097 (80.52) 1,862,468 (74.79) 2,054,565 (75.29)

Raw material 20,362 (10.60) 400,915 (21.53) 421,277 (20.50)Marketing 77,175 (40.18) 552,231 (29.65) 629,406 (30.63)

Capital 71,001 (39.96) 643,628 (34.56) 714,629 (34.78)Transportation/distribution 5,027 (2.62) 49,918 (2.68) 54,945 (2.67)Energy 40,605 (2.4) 50,815 (2.73) 55,420 (2.7)Labor cost 2,335 (1.22) 14,315 (0.77) 16,650 (0.81)Others 11,592 (6.04) 150,646 (8.09) 162,238 (7.90)

Total SEs and MIEs 238,582 (100.00) 2,490,118 (100.00) 2,728,700 (100.00)

Note:Percentages in parenthesesSource: BPS

Table IV.Main problems faced bySEs and MIEs inmanufacturing industry,2003

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most of these enterprises produce simple items for low-income consumers in localmarkets which enjoy natural protection from competition from similar goods producedby larger enterprises or from import. The problem of unskilled entrepreneurs in MIEsand SEs is evident in Table V.

Women entrepreneursRecently, there is an increasing interest in women entrepreneurship developmentamong policy makers, academics, and practitioners in Indonesia. This interest comesfrom the recognition that the creation of women entrepreneurship, especially in ruralareas, will contribute to the creation of many new rural enterprises that will increaselocal capabilities to bring rural economic growth. It is generally believed that womenentrepreneurs can play an important role in promoting growth and development, andhence reducing poverty. In this respect, SMEs provide thus a good starting point forthe mobilization of women talent, especially in rural areas, as entrepreneurs, while, atthe same time, SMEs can provide an avenue for the testing and development of women

entrepreneurial ability.At least two main characteristics of development of women entrepreneurship can

obviously be observed in Indonesia as in LDCs in general:

(1) SMEs are more important than LEs for women entrepreneurs.

(2) Within SMEs, the female-male entrepreneur ratio is generally higher in SEsthan in larger sized and more modern enterprises.

This is due to the fact that women in LDCs are more likely than men to be involved ininformal activities which consists dominantly of SEs, either as self-employed oremployers or paid/unpaid workers. Database from the International LabourOrganization indicates that almost 95 percent of SEs in LDCs performed by women

as self-employed; though the percentage varies between countries or regions.BPS data from various years indicate that women entrepreneurs in Indonesia havealso been increasing since the 1980s during the NO era when the country achievedrapid economic growth leading to rapid increase in per capita income. According to anumber of studies (Manning, 1998; Oey, 1998), the reason for the increasing number ofwomen-owned enterprises are partly due to the increase of womens educational level,and to the economic pressure the women faced in their households. However, the onlyreadily available official statistics on women-led enterprises in Indonesia are onlyin SEs, as presented in Table VI. From this table, there are three interesting facts.

Level of education Female (percent) Male (percent)

Not finished primary school 27.88 14.27Finished primary school 40.82 39.49Finished high school first degree (SMP) 18.62 25.87Finished high school second degree (SMA) 11.77 18.37Higher education 0.91 6.5

Source:BPS

Table VEducation

entrepreneur in non-farMIEs and SE

by gender, 200


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First, it reveals that only 32 percent of these enterprises are run by women. It isgenerally assumed that this percentage is also more or less the same in the largerenterprises, suggesting that becoming an entrepreneur in Indonesia is still dominantlya man culture [3].

Second, in manufacturing industry, from a total of 1,005,724 women owned firms,about 97.9 percent are in SEs, employing five or less people (and in many cases arenon-employing). They choose SEs simply because this economic activity ischaracterized by an easy entry and exit, and low capital, skills, and simpletechnology requirements.

Third, sectoral distribution is more or less similar for male and femaleentrepreneurs, as they both are concentrated in trade, hotel and restaurant; althoughthe percentage is higher in the latter. In Indonesia female is more likely than male to beinvolved in this sector, mostly as own-account traders having small shops or as ownersof small restaurants or hotel. In manufacturing industry, women entrepreneurs tend topursue areas where they have gender-based skills and know-how such as in food,beverages, tobacco, clothing, and crafts industries.

The relatively low representation of women entrepreneurs in Indonesia can beattributed to at least four main factors. First, low level of education and lack of trainingopportunities that make Indonesian women severely disadvantaged in both theeconomy and society may play an important role. In general, the index of genderdevelopment, particularly the index developed by the UNDP to observe gender

inequality in human development, shows that although gender inequality in Indonesiais tending to decline, it is still relatively higher than in neighboring countries. As anillustration, gender inequality reflected in the difference in the human developmentindex (HDI) and gender-related development index (GDI) in Indonesia in 2002 is 0.007(HDI 0.692 and GDI 0.685), while in Thailand and Vietnam, for instance, in the sameyear the difference was only 0.002 (Suharyo, 2005).

Official data on working population by education in Indonesia indicate that,although there has been some improvement in the last 20 years, the average level of

Entrepreneurs/ownersSector Total enterprises Male Female

Mining, electricity

(non-stated own/PLN)and construction 253,146 (100.00)a 237,050 (93.64) [2.21]b 16,096 (6.36) [0.32]Industry manufacturing 2,641,909 (100.00) 1,636,185 (61.93) [15.25] 1,005,724 (38.07) [19.91]Trade, hotel, andrestaurant 9,228,487 (100.00) 5,649,138 (61.21) [52.64] 3,579,349 (38.79) [70.86]Transportation andcommunication 2,170,291 (100.00) 2,140,022 (98.60) [19.94] 30,269 (1.40) [0.60]Financial institutions,real estate, renting, andservices 1,490,226 (100.00) 1,070,001 (71.80) [9.97] 420,225 (28.20) [8.32]Total 15,784,059 (100.00) 10,732,396 (68.00) [100.00] 5,051,663 (32.00) [100.00]

Notes: aDistribution percentage by row (sector); bdistribution percentage by column (entrepreneur)Source: BPS

Table VI.Women entrepreneursin non-farm SEs, 2003

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education of male is still higher than that of female. This national education structureby gender is consistent with Table V, showing that female entrepreneurs have verylow levels of education. Less than 1 percent of female entrepreneurs have universitydiplomas, as compared to their male counterparts at 6.5 percent.

In addition, a report on gender mainstreaming in the education system inIndonesia (Jalal, 2004; quoted from Suharyo, 2005) shows that, the illiteracy rate forwomen is still higher than men, and the gap between men and women in rural areasis much higher than that in urban areas. Many rural women speak only theirnative language and never read newspapers and so they are very restricted tocommunicate with the outside world. Particularly among women living in ruralareas, there are still many social, cultural and religious taboos that prevent thosewomen who can and should be accessing higher education from doing so. Manyparents living in rural areas still have the traditional thinking that (higher) educationbelongs to men only. Especially, since after marriage women leave to join theirhusbands; families and, hence, are not regarded as being useful to their own familiesin the long run.

However, although this traditional thinking still exists in rural society, it dependson the economic condition of the family as well as education level of the parents orhusbands. The better the economic condition of the family or the better the education ofthe parents/husbands, the less influence of the traditional thinking in their attitudestowards women to have better education.

Second, heavy household chores. Especially, in rural areas, women have morechildren, and they are more demanded to do their traditional role as being responsiblefor housework and child care, and therefore they have fewer hours of free time thanmen, both during the weekend and on weekdays.

Third, there may be legal, traditions, customs, cultural or religious constraints onthe extent to which women can open their own businesses. Especially, in rural areas

where the majority of population are muslim and rather isolated from big cities likeJakarta, Islamic-based norms have stronger influence on women daily life. This makesfemale behavior or attitude in rural areas less open than male (or than urban women) todoing modern business culture. In such society, women must fully comply with theirprimary duty as their husbands partner and housewife, they are not allowed to starttheir own businesses or to do jobs that involve contact with or managing men, orsimply they are not allowed to leave the home alone. Even if women do have their ownbusiness, in many cases, they defer to husbands or other family members in keybusiness decisions, and many turn over greater power to these other family membersas the business grows. All these constraints lead to an exclusion of women fromentrepreneurial activities. While, in rural areas relatively close to urban areas withgood transportation and communication links, changes in local society attitudes about

traditional role of women being responsible for housework and child care and men forincome in the last 30 years are observable.

Fourth, lack of access to formal credit and financial institutions. This is indeed is akey concern of women business owners in Indonesia. This is found to be moreproblematic for women in rural areas or outside of major metropolitan areas such as

Jakarta and Surabaya. This constraint is related to ownership rights which depriveswomen of property ownership and, consequently, of the ability to offer the type ofcollateral normally required for access to bank loans. In Indonesia, men are still


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perceived as the head of the family, and thus, in general, men are still perceived as theowner or inheritor of family assets such as land, company, and house.

Probably because of the above reasons, especially cultural or religious constraints, itis found that in Indonesia, particularly in rural areas, economic necessity or wanting to

improve family income is a more predominant factor for entrepreneurship amongwomen economic pressures have made that women are being permitted to take up paidemployment outside the home or to run income earning activities beyond theirtraditional role (Syahrir, 1986; Rusdillah, 1987).

Finally, the participation rate of female as entrepreneurs varies by region.Interestingly, although a larger part of SEs are located in Java, as also the majority ofpopulation, non-primary economic activities, and educated people in the country arefound in this island, Nusa Tenggara (NT) in the eastern part of the country has thehighest ratio, means that there are more female than male entrepreneurs in NT.However, this does not necessary reflect the higher spirit of female entrepreneurship inNT than in the rest of the country. NT is a region with a very high unemployment rate.Economic activities such as mining, manufacturing industry, construction, agriculture,and banking are more or less stagnated in this island. Most matured or married menare working in low income generating activities such as transportation, motorcyclerepair workshops or in agriculture as marginal/subsistent farmers owning less than0.5 ha of land, or as civil servants. So, as a family survival strategy, in the household,wife is pushed to do something outside home to earn some income. Therefore, thehigh participation rate of female as entrepreneurs in NT is most likely to be a reflectionof a family survival strategy rather than a spirit of entrepreneurship. In other words,female entrepreneur development in NT is more a push rather than a pullphenomenon.

SMEs development programs

While it is impossible to itemize all government programs, the SMERU ResearchInstitute has been able to map most important existing assistance programs tostrengthen SMEs provided by government and non-government institutions duringthe period 1997-2003. Table VII shows there were 64 institutions whose assistanceprograms to strengthen SMEs were successfully mapped and they were categorizedinto six groups. A total of 594 programs were identified and most of them wereprovided by the government (65 percent). Other programs were conducted by NGOs

Number of assistance programsStill continuing

Institutions Number of institutions Total Total Percent

A Government institutions 13 388 127 32.7B Banking institutions 7 31 25 80.7C Private companies 10 12 12 100.0D Donor agencies 8 46 15 32.6E NGOs 20 109 79 72.5F Others 6 8 8 100.0

Total 64 594 266 44.8

Source: SMERU (2004)

Table VII.Number of institutionsand assistance programsto strengthen SMEs,1997-2003

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(18 percent), donor agencies (8 percent), banking institutions (5 percent), privatecompanies (2 percent), and other institutions. The scale of each assistance programvaried greatly based on the amount of funds, time frame and geographical scope.Hence, one program cannot be directly compared with another[4].

Table VIII shows that the type of assistance activities varied. The number ofactivities within each program also varied, but generally ranged from between one andthree. Hence, of the 594 assistance programs, there were 1,044 types of activities. Intotal, the most common types of activities were the provision of training (22.9 percent),capital assistance/credit (17.3 percent), facilitation (16.1 percent), and thedissemination/introduction of new technology (15.2 percent).

The data in Table VIII show that government agencies are the most commoninstitutions which introduced new technology (27.9 percent) and provided training(21.1 percent), whereas other institutions mostly provided capital assistance. Of all theinstitutions, government agencies played the most prominent role (50.9 percent),followed by NGOs (29.4 percent) and donor agencies (10.1 percent). Based on the type

of activity, training was mostly undertaken by government institutions (46.9 percent)and NGOs (37.2 percent). Capital assistance was mostly provided by local andinternational NGOs (50.3 percent), followed by government institutions (15.5 percent)and banking institutions (14.9 percent). Facilitation was mainly provided by NGOs(52.4 percent) and government institutions (35.7 percent).

In Indonesia numerous government supporting programs for SMEs have beenimplemented the nation-wide over the years including:

. Small Enterprise Development, generally known as the KIK/KMKP subsidizedcredit program for SMEs;

. the Small Enterprise Credit (KUK) scheme; the credit program for village units(KUPEDES);

.

the establishment of small rural development banks (BKD);. human resource development training programs, such as in production

techniques, general management (MS/MUK), management quality systems(ISO-9000), quality control methods, entrepreneurship (CEFE, AMT), andextension services;

Aa B C D E F Total

Capital assistance 5.3 52.9 25.0 21.0 29.6 28.6 17.3Training 21.1 13.7 22.2 19.0 29.0 21.4 22.9Facilitation 11.3 9.8 19.4 7.6 28.7 0.0 16.1Information 1.9 7.8 2.8 3.8 1.6 21.4 2.6

Facilities 16.2 2.0 5.6 8.6 1.0 0.0 9.7Promotion 3.0 3.9 13.9 6.7 1.0 7.1 3.3Dissemination/introduction of new technology 27.9 0.0 0.0 6.7 1.3 0.0 15.2Guidelines 4.3 0.0 0.0 0.0 0.7 0.0 2.4Others 9.0 9.8 11.1 26.7 7.2 21.4 10.5Types of activities 531 51 36 105 307 14 1044

Note: aSee Table VIISource:SMERU, 2004

Table VIIThe proportion

assistance programs strengthen SMEs base

upon the type of activitiand the implementin

institution


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. the establishment of Cooperatives of Small-Scale Industries (KOPINKRA) inclusters;

. the establishment of small-scale industrial estates (LIK), the Foster Fatherscheme;

. the establishment of Small Business Consultancy Clinics (KKB);

. the establishment of the Export Support Board of Indonesia (DPE), theestablishment of common service facilities (UPT) in clusters; and

. the introduction of an incubator system for promoting the development of newentrepreneurs.

Government departments, specifically the Directorate-General of Small-Scale Industry,Department of Industry and the Office for the State Minister for Cooperatives andSMEs have taken the lead in the implementation of the SME development programs.These departments, like other departments, have regional offices for the delivery ofthese various services in their respective regions.

The data from the Integrated Business Survey 2003 from BPS shows that thegovernment played a significant role in supporting the development of SMEs. Thesurvey indicated that, out of a total 481,714 non-farm SMEs receiving governmentsupport in 2003, 203,563 firms (or 43 percent of the total) received support through oneor more of the various government programs. The remainder (52 percent of the total)received support from NGOs, foreign foundations and a number of large privatecompanies. The distribution by region shows that the majority of those receivingsupport from the government are located in Java and Bali (Figure 3). However, as apercentage of the total number of SMEs receiving government support in a region, theregion of NT (both Barat and Timur) scored the highest, while Java and Bali rankedthird (Figure 4).

To assess the effectiveness of SMEs assistance programs, SMERU (2004) conducteda field study on 172 respondents in six districts/towns (Kabupaten/Kota), includingKabupaten Sukabumi, Bantul and Kebumen, and Kota Padang, Surabaya andMakassar) consisting of SMEs in trade, industry, and services. These were informal,

Figure 3.Distribution of non-farmSMEs that receivedsupports from thegovernment by region,2003

Source:BPS

11%

71%

8%

2%7% 1%

Sumatera

Java & Bali

Nusa Tenggara

Kalimantan

Sulawesi

Maluku & Papua

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non-legal entities whose turnover and number employees fluctuated, and whichoperated with only simple technology. Because a large number of assistance programsrecorded in the field were capital assistance programs, the impact on respondents wasgenerally economic. The finding shows that a majority of the sampled SMEs did claimthat their business had improved because of the assistance programs.

Small and medium industrial clusters

Types and developmentIn Indonesia, the agglomeration of manufacturing SME (say, small and mediumindustrial clusters) is observed in both rural and urban areas (mostly surrounding bigcities). According to Weijland (1994, 1999), rural clusters in Indonesia have a seedbedfunction for the development of rural industries, demonstrating that clustering canimprove for rural producers to outside markets, through dense networks of traders.Klapwijk (1997) argue that clusters are important for the development of ruralindustries because productivity in clusters appears to be higher than in dispersedenterprises. One of the main reasons is that clustering stimulates active involvement oftraders and LEs in agglomeration of SMEs. A more interesting finding is from Sandee(1994, 1995, 1996), which shows that enterprises in clusters are in a better position toadopt innovations in products as well as production process than dispersed

enterprises[5].Most clusters in Indonesia were established naturally as traditional activities of

local communities whose production of specific products have long been proceeding.Based on comparative advantages of products they made, at least with respect to theabundance of local raw materials and workers who have special skills in making suchproducts, many of these clusters have a large potential to grow. Take for example theclusters of batik producers that have long been existence in various districts in Java(e.g. Yogyakarta, Pekalongan, Cirebon, Surakarta, and Tasikmalaya).

Figure 4Proportion of SME

received assistances frogovernment by regio

2003 (percentage of totSMEs in the regio

0.98

1.28

3.3

0.44

2.13

0.98

0

0.5

1

1.5

2

2.5

3

3.5

Suma

tera

Java

&Bali

NusaTenggara

Kalima

ntan

Sulaw

esi

Maluku&

Papua

%

Source:BPS


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Various studies show the importance of clustering not only for the development ofSMEs in the clusters, but also for the development of villages/towns in Indonesia.Based on evidence from their field studies on SMEs in rural Java. Smyth (1990, 1992)described how clustering of rattan furniture producers has absorbed an entire village

in Tegal Wangi, West Java, and created numerous satellite small-scale industrialactivities in neighboring hamlets. Schiller and Martin-Schiller (1997) also provide thesame evidence from wood furniture producers in Jepara in Central Java. The growth ofthis cluster in the 1980s had transformed the town into a thriving commercial centerwith a five-mile avenue of such as furniture showrooms and factories, modern hotels,new commercial banks, supermarkets, telephone and fax stalls, and Europeanrestaurants. Soemardjan (1992) also presented an interesting story on how thedevelopment of a roof tile cluster in a small village in Bali has turned poverty in thevillage into prosperity.

However, there is also evidence that clusters are of limited importance for SMEdevelopment. Based on her study on SEs in a rural metal-casting cluster in Ceper of

Central Java, Sato (2000) found little evidence of positive effects of clustering, as nointer-firm specialization of work processes and no joint actions (which are importantingredient for a cluster to grow) among the firms inside the cluster studied. Based on aresearch of eight clusters in rural Central Java, Supratikno (2002b) also comes with thesame story, as he found inter-firm specialization and cooperation among producersinside the clusters were very limited, and they were fully dependent on outsidemerchant capital. It is also hard to find SMEs in clusters in Indonesia that haveproduction linkages through subcontracting systems with LEs. BPS data 2001 showthat more than 90 percent of these enterprises do not have such linkages with LEs.

Now the question is whether cluster diversity as evident in Indonesia is anevolutionary process or a dual structure. More specific, why do some clusters do well,even without government supports and others not or stagnate, even with governmentsupports. In short, the evidence in Indonesia as discussed above indicates that there aredifferences between clusters, within clusters and over time, and, as stated in Schmitz(1997a, b), finding systematic explanations is not easy.

As shown in Table IX, according to their level of development, clusters in Indonesiacan be classified into four types, each with its own characteristics (Sandee and terWingel, 2002). The first type of clusters dominated clusters in Indonesia (roughlyspeaking more than 90 percent), indicating that the process of clustering in the countryis still at an infant stage. Altenburg and Mayer-Stamer (1999) refer to such clusters assurvival clusters of MIEs, as this type of cluster displays many characteristics ofMIEs with level of productivity and wages being much lower than that of SMEs.In these clusters the degree of inter-firm cooperation and specialization is low,

reflecting the lack of specialists in the local labor force as well as a fragile social fabric.The process of clustering of this type is still at an infant stage, as many of the clustersare stagnated in the sense that for many years there has hardly been any developmentin terms of market expansion, increased investment and size of production, improvedproduction methods, management and organization, and product development (ADB,2001). Sandee and ter Wingel (2002) argue that artisanal clusters are characterized bylack of change through time: the producers produce the same products, with the sametechnology that are sold to the same local markets as decades ago. But, they still exist

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tourism cluster in Bali. In the case of clove cigarette cluster in Kudus, their products areable to outperform products from Philip Morris and BAT. Similarly, tea-processingcluster in Slawi, led by a big company named Sostro, has grown up as the marketleader in the Indonesian soft drink market, leaving a giant Coca Cola behind

(Supratikno, 2002a)[7]. Some other leading firms in active and dynamic clusters arepresented in Table X. Interestingly, in some cases, such as in furniture cluster in Jeparaand handicraft cluster in Kasongan, there are considerable direct investments made byforeign immigrants (Supratikno, 2002a)[8].

With respect to the fourth type, only a very few clusters can be included in thiscategory, namely clusters that are more developed and become more complex instructure than those in the third type. The main characteristics of this type of clustersthat make it different from the third type are especially in the following areas. Thedegree of inter-firm specialization and cooperation is high, and enterprises in theseclusters have developed business networks with suppliers of raw materials,components, equipment and other inputs, providers of business services, traders,distributors, banks and other supporting institutions. This type of cluster has goodcooperation with local, regional or even national government, as well as withspecialized training and research institutions such as universities. Within this process,the clusters may also expand geographically, e.g. by regularly drawing on inputs froma nearby region, or developing regular cooperation with a university or researchinstitution in another city. Many enterprises in this type of clusters are export-oriented.However, most of them do export indirectly through trading houses or exportcompanies (ADB, 2001).

Moreover, advanced clusters often overlap and interlink with other clusters in thesame region. Such cluster agglomerations or often-called as industrial districts(the Italian term) form the most complex form of clustering, where different sectors orsub-sectors mutually depend on and benefit from each other. Prominent examples of

cluster agglomerations include North-Central Italy (tourism, food industry, fashionindustry, furniture industry, and machinery industry), southern Germany (vehicle,electronics, machinery, and software industries) and Greater London (banking,insurance, software, publishing, film and music, tourism, fashion industry,advertisement, business services). In Indonesia one example of a clusteragglomeration is the Yogyakarta-Solo area with its tourism, furniture and interior

Cluster Location Leading firmsa

1. Wig and hairaccessories

Purbalingga (Central Java) PT Royal Korindah, PT Indo Kores

2. Handicraft Kasongan and Sleman

(Yogyakarta)

PT Out of Asia

3. Textile weaving Pekalongan (Central Java) PT Pismatex4. Furniture Jepara (Central Java) Duta Jepara, Grista Mulya, Satin

Abadi5. Brass handicraft Juwana (Central Java) Krisna, Samarinda6. Roof tile Kebumen (Central Java) Mas Sokka

Note: aPT means a limited corporationSource: Supratikno (2002a)

Table X.Leading firms in someactive and dynamicclusters

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decoration, metal processing, leather goods and textile/clothing clusters, which allmutually benefit each other.

The role of networksClustering creates external economies and joint actions and increases scope. In effect,individual enterprises in a cluster can gain collective efficiency. Close proximityfacilitates the establishment of business networks by enterprises in the locality ofindustrial links without substantial transaction costs or difficulties. However, theseeconomic advantages can only be achieved if the cluster has well-developed internaland external networks. Internal networks can be defined as business co-operations orlinks among enterprises inside the cluster, which can be in various forms, for examplemarketing, distribution, production, procurement of materials, training for workers,etc. External networks are business and other forms of relation between enterprisesinside the cluster and actors outside the cluster such as LEs, including foreign directinvestment-based companies (LEs), suppliers of inputs, providers of business services,

and so on (Ceglie and Dinni, 1999). In Indonesia, many small and medium industryclusters show that traders, trading houses and local consumers or foreign tourists areamong their important external networks (Figure 5).

Based on experience of UNIDO in many developing countries, Ceglie and Dinni(1999) state that collaborate actions through well developed business networksinvolving SMEs and LEs, suppliers of inputs, providers of business services, financialinstitutions, other supporting private and public agencies, and local and regionalgovernments offer new opportunities for developing specific location advantages andthe competitive strengths of clustered SMEs. In addition, business networks amongenterprises and with other actors mentioned above also give rise to a collective learningspace, where ideas are exchanged and developed and knowledge shared in a collectiveattempt to improve product quality, upgrade technology and move to more profitable

market segments (ADB, 2001).Further, internal networks or inter-firm co-operations can be divided into horizontal

and vertical co-operations. The first type is a co-operation among SMEs occupying the

Figure Internal networks insid

and external networks ofsmall and mediuindustry cluster

Indones

External networks

Cluster

Firm A Firm B

Internal networks

LEs (subcontracting)Banks & other

financial

institutions

Suppliers of

inputs

Providers of

business services

University

Training/ R&D

institutions

Central & local

government

Other

supporting

institutions

Traders & Trading

houses/companies

Local consumers

/foreign tourists


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exporters of mats to Japan. The stimulus for change is credited to a Japanesebusinessman who made the new specialization possible by introducing technology andproduct ideas. After an initial success, which saw several clusters participate in thenew trade, the Japanese market has declined because of consumer resistance to the

product quality. Improvements in production equipment are required that it appearsJapanese buyers are reluctant to assist the clusters make. The clusters were selected fora rudimentary activity and there is now opportunity to source product from elsewherein Indonesia where buyers can be more confident of quality production than inKalimantan. The experience may be unusual but it illustrates how traders maypromote upgrading without developing long-term commitment to the clusters theytrade with. In this context, the development of home-grown buying organizations issignificant although they tend to be restricted to handicraft sectors. For example, theIndonesias Peoples Handicraft Marketing Service (Pekerti Nusantara) handles outputfrom over 60 clusters (Sandee and Ibrahim, 2001).

The case of rattan-based furniture industry cluster in Padang provides also some

evidence on the importance of having well-developed networks for the sustainablegrowth, though its export orientation is much lower than those in the other casesdiscussed above (Tambunan, 1998a, b). With respect to output and input marketnetworks, Figure 7 can give some idea about the output and input market networks ofthe cluster. In the demand-side (output market), the producers sell their products todomestic markets (local, regional or national), e.g. traditional markets (pasar),small/medium shops, wholesalers, shopping centers and individual consumers. Suchas small traders, agents, wholesalers, and to a smaller extent, individual buyers werefound to be important domestic marketing channels for the firms in the cluster.

Only some producers were found to also do export, but indirectly, either via agentsin foreign countries (e.g. Malaysia and Singapore), or through trading companies in

Figure 7.The output and inputmarket networks of thePadang cluster

raw (f)

raw (f)

(s) (f) (f)

Subcontracting

(f) & (s) *)

(f)

Planters/

gatherersCluster of

rattan SMEs

Localmarket

LEs making semi

(s) and finished

(f) rattan products

Regional or/andnational market

Export

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Jakarta, or foreign tourists who regularly visited the cluster. Those who serve regionalmarkets in, e.g. North Sumatera (Medan) and Java (large cities like Jakarta, Bandungand Surabaya) trading companies in the cities are also a very important marketingchannel. For instance, there were two furniture producers who have business linkages

with trading companies outside the cluster. The first producer made on ordersregularly for a trading company, but sometime also for other firms. The second onehad more complex business linkages with several companies for the marketing of hisoutput and the supply of his inputs he exported chairs and tables to The Netherlands.He sold his products first to a large company in Jakarta. Further, this companyexported the products via another large company. He obtained his semi-finished rattanfrom a large company outside the cluster, and his chair skeleton from a local workshopthat produced a variety of goods from iron. For the production (or some part of it), theworkers often (though not always) do the work in their own houses. For theirsemi-finished rattan products, some of the furniture producers in the cluster obtainedthem from local small workshops located outside the cluster.

In the supply-side (input market), the producers buy semi-finished rattan from LEs,or raw rattan from planters or gatherers. There were also some producers who haveestablished business sub-contracting linkages with LEs. By establishing goodnetworks in the supply-side, the cluster can secure their long-term procurement of rawrattans from many districts not only in West Sumatera but also from Kalimantan andSulawesi. Many enterprises in the cluster also have networks with LEs outside thecluster who supplied semi-finished rattan products.

The cluster has also developed extensive networks with other institutions at localand regional level such as banks, government, university, research institute,state-owned companies, business associations, and local Indonesian Chamber ofCommerce and Industry. Through such networks, local banks provide credits,government and university organize various trainings, research institute assists the

cluster with quality control and better method of production, state-owned companiesprovide marketing supports and business association and Indonesian providestrainings, market information and trade-promotion supports.

The cluster has developed extensive external networks with institutions at local orregional level such as banks, government, university, research institute, state-ownedcompanies, business associations, and Indonesian Chamber of Commerce and Industry(Figure 8).

It is often argued in the literature that one important form of external network isstrategic alliance. Strategic alliance is defined as the development of a long-term andstable relationship with other enterprises[9]. Many researchers such as Perry and Pyatt(1995) and Weaver and Dickson (1995) suggest that such alliances are a key componentof successful firms competitiveness. Such partnerships are especially important for

SMEs, which in general have limited capital, human resources, information, andtechnology. Through collaborations, LEs can share their capacities with SMEs in orderto reduce costs, without having to reduce the creativeness and competitiveness of eachcompany involved (Weaver and Dickson, 1995).

Tambunan (2006, p. 237) surveyed 124 respondents, most of which are MEs andsome of them do exports. The result shows that more than 50 percent of them havehad strategic alliances with other firms. However, the percentage of those who havestrategic alliances varies among various industries. A majority of the firms surveyed in


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study of 300 enterprises in the food, wood products and clothing industries in sixprovinces in Indonesia (TAF, 2000).

Overall, findings, and conclusionIn overall, the experiences of the above clusters in developing their export activitieshave three important conclusions as the contributions of this paper to the internationalentrepreneurship literature. First, their gradual developments in export activities aresimilar to the so-called Uppsala model often mentioned in the internationalentrepreneurship literature. Based on their studies of Swedish manufacturing firms,

Johanson and Vahlnes (1977) showed initial internationalization activities of thesefirms were targeted to psychically close markets. They explained that the firms learnedand increased its foreign market knowledge over time primarily through experience,and only then they expanded to more distant markets. Similarly, the Bali, Jepara, andto smaller extent, Padang cases started first as local market oriented producers, selling

their products to local consumers including foreign tourists. After they experiencedwith foreign tourists demand, which used as a measure of foreign market needs, theystarted to export in small amounts, first, to psychically close markets such as Malaysiaand Thailand, and later expand to more distant markets as far as Europe. They camein touch with these European markets was the result of their first relationships withthe European tourists.

The second contribution is to network theory which is an important issue discussedin the international entrepreneurship literature. For example, the findings of Bells(1995) comparative study of export behavior among entrepreneurial software firms inFinland, Ireland, and Norway led Bell to the conclusion that the network approach wasa better explanation of the internationalization process of these firms. McDougall et al.(1994) explained that networks helped founders of international new ventures, or

born-global, to identify international business opportunities, and those networksappeared to have more influence on the founders country choices than did theirpsychic distance (Coviello and Munro, 1995, 1997; Oviatt and McDougall, 1994, 1999;Servias and Rasmussen, 2000; Rasmussen et al., 2001).

In their recent paper, Johanson and Vahlne (2003) they combine the traditionalUppsala model with a new focus on network relationships involving customers andsuppliers. They hypothesize that firms learn and benefit from such relationships.Those relationships, in turn, sometimes lead them to enter foreign markets, at times

Types Percentage use

Long-term marketing agreements 25.3Purchaser-supplier alliance 23.9

Joint venture with other SMEs 22.8Technology alliances 22.0Outside contracting 21.2Licensing 20.0Joint venture with LEs 18.9Equity investments 14.8Export management 13.4

Source:Tambunan (2006) (field survey 1997)

Table XTypes of strateg

alliances by the surveyefirms in Indonesia, 199


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incrementally and at times quite rapidly. The experiences of the Bali and Jeparaclusters support the hypothesis: especially the roles of foreign tourists and, to a lesserextent, local traders, have made the producers became exporters.

However, Johanson and Vahlne (2003) draw the conclusion that with a

network-based model foreign entry and expansion are no longer the mostinteresting scholarly issues. Rather, how customer and supplier relationships areestablished and developed are the key research questions. The cases of Bali, Jepara andPadang show that the establishment of customer and supplier relationships is based onpersonal relationships, reputation, and trust, without formal arrangements orcontracts. This is indeed one important characteristic of small and mediumentrepreneurs in Indonesia, especially in rural areas were social capital is still strongerthan in urban or big cities. As Coleman (1990) states that the entrepreneurs networksrepresent social capital that is intangible and idiosyncratic, and it appreciates throughrepeated interactions that help build trust, and Dubini and Aldrich say that trust is thebasic element that determines the solidity of the network link.

The third contribution is to learning theory, which is also an important point ofdiscussion in the international entrepreneurship literature. No doubt that the need toacquire local market knowledge is a key tenet of internationalization. Even, anexport-oriented firm having fully knowledge on its targeted foreign markets (and theirlocal related aspects such as social-culture, tradition, and norm in countries where themarkets are located) can be its most competitive advantage against its globalcompetitors. For this reason, many studies have been made on the importance oflearning for entering or expanding in the international marketplace (Erramilli, 1991;Andersen, 1993; Inkpen and Beamish, 1997; Luo, 1997; Barkema and Vermeulen, 1998;Lord and Ranft, 2000; Zahra et al., 2000; Johanson and Vahlnes, 1977, 2003).

Notes

1. See among others, Alvarez and Barney (2001), Bonaccorsi (1992), Hitt and Ireland (2000), Dasand Teng (1998), and Gulati (1995).

2. Unfortunately, evidence on constraints faced by LEs is very rare, and there are no data fromBPS. Although some reports on competitiveness and business environment may give someidea about business constraints faced by LEs such as distorted market, labour disputes, redtape, business unfriendly tax system, lack of infrastructure, too many retributions, andmany others. However, there are data on the constraints on technology acquisition.

3. Unfortunately, since no data are available on the proportion of women-led larger enterprisesin Indonesia, there is no indication on whether the percentage of women owners relative tomen decreases or increases as firm size increases. Also, no data exist on the number ofwomen starting enterprises each year, or on their growth rates into the next firm-sizecategory. But, it is probably safe to say that a very small proportion of women-led SEs growinto larger enterprises.

4. For more detailed information about each program from each institution, including the nameof the program, type of assistance, program executor, timeframe, fund used, area,beneficiaries, status, problems and potential, see SMERU, available at: www.smeru.or.id

5. More empirical studies shown in Sandee and Weijland (1989), Sandee et al. (1994), vanDierman (1997), Tambunan (1994) Tambunan (2000), Tambunan and Keddie (1998),Glasmeier (1990), van Velzen (1990a, b, c), Sadyadharmaet al.(1988), Supratikno (2002a), andKnorringa and Weijland (1993).

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6. Producers in these clusters are truly marginal almost in all respects. They use primitive orobsolete tools and equipments. Many of them (and their workers) are illiterate. Theproducers are very passive in marketing; even many of them do not have any idea wheretheir goods were sold and how big is the market potential for their products. They just stick

to known products and wait for buyers or traders to come. They remain so poor andstagnant that one may wonder whether the producers would not be better off elsewhere(Supratikno, 2002a).

7. Schmitz and Nadvi (1999) provide some examples of advanced export-oriented clusters inother developing countries including shoe manufacturing in Brazil, India, and Mexico,surgical instruments in Pakistan, and garments in Peru.

8. Foreign immigrants who established production facilities have contributed significantly tothe clusters dynamics. They are clearly in advantageous position vis-a-vis local producers inthe clusters, as these foreign immigrants have better accesses to market, technology, andfinancing sources (Supratikno, 2002a).

9. SAs can take many forms, including subcontracting, joint ventures, and cooperation inmarketing, promotion, or R&D activities.

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