“Promoting small and medium enterprises with a clustering approach: a policy experience from Indonesia” by T. Tambunan Cooperation and competition among firms 2013/2014 Manuela Andreassi Maria Vittoria Lafronza Jennifer Tierney

Aim of the lecture The main aim of this presentation is to review government policies on SME development with a clustering approach, in Indonesia. What are the critical success factors of development of SME clusters? To what extent have government policies contributed to the dynamics of SME clusters in the country?

Two definitions of CLUSTER Local agglomeration of enterprises producing and selling a range of related or complementary products within a particular industrial sector or subsector (UNIDO). A geographically proximate group of interconnected enterprises and associated institutions in a particular field, linked by commonality and complementarity (Porter).

Benefits of a cluster It improve SME’s efficiency and productivity adapting and being flexible as regard market product and technology managment. It can be a powerful mean for succeeding in an ever more competitive market environment. Through a cooperation of enterprises in a cluster, they may take all the advantages of external economies.

Two kind of cooperation Horizontal cooperation  cooperation among SME’s occupying the same position in the value chain. Vertical cooperation  cooperation among SME’s along the value chain.

Do all existing clusters in Indonesia do well? History of Indonesian clusters: located in rural areas and established naturally thanks to abundance of raw materials and workers with special skills. The importance of clusters for the development of SMEs and of the region : Tegal Wangi, West Java and Jepara.

Four types of clusters according to their level of development 1. Artisinal: micro enterprises, stagnated oriented, primitive tools and illiterate workers, low levels of cooperation and specialization. 2. Active: high skilled workers and better technology, supplied national and export markets, high levels of networks.

Four types of clusters according to their level of development 3. Dynamic: extensive trade networks, internal heterogeneity in terms of size, technology and served market;leading firms have a decisive role. 4. Advanced: high degree of cooperation and specialization, well developed business networks among stakeholders, cooperation with governments and export oriented.

Clusters’ agglomeration Sometimes the overlapping of advanced clusters produces clusters’ agglomeration, also called with the Italian terms of “Industrial Districts”. Does anybody want to make an example of Italian or European district ?

Supporting Clusters

Limits to clusters’ development Neglecting existing and potential market linkages of clusters. Neglecting or even eroding SME’s potential self help organizations. Limited support from local government or private organizations. Example: coconut oil cluster near Polmas in South Sulawesi.

The importance of cluster-oriented SME development policies Four factors of clusters’ development: Context for firms strategy and rivalry inside the cluster. Demand conditions. Related and supporting industries. Factor conditions. The objectives of the policies are: reducing uncertainty, stimulating early adoption and encouraging innovation in product.

SME cluster development policies in Indonesia 1970  BIPIK (National program by the Ministry of Industry). Donation of equipment-training programs- common services facilities  were the clusters that received support fom the government.

Indonesian success stories Public intervention is likely to have contributed to a number of success stories. Factors for success: Strong local sector associations. Long exposure to foreign taste brought forward by international tourism. Considerable medium-scale direct investment. Strong role of trading houses in brokering and organizing exports. Example: wooden furniture cluster in Jepara.

Conclusions The cluster is important at: -Economic level; -Social level; -Juridical level.