asian industrial foundation development research in fy 2014
TRANSCRIPT
Asian Industrial Foundation Development Research in
FY 2014
（Fact Finding Survey on Local SMEs in Indonesia）
27 February 2015
Japan Economic Research Institute Inc.
Contents Chapter 1 Project Overview .........................................................................................................1
Section 1 Background and Purpose .................................................................................. 1
Section 2 Implementation Overview ................................................................................. 2
Section 3 Implementation System ..................................................................................... 3
Chapter 2 Overview of Indonesian SMEs/Supporting Industries ............................................4
Section 1 SME/Supporting Industry Development Policy and the Automobile Industry ... 4
(1) Overview of SME/Supporting Industry Development Policy in Indonesia ................... 4
(2) Development of Indonesian Automobile Industry and Policy for Moving to Domestic
Production of Parts ......................................................................................................... 15
(3) Current State of Indonesian Automobile Industry .................................................... 17
Section 2 Results of Interviews with Local Companies .................................................... 24
(1) Overview of Interview Process .............................................................................. 24
(2) Attributes of Companies Interviewed ...................................................................... 26
(3) Indonesian Company Project Success Factors and Challenges .................................. 29
(4) Requests to the Government Discussed During Group Discussions ........................... 32
(5) Implications Derived From Interviews with Local Companies .................................. 33
Section 3 Local Japanese Companies’ Need for Supporting Industry Development and
Local Procurement ............................................................................................................ 36
Section 4 Hurdles and Policy Challenges for Developing SMEs/Supporting Industries ... 38
(1) Hurdles for Developing Supporting Industries ......................................................... 38
(2) Companies Eligible for Policy Support ................................................................... 39
(3) Past International Cooperation for Supporting Industry Development, and Future Policy
Challenges ..................................................................................................................... 40
Chapter 3 Workshop Results .....................................................................................................42
Chapter 4 Policy Recommendations for Developing Supporting Industries in Indonesia ...48
Section 1 Basic Strategy for Supporting Industries and SME Development Policy .......... 48
Section 2 Proposed Policy for Supporting Industry and SME Development .................... 49
(1) Specific Direction of Supporting Industry Development Policy ................................ 49
(2) Model Program for Supporting Industry Development ............................................. 50
(3) Marketing Support ................................................................................................ 53
(4) Support for Improving Access to Financing ............................................................ 54
Section 3 Future Japanese Collaboration and Technical Cooperation with Indonesia ..... 57
Attachment 63
Attachment 1: Questionnaire to SMEs/Supporting Industries ........................................... 63
Attachment 2: Explanatory Materials for the Workshop ................................................... 70
Attachment 3: Indonesian Policy/ Programs on Fostering Supporting Industry, Voices of
Indonesia SMEs, Relevant Japanese Policy/ Programs ...................................................... 72
Attachment 4: Reference Materials for the Interview on the Actual Situation of SME
Manufacturers’ Management Conducted after the Workshop ........................................... 82
1
Chapter 1 Project Overview
Section 1 Background and Purpose
In 2013, Indonesia enjoyed a record amount of foreign direct investment (around 28.6 billion
dollars from 9,612 cases), and Japanese companies accounted for over 16% of that total (around
4.7 billion dollars from 958 cases), which was the highest share of all donor nations. That same
year marked the first time Indonesia beat out China, India and Thailand to capture the top spot
in ranking of promising nations and regions over the medium term (Indonesia was ranked third
in previous year), according to the Japan Bank for International Cooperation (JBIC)’s “Survey
Report on Overseas Business Operations by Japanese Manufacturing Companies” (November
2013). Indonesia continues to be a promising business development site for Japanese companies
and for manufacturers in particular.
Efforts are now being focused on the low local procurement rate, an issue that has
challenged Japanese companies operating in Indonesia. A Japan External Trade Organization
(JETRO)’s “Status Survey on Activities of Japanese Companies Operating in Asia and Oceania”
(FY2014) revealed that the local procurement rate of parts and materials in Indonesia is 43.1%,
which is higher than Vietnam (33.2%) but lower than China (66.2%), Thailand (54.8%), Korea
(49.1 ％ ) and India (48.2%), all countries with sizeable concentrations of Japanese
manufacturers. This implies that Japanese manufacturers in Indonesia feel there is room for
improvement, and reducing the cost of local manufacturing is a major business challenge for the
near future.
In light of these circumstances, developing Indonesian supporting industries should help
improve the local business environment for Japanese companies operating there while also
developing industry and creating employment opportunities in Indonesia.
The final aim of the Project is to develop Indonesia supporting industries that form supply
chains for Japanese companies. Thus, a field survey of local small- and medium-sized
enterprises (SMEs) and supporting industries was conducted in pursuit of improving the
policymaking capacity of Indonesian authorities in charge of drafting policy for SMEs and
supporting industries. Then, workshop and individual meetings were held to share information
and exchange opinions with relevant Indonesian organizations about the state of business for
local SMEs and supporting industries. The results of these discussions were used to recommend
policy for developing supporting industries.
2
Section 2 Implementation Overview
The survey flow below was followed from August 2014 through February 2015 to arrive at
the Project’s policy recommendations for the effective, efficient development of supporting
industries.
Figure 1-1: Work Sequence
(Source) Prepared by the study team
The Project focused on supporting industries dealing with automobiles as representative of
Indonesian supporting industries. Reasons for this choice include: (1) the Indonesian economy
relies heavily on the automotive industry; (2) the automotive industry is one of the largest
sectors for investment from Japan in Indonesia; (3) developing supporting industries dealing
with automobiles will bring macroeconomic benefits to a country suffering a growing trade
deficit; and (4) Japanese automakers have a strong presence in Indonesia, which is ASEAN’s
largest automobile market. In other words, supporting the Indonesian auto parts industry should
not only help improve the investment environment for Japanese automakers, but also greatly
Understanding and Analyzing Indonesian SMEs/Supporting Industries
(Preliminary studies, interviews with local companies, workshops)
● Understanding policy for SMEs and supporting industries
● Understanding conditions and challenges for SMEs and
supporting industries
Policy Recommendations for Developing Indonesian Supporting Industries
● Draft recommendations for policy for effectively, efficiently developing the supporting industries that
Japanese companies operating in Indonesia need
● Propose future collaboration between Japan and Indonesia, and visions of technical cooperation for Indonesia
Select and analyze Indonesian SME/supporting industry policy challenges
Organize proposed policy recommendations and hold a workshop in Indonesia
● Needs of Japanese companies
operating in Indonesia
● Policy of relevant Indonesian
organizations (Ministry of
Industry, Ministry of
Cooperatives and SMEs, etc.)
3
benefit the Indonesian side by reducing the trade deficit, providing macroeconomic stability and
contributing to economic growth through raised standards for local Indonesian companies.
Section 3 Implementation System
The Project study team is backed by the Japan Economic Research Institute (JERI) and its
network, and is led by Yoshiyuki Oba, a senior researcher in the International Division of JERI
who lives in Malaysia. The team counts Masayoshi Shinomiya, a chief researcher in the
International Division of JERI, as a member, and Kazuhisa Matsui, who currently works as a
coordinator of the SME Overseas Business Support Platform in Indonesia, as its local advisor.
Mr. Matsui helps keep the team in close contact with Ministry of Industry (MOI) in Indonesia,
Ministry of Cooperatives and Small and Medium Enterprises (MCSME) in Indonesia and the
Indonesian Automotive Components Industry Cooperative (KIKO).
Local authorities built the cooperative system shown in the Table 1-1. The Project existed to
encourage collaboration with local authorities and KIKO (specifically, to encourage discussion
between both about various challenges and the state of policy support in supporting industries)
with focus on improving the Indonesia side’s capacity to make policy about SMEs and
supporting industries.
Table 1-1: Structure of Counter Parties in Indonesia
Government Agency (Local Authorities) Private organization
Ministry of Industry
(MOI)
Ministry of
Cooperatives and SMEs
(MCSME)
Indonesian Automotive
Components Industry
Cooperative (KIKO)
Counter Part：
Ms. Euis Saedah, Directorate General
of Small and Medium Industry
Counter Part：7th
Deputy
Minister’s Office
Mr., Kosasih, Chairman
Mr. Rony, Secretary
Related parties：
Directorate General of High
Technology Based Industry
Directorate of Land Transportation
Equipment industries
Directorate General of International
Industrial Cooperation
Mr. Meliadi Sembiring,
7th
Deputy Minister for
Research and
Development
(Source) Prepared by the study team
4
Chapter 2 Overview of Indonesian SMEs/Supporting Industries
Section 1 SME/Supporting Industry Development Policy and the Automobile
Industry
(1) Overview of SME/Supporting Industry Development Policy in Indonesia
(i) Outline of Industrial Policies and SMEs/Supporting Industries Fostering Policies by
Indonesian Government
The Figure 2-1 is an overview of the Indonesian government’s industry-related policy. The
National Medium- and Long-Term Development Plans (“The National Long-Term
Development Plan 2005-2025” and “The National Medium-Term Development Plan
2015-2019”) exist as upper-level plans for this policy, and the Master Plan for Acceleration and
Expansion of Indonesia’s Economic Development 2011-2025 (MP3EI) and the presidential
Regulation No.28/ 2008 regarding National Industrial Policy are plans for encouraging the
implementation of the National Medium- and Long-Term Plans. Each ministry and agency
drafts strategic plans based on the National Medium- and Long-Term Plans, and the Ministry of
Industry is the main body in charge of policy related to supporting industries and SMEs and
drafted the Strategic Plan for 2010–2014 by the Ministry of Industry based on the National
Medium- and Long-Term Development Plans and the Presidential Regulation No.28/ 2008
regarding National Industrial Policy.
5
Figure 2-1: Outline of Industrial policies in Indonesia
Long-Term Development
Plan （2005-2025）
Medium-Term Development
Plan （2015-2019）
MP3EI
（2011-2025）
Strategic Plan by
MOI
（2010-2014）
New Industrial Law (No.3/
2014)
Mid – to – Long Term
Development Plans
Formulation of 6 regional
corridors
Expansion of Value chain in each
corridor
Integration of regional
development sectors
Regional industrial development
Enhancement of regional
connectivity
National Industrial
Policy “Presidential
Regulation No.18/
2008”
Strengthening of Value added
industries
Bigger market share both
domestic and abroad
Enhancement of supporting
industries
Strengthening of environmental
and energy saving industries
Strengthening of industrial
structure
Acceleration of Industrial
Development
Enlargement of contribution to
GDP by SMEs
【35 priority industries】
Agroindustry（12 industries） Transportation equipment
industries （4 industries） Electricity & ICT（3 industries） Manufacturing based industries
（8 industries） Creative Industries（3 industries） Specific SMEs（5 industries）
Enlargement of Value added
Bigger market share in both Indonesia and abroad
Enhancement of supporting industries
Strengthening of technical capabilities
Strengthening of industrial structure
Driving for industrial development except Jawa
Enlargement of contribution to GDP by SMEs
Regulation on Development plan,
Development industrial zone,
Development industrial resources,
industrial protection etc.
The Structure of industrial policies in Indonesia
(Source) Prepared by the study team using the JICA report1, interview with JICA Indonesia office, JETRO Jakarta
office, Ministry of Industry, Ministry of CSMEs, October and November 2014
Currently there is no industrial policy explicitly applicable only to supporting industries and
SMEs, but the Presidential Regulation No.28/ 2008 regarding National Industrial Policy and the
Strategic Plan for 2010–2014 by Ministry of Industry put forth the following objectives for
strengthening and expanding supporting industries and SMEs.
1. Increased value-added industries 2. Increasing market share at home and abroad 3. Strength factors supporting industrial development 4. Increased ability of innovation and industrial technology capability 5. Strength and details of industry structure 6. The increasing spread of industrial development 7. The increasing role of small and medium industries to GDP
1 p. 19-32, “Project on Small and Medium Industry (SMI) Development based on Improved Service Delivery in
Indonesia” (December 2012) JICA
6
The Presidential Regulation No.28/ 2008 regarding National Industrial Policy is an
integrated policy that describes the Ministry of Industry’s specific indicators for industrial
promotion policy. The most recognizable parts of this policy are the parts calling for
advancement of industry through the strengthening of the value chain, and for narrowing the
gaps between regions through local industrial promotion. As explained in the Figure 2-2, this
policy sets out a top-down approach, in which the central government selects 35 competitive
industries and promotional measures for forming clusters in those priority industries, and a
bottom-up approach in which local governments select and promote the priority industries.
Figure 2-2: Outline of Presidential Regulation No.28/ 2008 regarding National Industrial Policy
(Source) Prepared by the study team using the JICA Report p.28-29, “Project on Small and Medium Industry
(SMI) Development based on Improved Service Delivery in Indonesia” (December 2012)
The following industries have been specified among the 35 priority industries as Priority
Industrial Cluster Development sectors.
7
1.Agro Industry (1) Palm oil processing industry, (2) Manufacture of rubber and rubber goods, (3) Cocoa industry, (4) Coconut processing industry, (5) The coffee processing industry, (6) Sugar industry, (7) Tobacco processing Industry, (8) Fruit processing industry, (9) Furniture industry, (10) Fish processing industry, (11) Paper industry, (12) Milk processing industry
2.Transportation equipment industry (13) Automotive industry, (14) Shipping industry, (15) Aerospace industry, (16) Train industry
3.Electronics and ICT Industry (17) Electronics industry, (18) Telecommunications industry, (19) Computer and its equipment Industry
4.Manufacturing Based Industry Basic Materials Industry: (20) Iron and steel industry, (21) Cement Industry, (22) Petrochemical Industry; (23) Ceramic Industry Machinery Industry: (24) Electrical equipment and electrical machinery Industry, (25) Machinery and general equipment Industry. Labor-Intensive Manufacturing Industry: (26) Textiles and textile products industry; (27) Footwear industry;
5.Creative Industry (28) Software and multimedia content industry, (29) Fashion industry, (30) Craft and art industry, (31) Precious stones and jewelry industry, (32) Public salt industry, (33) Pottery and decorative ceramics industry, (34) Essential oils industry, (35) Food industry
The Strategic Plan for 2010–2014 by Ministry of Industry is an industrial sector
development plan drafted by the Ministry of Industry based on The National Medium- and
Long-Term Plans. It touches on development across all industrial sectors; it is not limited only
to promotion of SMEs. However, its long-term aims include establishing a robust manufacturing
industry structure that includes a strong cooperative network between SMEs and major
companies, as well as evening the contribution of SMEs and major companies to the GDP. Thus,
this plan does indeed include SME promotion in its aims.
Programs for achieving the aims of this plan attempt to grow and revitalize the
manufacturing, agricultural, forestry and fishing industries as well as emerging industries and
small- and medium-sized industries (particularly those in the countryside), and focuses on
development around cluster promotion (see Table 2-1).
8
Table 2-1: Main Policies on Strategic Plans by Ministry of Industry
(Source) Prepared by the study team using the table in p.24-26, JICA Report on “Project on Small and Medium
Industry (SMI) Development based on Improved Service Delivery in Indonesia” (December 2012)
The Directorate General of Small and Medium Industry in the Ministry of Industry oversees
specific policy for small and medium-sized manufacturing sectors and their supporting
industries. This bureau has strived to develop supporting industries since the 1970s, amidst the
progress of machines, manufacturers and others involved in automobile assembly, and
industrialization. Now, the bureau implements various strategies for policy support for the
nearly 3.2 million companies in small- and medium-sized manufacturing industries (those with
total assets of 5 billion rupiahs or less (including land and buildings) according to Minister of
Industry Decision No. 257/ 1977) in three regional teams (Sumatra/Kalimantan, Java, and
Sulawesi). These strategies include the JETRO-supported One Village One Product Project (37
products in 10 provinces to date); entrepreneur incubation (providing three years of training and,
later, wages to “outsourcing diffusion personnel” to have them implement regional support
projects); assistance updating machinery (the Restructuring Linkage Program, a fixed subsidy
(40% of the purchase price of domestically manufactured machinery, 30% for
foreign-manufactured machinery) from the Ministry of Industry for introducing new facilities
for textile-related, footwear and leather industries); guidance from industrial diffusion personnel
known as UPT, and business consulting by SME consultants (trained under the JICA project for
9
SME human resources development through March 2008, a total of 464 people through 2012,
civil servants in the central government and regional bureaus of commerce and industry
(DINAS)); and exhibitions and various awards (for green industries, designs, etc.). The
approach for this assistance has been to provide support for cluster formation in eight industries
(1) snack food products, 2) gems and jewelry, 3) accessories, 4) necklaces and bracelets, 5)
natural salt, 6) fashion, 7) craftworks, and 8) IT) chosen from the 35 priority industries set forth
in Presidential Regulation No. 28/ 2008 regarding National Industrial Policy. The general office
had an SME policy budget of IDR 420 billion in fiscal 2013 (IDR 360 billion in fiscal 2012),
and around one-third of that budget went to the provinces, another third went to regions that
showed potential, and the final third was used to subsidize research operations, machinery
purchases and the like.
The Metal Industries Development Center (MIDC) operates under the Ministry of Industry
and provides research and development related to metal processing (casting, machine
processing, welding, heat treatment, surface treatment, testing and inspection, etc.) and technical
services (training and education, consulting, trial product development, etc.) for companies.
On the financial side, the Ministry of Industry offers financial mediation through KKMB2 (a
private financial mediation consultant created by Bank Indonesia with help from provincial
governments and others) and provides corporate tax breaks for general SMEs, but no
institutional financing exists specifically for supporting industries or minor manufacturing
industries. The institutional financing that does exist is mainly for agriculture and food products.
JAMKRINDO3 is a state-run credit guarantee company that provides credit guarantees for the
business loans of commercial banks, but it also targets general microenterprises and SMEs. The
special credit guarantee system KUR (people’s business credit) began operating in November
2007 and includes in its target small- and medium-sized manufacturing industries, but its
dealings with manufacturing industries amount to less than three percent of its balance. A major
reason for this lack of attention to manufacturing is that individual banks select the companies
to finance, and banks largely tend to avoid manufacturing industries, which they see as risky,
while dedicating over half their funds to companies in the trade, hotel and restaurant sectors
(57% of the balance as of the end of April 2013).
Although it has not been very directly involved in the development of supporting industries
to this point, the Ministry of Cooperatives and SMEs is the main Indonesian government agency
2 Konsultan Keuangan Mitra Bank 3 Jaminan Kredit Indonesia
10
in charge of policy for microenterprises and SMEs. The ministry has worked toward improving
regulations, developing human resources, promoting business, providing subsidies and loans
(through a revolving fund4 established by the Ministry of Cooperatives and SMEs and financed
by the national treasury) and employing a credit guarantee system for nearly 210,000
cooperatives and the 35.24 million microenterprises that are members of the cooperatives.
According to presentations given by officers from the ministry at workshops for the Project, the
ministry plans to focus on programs for business establishment and support, production
assistance, financial assistance (subsidies and loans), operational assistance (dispatch of experts,
etc.), capacity development (for agriculture and fishing) and management guidance for
microenterprises (including businesses in the agricultural, forestry and fishing industries).
Project statistics show that there were 53.8 million microenterprises and SMEs in Indonesia
as of 2010, but the legal definition of these enterprises does provide for classification by
industry; rather, they are defined according to their total assets (excluding land and buildings)
and annual sales (see Law No. 20/ 2008 concerning Micro, Small and Medium Enterprises,
Table 2-2). The Indonesian Central Bureau of Statistics defines these enterprises by number of
employees, and it defines as domestic industries those with fewer than five employees
(including unpaid laborers), as small enterprises those with five to 19 employees and as medium
enterprises those with 20 to 99 employees.
Table 2-2: Legal Definition of Micro and SME in Indonesia
Category Total Assets
(excluding land and
building)
Annual sales Notes
Micro Less than IDR 50
million
Less than IDR 300 million Traditional industries based on
sole proprietorship
Small IDR 50 million to less
than IDR 500 million
IDR 300 million to less
than IDR 2.5 billion
Managed by an individual or
corporation, and an independent
enterprise which is not a
subsidiary or branch of a
medium-sized or large company
Medium IDR 500 million to less
than IDR 10 billion
IDR 2.5 billion and over
less than IDR 50 billion
-
(Note) The standard for the amount of total assets or annual sales in these definitions may be changed by presidential
regulation when necessary. An enterprise is defined by its total assets or its annual sales.
(Source) Prepared by the study team using Law No.20/ 2008 on MSME
4 A revolving fund is a system where a specific project provides a specific beneficiary with loans (or equipment and
material) and collects the repayment from obtained profits and the project activity is supposed to be expanded for
other beneficiaries by repaid funds.
11
On the other hand, the MP3EI (Master Plan for Acceleration and Expansion of Indonesia’s
Economic Development) is a plan drafted to promote the achievement of the National
Long-Term Development Plan, and comprises the following primary strategies:
・ Improvement of economic potential by six economic corridors
・ Strength of national connectivity
・ Enhancement of human resource and science technology in Indonesia
The six economic corridors and main industries are as follows, and the connection of these
six corridors should expand the value chain, narrow the gaps between regional economies and
provide other benefits.
・ Sumatra：Palm oil, Rubber, Coal, Steel, Shipping
・ Java：ICT, Trade, Food and Beverages, Textile, Transportation equipment, Shipping
・ Kalimantan：Palm oil, Coal, Oil and Gas, Timber, Steel
・ Sulawesi：Food Agriculture, Oil and Gas, Cocoa, Fishery, Nickel
・ Bali – Nusa Tenggara：Tourism, Animal Husbandry
・ Papua - Maluku：Agriculture, Oil and Gas, Fishery, Nickel, Copper
(ii) International Cooperation for SMEs/Supporting Industries in Indonesia
Japan has engaged in international cooperation in sectors for developing SMEs and
supporting industries in Indonesia based on the Policy Recommendation for SME Promotion in
the Republic of Indonesia by Dr. Urata, JICA Senior Advisor (Urata Report) released in 2000.
This cooperation consisted mainly of improving financing (the credit guarantee system) for
SMEs, establishing an SME training center and providing other technical and administrative
improvements, putting together SME consulting projects, and driving the integrated promotion
of SMEs and supporting industries (see Table 2-3).
12
Table 2-3: International Cooperation by Japan based on the URATA Report (2000)
（Source）Prepared by the study team using JICA report5
In response to these efforts, starting in 2010 JICA dispatched industrial development
advisors and implemented pilot projects (for welding technology, elemental technology for
electrical and electronic industries, and local industries in the province of South Sulawesi) for
developing technical sectors and local industries that had sought assistance from their local
governments. Most recently, the Project on Small and Medium Industry Development Based on
Improved Service Delivery aims to improve systems for efficiently providing services for
developing SMEs, enhance the competitiveness of SMEs and use knowledge gained to build
models that enable development in other regions. Target regions are the province of North
Sumatra and two other regions, and target industries since 2013 have been shipbuilding,
traditional textiles and cacao. Since 2014 the Project on Enhancement of Metalworking
Capacity for Supporting Industries of Construction Machinery has aimed to enhance casting
technology and production management capacity of MIDC (the Metal Industries Development
Center operating under the Ministry of Industry) by sending experts to Indonesia and by
5 p.20, JICA Report on “Project Formation Survey on SME Development in Indonesia” (February 2008)
13
providing training in Japan.
There are many other efforts from Japan to assist SMEs and supporting industries in
Indonesia, including those of JETRO to help improve support systems for SMEs and supporting
industries by dispatching experts to the Indonesian Chamber of Commerce and Industry
(KADIN) (from 2004 to 2012, and the provincial offices of KADIN in North Sumatra, South
Sulawesi, Banten and Riau also participated) and the Mold and Die Industrial Association
(IMDIA) (where the objective was to normalize organizational operation methods and establish
a certification test for mold and die technology). In addition, the Overseas Human Resources
and Industry Development Association (HIDA, a merger between the Association for Overseas
Technical Scholarship (AOTS) and the Japan Overseas Development Corporation (JODC) in
March 2010) dispatched a total of 1,427 experts to Indonesia between 1970 and 2013 and has
accepted many trainees from developing countries (including Indonesia) seeking technical
training under the Industrial Engineer Training Assistance and Education Program, which
served a total of 96,945 trainees from 1959 through 2013 (892 in 2013).
The following are examples of major projects implemented by other foreign countries in the
past, and most of them focused on human resources development related to production
technology.
・ International Labor Organization SCORE Program (workplace improvement, production
factory instruction): A program implemented by ILO with funding from the Swiss State
Secretariat for Economic Affairs (SECO) and the Norwegian Agency for Development
Cooperation (NORAD). The program comprises five modules, including workplace
environment improvement and quality and productivity improvement. A total of 507
people with 91 companies have received training targeted at companies in the
manufacturing sectors for automobile parts, food and beverage products and medical
instruments in the provinces of Central Java, South Sulawesi and Southeast Sulawesi and
the city of Semarang. Training has been provided by the Astra Foundation, the Ministry of
Manpower and Transmigration and others.
・ Gesell-schaft fur Inter-natio-nale Zusam-men-arbeit of Germany (GIZ) Vocational Training
School and Facility Capacity Improvement Project: A GIZ project for improving
vocational training schools and facilities (2010–2017) to help develop more capable
human resources.
・ Danish International Development Agency (DANIDA) Business Partnership Program: A
14
program for developing countries by which Denmark works with local companies in the
partner country and provides them with know-how, technical guidance, training and more.
・ International Finance Corporation (IFC) investment and loans for local banks: Helps
streamline the execution of loans from local banks to microenterprises and SMEs.
(Examples include Bank Tabungan dan Pensiunan Negara BTPN, Bank DANAMON)
[For reference: General definition of supporting industries]
The term “supporting industries” is widely used in many countries, but still includes some
vagueness and lacks a set definition, and users of the term define it according to their objectives and
interpretation. The narrowest definition of the term confines it to industries in which only parts or the
like are manufactured; in the broadest sense, it includes all manufacturing industries. The term lacks a
clear definition, and it is not possible to pinpoint exactly which industries it describes. Thus, the range
of the term changes depending on the objectives and concepts used by policymakers of a particular
country in that country’s industrial policy. The definition also depends on the economic circumstances,
development level and severity of the challenges that country faces, thus it is not practical to use any
other country’s concept of the term for one’s own pursuits. Nations should use the definition that best
fits their social and economic circumstances.
For example, in Thailand, supporting industries include companies that manufacture components
and parts used in the final assembly of automobiles, machines and electronics devices. On the other
hand, the U.S. Department of Energy defines supporting industries as industries that provide materials
and processing for formation and assembly of finished products prior to their sale.
Many concepts similar to supporting industries exist – related industries, outsourcing industries,
(supplemental) related industries, parts industries, manufacturing vendors are among those concepts.
Both supporting industries and these similar concepts share an emphasis on the importance of critical
industries in the manufacture of finished products, but each individual concept covers a widely
different range of industries. Related industries and outsourcing industries cover the broad range of all
supplier industries. Conversely, parts industries and manufacturing vendors cover a relatively small
range.
The term “supporting industries” has no set or universal definition, yet the common thread that runs
through even the narrowest definition is that they are industries that provide parts and tools for
manufacturing parts. There are two overarching concepts to add to the narrowest definition of the term:
that supporting industries include logistics, storage, transportation systems, insurance and other
services related to manufacturing, and that they provide machines, raw materials and other physical
things. Note that this definition of supporting services does not specify the size of a company, its
capital or manufacturing structure.
(Source) Excerpt from 2009 Seminar Report from Mission to Promote Industrial Advancement for
Promoting Economic Partnership and Approach to Partnership (Technical Cooperation) with
Vietnam Regarding the Development of Supporting Industries and SMEs, Japan Economic Research
Institute, p.24
15
(2) Development of Indonesian Automobile Industry and Policy for Moving to Domestic
Production of Parts
The focus of the Project is the automobile industry in Indonesia, in which production led by
U.S. automobile manufacturer General Motors (established as N.V. General Motors Java Handel
Mij. in Jakarta in 1927) began in earnest in the 1920s (at nearly the same time as Japan).
The Indonesian auto industry declined amidst Indonesia’s insular tendencies following the
Second World War and the Indonesian War of Independence, but policy to move to domestic
production of automobiles and their parts had been implemented since the late 1970s (Table
2-4), when auto production was revived in earnest due to direct investment and technical
transfer by automakers and parts manufacturers from foreign countries, mainly Japan.
Then the rate of domestic production rose to around 50% by 1999. Supporting industries
were still underdeveloped at that time, thus Indonesia encouraged parts suppliers from Japan,
with the high rates of domestic production characteristic of its automakers, and other countries
to expand into Indonesia. The result was the establishment of a basic, local manufacturing
system in which critical parts were manufactured by companies or their subsidiaries, procured
from Japanese suppliers operating in Indonesia or imported from Japan and other countries; and
small products, interior and exterior equipment and other components were procured from
Indonesian suppliers.
16
Table 2-4: Transition of the Domestic Product Promotion Policy on Automotive Parts
Policy Content
SK307 (1976) Decree of Minister of Industry No. 307/M/SK/8/1976: Decision on
Obligation to Use Domestic Components in Commercial Vehicle
Assembly. Gradually removed components imported as CKD
components from the list and prohibited their import. Only for
commercial vehicles.
SK34 (1987) Decree of Minister of Industry No. 34/M/SK/2/1987: Compilation of
Master List for Assembly of Automobiles and Manufacture and
Assembly of Automobile Parts and Accessories. Removed 40
components, which included all items set forth in SK307, from the
CKD list and set forth a new schedule to remove 91 items. Only for
commercial vehicles.
New Policy Package (1993) Abolished the policy of removing components from the import list
based on past component definitions, and instead linked the domestic
production rate to tariff rates, allowing for tariff rates for components
to drop to as low as 0% if domestic production rates could be raised.
Applicable to commercial and passenger vehicles. Abolished the ban
on import of finished vehicles gradually enforced from 1969 to 1974.
Set import tax for passenger vehicles, which had the highest tax rates,
at 200%, enabling the import of finished vehicles albeit under high
tariffs.
New Automobile Policy
(1999)
In response to a WTO recommendation, repealed the policy on
domestic production of automobiles and established a set tariff for
components that had nothing to do with the domestic production rate. (Source) Excerpt from Supporting Industries In Asia by Toshiyuki Baba, 2005, p.122
17
(3) Current State of Indonesian Automobile Industry
(i) Contribution to the Indonesian Economy
Manufacturing industries accounted for an all-time high of 21% of the gross domestic
product (GDP) of Indonesia in 2013. Manufacturing related to food products accounted for the
largest percentage of manufacturing GDP (36%), with transportation equipment and machinery
second at 28% (see Figure 2-3).
Figure 2-3: Structure of GDP by Sector (2013)
14%
21%
14%
GDP Composition（2013）
Agriculture MiningOil and Gas Manufacturing Industry Manufacturing IndustryElectricity, Gas & Water Supply ConstructionTrade. Hotel & Restaurants Transport and CommunicationFinance, Real Estate and Business Services Services
36%
12%
28%
GDP Composition in the manufacturing
sector（2013）
Food, Beverages and Tobacco Textile, Leather Products and Footwear
Wood and Other Products Paper and Printing Products
Fertilizers, Chemical and Rubber Products Cement, and Non-Metalic Quarr Products
Iron and Steel Basic Metal Transport Equip.. Machinery & Apparatus
（Source）Prepared by the study team using the statistics of BPS – Statistics Indonesia6
Trends in total added value by manufacturing industries of leading medium-sized and large
companies with a heavy influence on the Indonesian economy show that the food product
industry adds the highest percentage of the total added value (19.2% in 2013) and that
transportation equipment (automotive) is behind it at 10.4% (see Figure 2-4). However, the
automobile industry outpaced the food product industry in growth rate, 21.1% to 14.8%.
In addition, labor productivity by industry shows that industries related to transportation
equipment far outpaced other industries in 2013 (see Figure 2-5).
6 http://www.bps.go.id/eng/tab_sub/view.php?kat=2&tabel=1&daftar=1&id_subyek=11¬ab=1
（Access date: 9 December 2014）
18
Therefore, the automobile industry is a leading example of a high-value-added industry in
Indonesia, and is one of the most critical industries in terms of effect on the Indonesian
economy.
Figure 2-4: Value added of Large and Medium Manufacturing by Sector
Value Added of Large and Medium Manufacturing by Subsector (billion rupiahs), 2009-2013
Sector 2009 ratio 2010 2011 2012 2013 ratio
Compound Average
Growth Rate
（5 year）
Food Products 129.1 16.1% 157.0 192.2 222.8 224.5 19.2% 14.8%
Beverages 6.8 0.8% 7.5 7.1 10.8 9.2 0.8% 8.0%
Tobacco Products 61.2 7.6% 62.4 67.2 91.9 85.4 7.3% 8.7%
Textiles 33.3 4.2% 39.6 47.4 47.8 44.4 3.8% 7.5%
Wearing Apparels 29.1 3.6% 31.1 32.1 44.0 24.1 2.1% -4.6%
Leather and Related Products 14.2 1.8% 15.7 22.6 26.0 16.6 1.4% 3.9%
Wood and Products of Wood and Cork Except Furniture 18.0 2.2% 14.3 15.9 20.0 17.2 1.5% -1.2%
Paper and Paper Products 45.5 5.7% 43.2 60.2 55.6 50.1 4.3% 2.5%
Printing and Reproduction of Recorded Media 6.4 0.8% 10.7 8.3 6.9 10.1 0.9% 12.2%
Products from Coal and Petroleum Refinery 2.4 0.3% 2.3 1.9 1.7 2.3 0.2% -1.4%
Chemicals and Chemical Products 67.8 8.5% 83.3 108.3 126.5 118.0 10.1% 14.9%
Pharmaceuticals, Medicinal, and Botanical 74.7 9.3% 38.6 31.0 13.8 48.6 4.2% -10.2%
Rubber and Plastic Products 43.0 5.4% 50.6 54.0 59.4 56.2 4.8% 6.9%
Other Non-metallic Mineral Products 29.9 3.7% 33.3 37.0 45.4 39.5 3.4% 7.2%
Basic Metals 30.1 3.8% 31.8 38.2 38.8 44.5 3.8% 10.3%
Fabricated Metal Products, Except Machinery and 27.0 3.4% 28.1 30.6 42.1 49.9 4.3% 16.6%
Computer, Electronic, and Optical Products 22.8 2.9% 25.4 24.8 28.5 29.6 2.5% 6.7%
Electrical Equipment 27.6 3.4% 28.8 37.3 49.1 51.6 4.4% 17.0%
Machinery and Equipment n.e.c. 7.9 1.0% 11.6 16.8 19.6 14.2 1.2% 16.0%
Motor Vehicles, Trailers and Semi-trailers 56.5 7.1% 109.7 103.7 126.2 121.5 10.4% 21.1%
Other Transport Equipment 47.7 6.0% 46.3 59.5 56.5 92.4 7.9% 18.0%
Furniture 7.5 0.9% 10.4 11.5 8.4 9.6 0.8% 6.5%
Total 800.4 100.0% 891.1 1,018.2 1,153.4 1,168.2 100.0% 9.9%
（Source）Prepared by the study team using the statistics of BPS – Statistics Indonesia7
7 http://www.bps.go.id/eng/tab_sub/view.php?kat=2&tabel=1&daftar=1&id_subyek=09¬ab=3
（Access date: 9 December 2014）
19
Figure 2-5: Work Productivity of Large and Medium Manufacturing by Products
（Source）Prepared by the study team using the statistics of BPS – Statistics Indonesia8
(ii) Current Situations and Issues of Automotive Production in Indonesia
The growth of Indonesia’s economy has served as a backdrop to the rapid increase of
automobile sales in the country (1.23 million in 2013 compared to 760,000 in 2007). Production
volume has increased alongside this market growth, and it eclipsed 1.2 million vehicles in 2013
(it was around 700,000 in 2007). Indonesia’s automobile production is second in ASEAN to that
of Thailand, which produced around 2.5 million vehicles in 2013 but sold only 1.3 million
domestically. Domestic sales in Indonesia are expected to surpass those of Thailand by 2014;
the Indonesian market continues to grow more and more attractive.
Meanwhile, supporting industries focused on assembly manufacturers are beginning to
8 http://www.bps.go.id/eng/tab_sub/view.php?kat=2&tabel=1&daftar=1&id_subyek=09¬ab=5
（Access date: 9 December 2014）
20
cluster in Indonesia as local production continues to increase and as foreign assembly
manufacturers continue to expand into the country (see Figure 2-6).
Figure 2-6: Structure of Automotive Industry in Indonesia
（Source）Prepared by the study team based on the results of interviewing with Mr. Rony, secretariat of KIKO（10
September, 2014）
Japanese auto part suppliers make up one part of this cluster of supporting industries.
According to interviews in the field, Japanese companies invested more in Indonesia in 2013
than businesses from any other country; investment from Japanese companies is the driving
force behind automotive industries.
The sales share of Japanese automakers in Indonesia was around 95% in 2013 (even higher
than their 88% share in Thailand); the strong presence of the Japanese brand is likely a
contributing factor to the large concentration of Japanese investment in Indonesia.
However, Indonesian companies do not have that kind of presence at this time. This will be
discussed in further detail in Section 2: Results of Interviews with Local Companies, but despite
the self-supporting efforts of local companies and training and technical guidance from major
automakers and the like, only very few local parts suppliers have reached the Tier 1 and Tier 2
ranking. Most Tier 1 and Tier 2 local parts suppliers are foreign parts suppliers. Local parts
suppliers are behind their foreign counterparts in terms of technical capacity, production
facilities and the like, resulting in various cases of being relegated to supplying small parts or
21
struggling to meet the quality and deadlines demanded by Japanese companies.9
Indonesia is still dependent on the import of many materials and parts from Japan, Thailand
and other countries. The figure below shows the trade balance by industry in recent years. There
is a huge trade deficit in machines and automotive products, and it threatens to weaken the
rupiah and disrupt the balance of trade across Indonesia (see Figure 2-7).
Figure 2-7: The trade balance by product in Indonesia
（Source）Prepared by the study team using the statistics of BPS – Statistics Indonesia10
The small and medium-sized manufacturers that were the target of the interviews for this
study depend on imports for a majority of their raw materials. In addition, most of their
production facilities are used equipment and the like imported from Japan, Taiwan and other
countries.
Furthermore, many interviewees were losing profits amidst the rapidly rising employment
costs of recent years. Many small and medium-sized manufacturers in Indonesia aim for a labor
9 Most Indonesian companies consider borrowing from banks as an option for capital investment, but high interest
rates have created concern over bank loans and capital investment, and many companies are changing their facilities
(results of interviews in the field, October and November 2014). 10 http://www.bps.go.id/eng/tab_sub/view.php?kat=2&tabel=1&daftar=1&id_subyek=08¬ab=5 and http://www.bps.go.id/eng/tab_sub/view.php?kat=2&tabel=1&daftar=1&id_subyek=11¬ab=1
（Access date: 9 December, 2014）
22
cost rate (labor costs divided by sales, multiplied by 100) of 15%, but some of their rates are
closer to 20%, and many of them have strived toward mechanization to improve productivity.11
Some of the companies interviewed had received requests for estimates from Japanese auto
part manufacturers in Thailand. Indonesian companies are known within ASEAN as having
improved their technical capacity and Indonesia is expected to serve as a production base for
increasing exports of finished vehicles and parts.12
(iii) SWOT Analysis of Indonesian Small- and Medium-sized Automotive Parts Manufacturing
Industries
The Figure 2-8 shows SWOT analysis of small and medium-sized Indonesian manufacturers
of automotive parts. Foreign companies are expected to continue to expand into Indonesia,
imports from other ASEAN member nations are expected to increase, and manufacturing costs
(raw materials and labor costs) are expected to rise. The response of these small and
medium-sized manufacturers to these threats is crucial – they need to capitalize on their
strengths, minimize their weaknesses in technical capacity (acquisition of updated technology,
quality, turnaround), production facilities (old models) and fundraising capacity (low interest,
medium- and long-term) to turn these threats into opportunities.
11 Results of interviews in the field, October and November 2014 12 For example, Toyota Motor and Daihatsu Motor are exporting 500 compact cars manufactured by Daihatsu’s
Indonesian subsidiary (Astra Daihatsu Motor) per month to the Philippines. In addition, Toyota Motor considers
Indonesia to be a critical base for global production and supply (Daihatsu Motor press release dated February 3, 2014
http://www.daihatsu.co.jp/wn/2014/0203-1/20140203-1.pdf)
23
Figure 2-8: SWOT Analysis on automotive parts – related industry in Indonesia
(Source) Prepared by the study team
24
Section 2 Results of Interviews with Local Companies
(1) Overview of Interview Process
The target companies of the field interviews conducted as part of this study were 17 of the 60
member companies of KIKO, a cooperative of Indonesian small and medium-sized parts
suppliers with potential needs for assistance, selected with the help of KIKO and the Ministry of
Industry’s Directorate General of Small and Medium Industry.
KIKO and KIKO member companies were chosen because most KIKO member companies
had direct and indirect experience dealing with Japanese automakers compared to other
Indonesian suppliers in the automobile industry, and because the Directorate General of Small
and Medium Industry (the local authority) has made efforts to work together with KIKO since
KIKO’s founding and recognizes KIKO as a segment that will be eligible for support from the
Indonesian government in the future.
Note that 155 companies belong to the Indonesia Automobile Parts Industry Association
(GIAMM), and nine of them are assembly manufacturers, 75 are Tier 1 companies, 51 are Tier 2
companies and 20 are Tier 3 companies. The association’s membership largely comprises
second-tier and leading medium-sized Japanese companies such as Denso Indonesia. Local
companies that are members are mostly Chinese companies that generally pay relatively little
attention to human resources development and already have fundraising capacity, and their
policy support needs are thus considered difficult to determine. Theoretically, companies that
have not dealt with Japanese automakers but could in the future could also be eligible for policy
support, but such companies are not KIKO members, and the lack of a general company
database in Indonesia precluded the study team from confirming the existence of such
companies.
25
Table 2-5: Classification of Supporting industry in Indonesia
Supporting
Industry
Foreign parts
suppliers
Japanese companies
Non-Japanese companies
Local part
Suppliers
Business with Japanese automotive manufacturers: Yes
Business with
Japanese
automotive
manufactures: No
Possibility of business with Japanese
automotive manufacturers: Yes
Possibility of business with Japanese
automotive manufacturers: No
（Note）Local parts suppliers indicate suppliers whose capital was contributed by only local capital (100% local
capital). Foreign parts suppliers are suppliers other than local parts suppliers.
（Source）Prepared by the study team
The following is an overview of KIKO.
Table 2-6: Outline of KIKO
Member 70 persons（60 persons are the representative of companies, 10 persons are experts）
*Total number of employees who belong to member companies are 7,780 employees.
Total sales are IDR 1 trillion 3,650 billion. (Growth ratio was 13% in comparison with
2013). Sales growth ratio of member companies in FY 2014 is forecasted to be from
20% to 30%.
Sector 10 companies are Tier 1, 43 companies are Tier 2＆3, 7 companies are manufacturer
for after-market. Almost all companies which belong to Tier 1-3 manufacture products
for Japanese automotive manufactures.
Region Member companies locate in 6 states and 12 cities. 18 companies locate in Jakarta, 33
companies locate in Bekashi and Karawan and 9 companies locate in Bogor.
Enrollment criteria
Establishment and closing of Business in Indonesia and there are few companies
carrying out business continuously. Therefore, KIKO carefully sorts out the applied
member.
(Source) Prepared by study team based on interview with Mr.Rony secretary general, KIKO (10 September, 2014)
The following is the method by which field interviews were conducted.
- Interview survey period：From late- October to early-November 2014 (about 2 weeks) - Interviewees’ companies: Among local automotive related parts suppliers, KIKO
member companies which do business with Japanese automotive related companies - Interviewees：President, Founder, etc. - Interviewer：Officer for Ministry of Industry、Officer for Ministry of Cooperatives and
Small and Medium Enterprises, the study team - Interview methods：(1) Focus group discussion (FGD) and (2) Interview through
company visit (1) The chairman and 7 member companies of KIKO joined the FGD. Discussing business issues, necessary support policies and related matters after filling in the questionnaire (Attachment 1). (2) Filling in the questionnaire by interviewing business condition, business issues and related matters (meeting time: about 2.5 hours per company)
- Interview language：Indonesian (Japanese – Indonesian interpreting)
26
(2) Attributes of Companies Interviewed
The following is a summary of the attributes of the 17 companies interviewed in Jakarta and
surrounding provinces.
(i) Company Outline
(Source) Prepared by the study team
History Most companies were established in between 1990s and 2000s. The oldest
company was established in 1985.
Size
Companies with 50 - 90 employees accounted for 41% and companies with less than 100 employees accounted for around 70%. On the other hand, there was a company with nearly 600 employees.
Companies which had monthly sales of more than IDR 1 billion less than IDR 3 billion accounted for 47% and companies which had monthly sales of up to IDR 5 billion accounted for around 80%. Meanwhile, there was a company which had monthly sales of over IDR 10 billion.
Sector
As interviewees were member companies of KIKO, almost all companies belonged to the auto parts sector. Meanwhile, there were some companies which made parts for motorbikes, electric and electronic equipment and agricultural machineries.
Customer
Most companies belonged to 1st tier and 2
nd tier for car or motorbike
assemblers. However, there were some companies which made products for general markets and/or after-markets. In the aspect of processing method, many companies had press working process and cutting working process.
27
(ii) Career and Qualification of Founder and/or President
(Source) Prepared by the study team
Career
Most founders established their companies before they were 40 years old (this ratio accounted for around 60%). Most founders graduated from universities (65%). Some founders graduated from industrial high schools or vocational education (29%). Most founders worked for manufacturing companies to acquire skills after graduating and then established their own companies. Regarding expertise, technical skills accounted for 65%.
On the other hand, some founders or presidents whose expertise was not technical skills but sales and/or marketing skills established their own companies by having support from their families, friends and acquaintances. (Regarding specialties, marketing skills accounted for 27%.)
Starting Business
“Advised or encouraged by families, friends or acquaintance” accounted for 41%. The ratio of this answer surpassed “Proud of the quality of the technique/service” (23%) or “Want to make the most use of qualification”. This indicates that starting business needs to be supported by families, friends and acquaintance and such improved environment.
President’s Type
“Strategist” (35%) surpassed “Technician” (22%). Also, the most common answers to the question “What is the most important thing for your business” were “Going-concern” (23%), then “ Management”/“Customers”/ “Technique/Know-how”(18%), “Employees” (14%) and “Profits” (9%).
Panoramic views of management based on the “Technical skill” might be necessary to take off business management.
28
(iii) Business Conditions and Future Plans
（Source）Prepared by the study team
Business Condition
The gross profit ratio of Japanese SMEs which belong to the transportation equipment manufacturing industry was 19.6% according to “Basic Study on the Actual Conditions of SME in Japan (2013)（SME Agency Japan）”. On the other hand, the gross profit ratio of the interviewees’ companies with more than 15% less than 25% accounted for around 30%. There isn’t much difference in terms of the gross profit ratio, comparing Japanese companies and Indonesian companies although cost structure might be different.
Regarding production capacity, the total ratio of “Short capacity” (35%) and “Appropriate” (35%) accounted for 70%. Therefore, it can be inferred that Business environment of this sector in Indonesia is steadily growing
Meanwhile, the ratio of respondents who answered “Short capacity” was 30% and there were some companies that their order had been decreasing recently.
Capital Investment
94% companies of respondents had capital investment plans. The purpose of the capital investment was mainly to introduce new machineries for productivity improvement. Some companies planned to build new factories for increasing production capacity.
The background of capital investment for productivity improvement arises from rapid increase of labor cost in Indonesia. Increase of labor cost, caused by economic growth in Indonesia, has a merit of contribution to expansion of purchasing power, at the same time the rapid increase of labor cost causes deterioration of business earnings.
Labor cost ratio (labor costs divided by sales, multiplied by 100) of interviewee companies was from 15 % to 20%. The target ratio was 15% and this ratio was from 10% to 13% from 5 - 10 years ago. Companies anticipate continuously increasing labor cost, therefore, they strongly intend to advance the further mechanization so as to prevent more increase of labor cost ratio.
Another cost rising factor is that material cost remains at high level because supporting industries in Indonesia is still at a developmental stage and companies in Indonesia depend largely on materials imported from other countries, especially Japan.
29
(3) Indonesian Company Project Success Factors and Challenges
(Source) Prepared by the study team
Success Factor
“R&D/technology” (25%) was the highest response rate and second highest answer is the “Vision” (21%). This imply that “R&D/technology”, source of profits, is the basic required skill for manufacturing industries. Additionally, a clear company’s direction (vision) may realize its steady management without paying much attention to quick profits.
Other success factors were to cover a lot of items such as “Know-how/reputation/customers” (12%), “Business model & plan”, ”Marketing ability” “Excellent management system” (9%), “Human Resource Development” (6%). This result infers that a wide range of ability is necessary to run business.
Many interviewee companies held up “Customer first policy” and made an intense effort to ascertain customer needs.
Challenge
“Technology/Development new products” was the highest response rate (26%) in terms of serious challenges as well as success factors. Since technology is developing each day and competition with foreign companies intensifies, many companies made an intense effort to enhance “Technical Skill”.
However, many companies faced difficulty of “Human Resources” (23%), source of technical skill. Some companies voiced complaints to undeveloped skill training systems in Indonesia and anticipated Japanese cooperation in this field.
Many companies hold up “Customer first policy”, meanwhile they face a dilemma that they cannot ascertain big assemblers’ needs directly (i.e. difficulty in getting direct contact with those big companies) (“Marketing” 18%).
Many companies hesitated to invest new machinery for expansion of production, technical enhancement and productivity enhancement owing to high interest rate (interest rate per year 14% - 16%) of bank loans.
30
In addition, visits to 10 companies for interviews revealed the following business challenges
in light of the situation at each company, and resulted in complaints and requests to the
government.
Management Area Business Challenges, and Complaints and Requests to the Government, etc.
People (general
management, non-technical
aspects)
Challenges ・ Difficulty selling to major assembly manufacturers ・ Uncertainty over viability of business Complaints and requests ・ Complaint: Automotive supporting industries are included
in National Industrial Policy (2008–2020) as a Priority Industrial Cluster Development sector, but leading medium-sized and minor manufacturing industries, which form the foundation of related industries as affiliates of automobile assembly manufacturers, are not eligible for support from the Ministry of Industry’s Directorate General of Small and Medium Industry
・ Request: Support for creating company and technical databases for building a shared ordering system
・ Request: The government should implement the practical and effective support provided by the Astra Foundation (loans, business consulting, introductions to major companies, introductions to customers at exhibitions, training, etc.)
13
・ Complaint: It is difficult to sign up for free training provided by the Ministry of Industry, because the information on those training programs does not reached to small and medium-sized manufacturers necessarily.
・ Request: Enhanced management-related training ・ Request: Create a guidebook for management
Things (production, technical aspects)
Challenges ・ Difficulty managing deadlines ・ Need to introduce machinery and equipment and improve
productivity to meet strict demands for cost-cutting amidst rising production costs
・ Need to improve technology by modernizing equipment to win business amidst stiffening competition in ASEAN region
・ Difficulty providing large lots ordered by major assembly manufacturers
・ Difficulty developing human resources who provide foundational technical capacity
Complaints and requests ・ Request: Improved support policy for human resources
development (practical training, technical guidance from Japanese engineers, enhanced free training from the Ministry of Industry (better content, more participants, higher frequency), etc.)
・ Request: Create an environment where joint ventures,
13 The Astra Foundation is a foundation for the social action work of Astra International, an Indonesian conglomerate
established in 1957.
31
technical cooperation, etc. with small and medium-sized Japanese parts suppliers would be promoted
Money (Loans, credit guarantees, subsidies, tax system)
Challenges ・ Dependence on personal financing due to high interest
rates (around 14% to 16%) from commercial banks and reluctance of banks (basically the only source of external funding) to provide loans
・ Limited fundraising capacity hampering growth of supporting industries and leading medium-sized manufacturers
Complaints and requests ・ Request: Policy-based financing (low-interest, medium-
and long-term equipment funding) for leading medium-sized, small and medium-sized industries
・ Complaint: There are no subsidies for automotive supporting industries
Information (exhibitions, information sharing, etc.)
Complaints and requests Complaint: Information about government support policy (especially training) is difficult to understand
External environment Challenges ・ Strict demands for cost-cutting from parent companies ・ Significantly increasing employment costs ・ Dependence on raw material imports driving up
production costs Complaints and requests ・ Request: Speed up and simplify various administrative
procedures (business licensing, import and export procedures, etc.)
・ Request: Step up efforts to develop the domestic material industry
・ Request: Ease used machinery import regulations ・ Complaint: The government offers no compensation for
employing young unemployed people, which contributes to society
32
(4) Requests to the Government Discussed During Group Discussions
A group discussion with the KIKO chairperson and seven member companies resulted in the
following requests to the government.
1) Automobile assembly manufacturers have little information about non-Tier 1 affiliates.
Local manufacturers have no contact with major assembly manufacturers, and it is difficult
to meet the requirements for the lots they order. To solve these problems, KIKO14
, which
serves to provide administrative support for supporting industries, should provide a place to
build a shared order system and improve the company database toward that end (by making
it more than simply corporate overviews, and by including practical information such as
functionality and the benefits of technical capacity to give it utility value). To accomplish
this, Japanese engineers (in each specialty field) dispatched under JETRO and JICA expert
programs, KIKO secretariat and others should visit the 60 KIKO member companies
together and create a sophisticated company database.
2) Automobile assembly manufacturers request quality, quick turnaround and large lots from
their affiliates. KIKO member companies have some technical capability thanks to technical
training from the Astra Foundation and the like, but the relative difficulty of meeting tight
deadlines and lack of production systems that can supply large lots are holding them back.
Some sort of policy funding for corporate equipment funds may be necessary to
complement the shared order system. In light of past mistakes made in Indonesia, the
establishment of a new governmental financial institution for SMEs should be considered.
KIKO will build a company database and become very familiar with its member companies,
and letters of recommendation and other efforts by KIKO could drive this policy funding
system.
3) They say that the new Minister of Industry is considering the establishment of clusters on
around 10 hectares of land. KIKO is a gathering of member companies involved in
automotive parts manufacturing (a supporting industry) in many sectors, and those member
companies can work together with small and medium-sized Japanese parts manufacturers to
form joint ventures and technical cooperation, creating win-win situations for both sides.
The Indonesian government is expected to create an environment in which KIKO and the
14 There is a movement within the cooperative to raise the status of the organization to an association called AKIKO.
If this is realized, KIKO will become an association under the Indonesian Chamber of Commerce and Industry
(KADIN), and it will get the reputation and backup from KADIN.
33
Japanese manufacturers can do just that.
4) The KIKO chairperson believes it is best to equip Indonesia to manufacture machinery and
equipment in the future, and suggests that they proactively court Japanese machinery and
equipment manufacturers toward that end. Some ideas are public relations campaigns and
tax and other incentives provided by the Indonesian government.
(5) Implications Derived From Interviews with Local Companies
The visits to 10 companies for interviews and group discussions with seven KIKO member
companies and the KIKO chairperson conducted during this study provided critical direction as
to how to consider the future of supporting industry development.
The basic concern is ultimately whether or not a business will continue to generate sales and
cash, and a level of service and technical capacity and a customer base are the minimum
conditions required to address that concern. A company can provide excellent services and
technical capacity, but it has no perpetual value if it has no customers. Conversely, a company
can have a strong sales force, but will lose customers if it cannot gain their trust by providing
satisfactory services and technical capacity. The 17 companies interviewed in this study are
survivors whose founders made self-supporting efforts to gain technical capacity and customers
and ceaselessly aimed to improve the management principles and abilities, human resources
(hiring and training) and technical capacity that supported their companies. Most of them have
grown to become medium-sized companies as defined by law in Indonesia (companies with
annual sales of 2.5 billion to 50 billion rupiahs, total assets (not including land or buildings) of
500 million to 10 billion rupiahs according to Law No. 20/2008 concerning Micro, Small and
Medium Enterprises, etc.).
Business challenges to SMEs and supporting industries exist in all areas of management
resources in response to the development stage of each company, and worries are too numerous
for any businessperson to count. However, one of the most prevalent worries of people in
manufacturing industries is related to human resources development. Some may disagree with
this assertion, as there are government-run training programs and many human resources
development programs run by international organizations in Indonesia. The Astra Foundation
implements a practical training program for industries dealing with automobile parts, and
businesspeople hold this program in high regard. This suggests that private sector initiatives for
34
human resources development are already under way.15
However, interviews with local companies produced the following comments about the
difficulty of building companies on self-supporting efforts alone, and their perceptions of the
various business environment-related challenges. This suggests that the Indonesian
government’s important role is the further improvement of business environment.
・ Limited access to financing: Generally, leverage from external funding is crucial for
expanding a company founded with personal financing, yet small- and medium-sized
manufacturing industries face a stringent fundraising environment in Indonesia. Bank loans
are essentially the only form of external funding available to small- and medium-sized
manufacturing industries, but the banking sector is rife with hurdles: insufficient financial
mediation capacity, strict collateralism, high interest rates, the KUR credit guarantee system
that very rarely provides funding to manufacturing microenterprises, and venture-capital
funding, which is unfamiliar in small- and medium-sized manufacturing industries and
others oriented toward stable growth. Businesspeople in the interviews specifically pointed
out that the required annual interest rates of 14% to 16% for bank loans place a heavy
burden on small and medium-sized manufacturers, whose margins suffer as they repay those
loans and interest. They believe the government should consider establishing low-interest,
medium- and long-term policy-based financing within certain constraints in an effort to
provide supporting industries with better access to financing.
・ Underdeveloped company database, which is effective for marketing activities: Detailed
company databases do not exist even at organizations such as KIKO. KIKO tried hiring a
consultant to visit member companies and build a company database, but no single
consultant has expertise across each and every process or can fully understand the features
and advantages of each company and each process, thus the consultant was unable to create
a usable database. Creating a member company database with high utility value would
enable the government and the companies to make self-supporting efforts to establish a
shared order system, host business matching events, and create and distribute member
company pamphlets. The government should consider indirect support through the dispatch
15 The Astra Foundation offers around 15 courses per year as part of its technical training program, and companies
apply to participate. For example, a company can pay 200,000 to 300,000 rupiahs to send an employee to a two-day
course. In addition, companies that have participated in this training in the past can receive management support (PR
and introductions to potential customers at exhibitions as Astral partner companies) and financing (interest around
14%, the same as the market rate, periods of three to five years, collateral required).
35
of experts and other efforts to help build a database of supporting industries and SMEs to
serve as a foundation for the marketing activities of private-sector companies.
・ Production costs are rising: It is a fact that Indonesia depends on imports to procure steel
and other materials. The weak rupiah inflates import costs, driving up the price of materials
for supporting industries and cutting into their profit margins. Rising employment costs are
also becoming a cause for concern. In the short-term, it is crucial for the government to
stabilize the rupiah and the national economy through appropriate macroeconomic
management; a long-term policy challenge is to develop steel and other material industries.
・ Various problems with administrative procedures: Companies interviewed indicated delays,
bribery and other problems with business licensing, import and export, customs and other
administrative procedures. In Doing Business 2015, the World Bank ranked Indonesia as the
155th-best country (out of 189) in which to start a business, a reflection of the number of
required permits and licenses (including renewals) and days and high cost required for
licensing. Current Indonesian President Joko Widodo improved administrative procedures
(allowing licensing application results to be communicated via email, etc.) in the special
capital region of Jakarta when he was its governor, and businesspeople interviewed
expected those improvements to spread throughout the country. The disincentives of
cumbersome administrative procedures are significant, and the government should prioritize
the improvement of this environment as well as considering how to provide support that
would benefit SMEs.
・ Concern over competition with Japanese small- and medium-sized suppliers operating in
Indonesia: Local parts suppliers cannot possibly compete with the new facilities and
advanced technical capacity of the remarkable number of small and medium-sized Japanese
auto parts suppliers that have expanded into Indonesia in recent years. There is concern that
they will have to compete in the future, and the interviewees want the government to work
toward creating an environment in which the local and Japanese small and medium-sized
parts manufacturers can coexist (by building industrial parks for supporting industries to
which Japanese small and medium-sized parts manufacturers can be attracted to Indonesia,
and having them form joint ventures and undertake technical cooperation with local parts
suppliers, creating a win-win situation). The government should find it worthwhile to
consider creating an environment that encourages such coexistence.
36
Section 3 Local Japanese Companies’ Need for Supporting Industry
Development and Local Procurement
Generally, Japanese automakers require four types of capacity of their suppliers who supply
based on approved drawings or on loaned drawings: 1) early development capacity, 2) late
development capacity, 3) mass production capacity and 4) improvement capacity. They require
early development capacity only of suppliers who supply based on approved drawings (see
Table 2-7).
Table 2-7: Types of Supplier Capacities Japanese Automakers Require
Transaction Type Supply based on
approved drawings
Supply based on loaned
drawings
Supply based on
existing market items
Part Types Functional parts:
engines, clutches,
gearboxes, drive shafts,
brake parts, shock
absorbers, body
components (around
60%)
Parts other than
functional parts and
general-purpose parts:
presses for small parts,
plastic parts, etc. (about
30%)
General-purpose spark
plugs, batteries, lamps,
etc. (about 10%)
Transaction Details Suppliers develop
parts, and manufacture
them upon automaker
approval. Suppliers
own the drawings.
Suppliers manufacture
parts based on
drawings on loan from
automakers.
Sometimes automakers
also loan molds, dies
and jigs.
Automakers select and
order products from
supplier catalogs.
Required Technical
Level
High development and
technical capacity are
required of suppliers.
Suppliers are required
to match the quality
called for on the loaned
drawings, and to
reduce costs.
Suppliers are only
required to develop and
manufacture parts that
satisfy automakers’
requirements.
1. Early development
capacity (planning,
design)
○ × ×
2. Late development
capacity (process
development, VE)
○ ○ ×
3. Mass production
capacity (quality,
turnaround, etc.)
○ ○ ×
4. Improvement capacity
(VA, etc.)
○ ○ ×
(Note) Circles mean the capacity is required, exes mean the capacity is not required.
(Source) Prepared by the study team based on p.106–114 from Supporting Industries In Asia by Toshiyuki Baba,
2005
37
Interviews with the Jakarta Japan Club (JCC) and other organizations showed that, of the
problems of supporting industries of local Japanese automakers, they are most concerned about
improving the local procurement rate.
One local Japanese automaker has a local procurement rate of 85% (90% in Thailand), with
an essential local procurement rate of 50% (70% in Thailand) that reflects the portion of parts
and materials imported by parts suppliers that are primary subcontractors. Increasing the
essential local procurement rate is a major challenge for assembly manufacturers. They require
quality, quantity, quick turnaround and the management to support those attributes, and cannot
order from affiliates that do not satisfy those requirements. Assembly manufacturers deal
directly with Tier 1 affiliates (120 companies of which around 40% are local parts suppliers
(about 10% of sales)), whom they know are far behind Japanese parts suppliers in terms of
technical capacity. Assembly manufacturers tend to assign special components and large parts to
Japanese parts suppliers, and to local parts suppliers they assign small parts that are not
technically demanding.
Local small and medium-sized parts suppliers lack fundraising capacity and are thus unable
to introduce such machinery as large presses, which limit them to producing mainly small parts.
Limited equipment capacity also makes it difficult for them to guarantee consistent volume to
fill orders.
One Japanese automaker employs an open-door policy; that is, it will order from any parts
manufacturer, regardless of nationality, that satisfies its requirements. Specifically, the Japanese
automaker began holding a countersample event for its required parts for local small and
medium-sized parts suppliers once per year. The automaker then visits promising local suppliers
and provides guidance at its own expense.
Generally, Japanese automakers in Indonesia are desperate to find parts suppliers. However,
a local company database and ranking system is required to allay assembly manufacturers’
concerns over the reliability of local small and medium-sized suppliers when they are working
together for the first time. A database of local parts suppliers is vital for the continued hosting of
countersample events and other business matching events. One assembly manufacturer is
currently exploring a local company database in conjunction with the Indonesian Chamber of
Commerce and Industry (KADIN), which issues certificates of origin.
38
Section 4 Hurdles and Policy Challenges for Developing SMEs/Supporting
Industries
(1) Hurdles for Developing Supporting Industries
KIKO member companies (local parts suppliers) interviewed as part of the Project are
classified as suppliers who supply based on loaned drawings (see Table 2-7). Foreign
automakers require late development capacity, mass production capacity and improvement
capacity of these suppliers. Like KIKO member companies, local suppliers already have
experience dealing directly and indirectly with Japanese automakers, and they satisfy the
standards of Japanese automakers (including those for late development capacity and
improvement capacity) to a certain degree and continue their ceaseless efforts to improve their
technical levels for daily production management and delivery.
These local suppliers have participated in training provided by the Astra Foundation and
other organizations and have made self-supporting efforts within everyday operations to
improve their late development capacity and improvement capacity to a certain degree.
Although there is still room for further improvement, the companies trying hardest to expand
their operational capacity to capitalize on business from foreign automakers may run into
obstacles when they try to improve their mass production capacity, which requires considerable
capital investment in equipment for mass production.16
A major business challenge is to improve productivity to respond to recent increases in
production costs (employment costs, and steel and other imported materials) and strict demands
for cost-cutting, and companies need to increase technical capacity by modernizing their
equipment in order to stay alive in the intensifying competition in the ASEAN region. In either
case, there is potential demand for funding for capital investment (upgrades and expansion).
Fundraising is the highest hurdle in the consideration of capital investment for responding to
these problems. Companies have access mainly to limited personal financing and to
high-interest bank loans. In other words, crippling interest burdens and the difficulty of securing
16 However, leading medium-sized manufacturers in Indonesia that have risen past the ranks of microenterprises and
small companies and now form the foundation of supporting industries generally face a difficult business
environment. The sales level of 40 billion to 50 billion rupiahs (107 rupiahs is one yen) for manufacturers and
supporting industries is one hurdle. The corporate tax rate in Indonesia is 25%, but companies with sales of less than
4.8 billion rupiahs are taxed only 1.0% each month. Companies with sales of less than 50 billion rupiahs are taxed
only half the corporate tax rate on taxable income up to 4.8 billion rupiahs. These tax breaks effectively stifle the
desire of businesspeople to expand their companies and could cause them to establish multiple small companies
rather than expand.
39
medium- and long-term financing for equipment are major obstacles against the efforts of parts
suppliers to strive for mass production, improve productivity and modernize equipment to
expand their companies and even keep them operating into the future.
The local database of companies related to supporting industries is underdeveloped, and
there is no environment for using such a tool. This makes it difficult to host business matching
events, issue and distribute lists of local companies related to supporting industries, establish a
shared order system for local parts suppliers, and take other actions to encourage business
between local parts suppliers, and major assembly manufacturers and foreign parts suppliers. At
first glance it does not seem like the underdevelopment of the company database is such a huge
problem, but in actual practice, the inability to establish a shared order system makes individual
local parts suppliers hesitant to approach major assembly manufacturers for fear of their high
standards, and the inability to develop new customers reduces opportunities for further growth.
Assembly manufacturers have begun to host countersample events in an effort to find new
suppliers, but it is difficult for them to locate local parts suppliers who are appropriate
candidates for participating in those events. Thus, they are unable to find new suppliers, and
supporting industries are lacking areas in which to grow.
(2) Companies Eligible for Policy Support
The end goal for policy for developing local supporting industries, which form the supply
chain for Japanese manufacturers operating in Indonesia, is first and foremost to focus support
policy on leading medium and small-sized manufacturers who are local parts suppliers with
direct and indirect experience dealing with Japanese manufacturers, and these local
manufacturers are the focus of the Project.
Indonesia is home to many medium-sized, small and microenterprise metal processing and
plastic processing companies that have nothing to do with OEM parts supply to automobile,
electrical and electronic equipment industries, and these companies are generally engaged in
manufacturing daily necessities, low-priced after-market products, parts for the repair parts
market, agricultural machinery and other parts for the machine industry. In the past, Indonesian
government policy for SMEs has focused largely on social policy aspects with these
microenterprises and small businesses as the main beneficiaries. Supporting industries and
40
leading medium-sized manufacturers that form the supply chain for foreign manufacturers have
not developed much, and local supporting industries are losing out to leading medium-sized and
small and medium-sized Japanese manufacturers.
However, this study has shed light on the existence and business circumstances of leading
medium-sized and minor manufacturing industries (secondary and tertiary suppliers) in
pyramid-shaped Indonesian automotive industries yearning to expand into the types of
companies that can form the supply chain for foreign manufacturers in Indonesia.
These clusters have not received full-fledged policy report outside of some training, yet have
advanced their technical levels and management capacity through self-supporting efforts with
the help of technical guidance from foreign manufacturers in Indonesia and foreign advisors (at
their own expense) as well as various types of training (at cost, and free) under the Astra
Foundation and international cooperation. Still, administrative challenges and the difficulty of
acquiring funding for equipment to improve mass production capacity, improve productivity
and modernize equipment are major hurdles in their quest for further growth. Policy to
intensively and efficiently develop the local leading medium and small-sized manufacturing
industries hungry to expand should develop domestic supporting industries, create employment
opportunities and deliver other noticeable economic benefits.
(3) Past International Cooperation for Supporting Industry Development, and Future Policy
Challenges
Developing local supporting industries as part of supply chain has long been recognized as a
critical policy challenge for raising standards of technical capacity, and technical cooperation,
training and technical guidance has been implemented under international cooperation led by
JICA, JETRO and others. Although the target companies of that support have varied widely by
region and industry, a majority of the targets have been microenterprises and small businesses.
Most technical assistance for automotive industries under international cooperation has
focused on improving late development capacity and improvement capacity as demanded by
assembly manufacturers. The range of support for this technology covers a wide variety of
circumstances and technical levels depending on the businesses (from primary suppliers to
tertiary suppliers and local microenterprise manufacturers), and it is important that these efforts
41
are continuous, prolonged and steady.
On the other hand, these latest interviews with local companies produced many comments
about the difficulty of providing the lots required of foreign assembly manufacturers even for
companies striving to win new business. Local small and medium-sized parts suppliers aiming
to expand recognize improvement of mass production capacity as a business challenge, but they
have not been eligible for past support from the support policy of the Indonesian government or
under international cooperation. Additionally, improving productivity and modernizing
equipment are required for their companies to stay alive in an increasingly harsh external
business environment. Therefore, local parts suppliers need fundraising capacity for introducing
equipment to deal with these business challenges, and the government faces the critical policy
challenge of improving access to financing for those companies. It is also important to create an
environment for promoting marketing activities for increasing new business opportunities.
42
Chapter 3 Workshop Results
The Table 3-1 is an overview of the workshop held as part of the Project.
Table 3-1: Outline of the Workshop
Date Wednesday, 14 January 8:45 – 12:20
Venue Gran Melia Hotel
Participants [Local Authorities]
・ Ministry of Industry (MOI): Ms. Euis, Directorate General of SMI, Department of
Region 2 (Jawa and Bali), Directorate General of High Technology Based
Industry, Directorate of Land Transportation Equipment Industry, Directorate
General of International Industrial Cooperation, Secretariat of Industry
Environment and Quality Policy Institute, Industry Policy and Business
Environment Study Center
・ Ministry of Cooperatives and Small and Medium Enterprises (MCSME): Mr.
Meliadi; 7th
Deputy Minister for Research & Development, Mr. Dipta; Deputy
Minister for Production, Ms. Emilia; Deputy Minister for Finance, Office for
Deputy Minister for Marketing and Business networking, Office of Deputy
Minister for Human Resource Development
・ KIKO：Manager of member companies
[Related organizations]
Indonesia Chamber of Commerce and Industry (KADIN), Employers’ Association of
Indonesia (APINDO), Indonesia Investment Coordinating Board (BKPM), Astra
Foundation (YDBA), Bank Indonesia (BI)
[Japanese organizations]
Embassy of Japan in Indonesia, JICA Indonesia Office, JETRO Jakarta Office, Jakarta
Japan Club (JJC), SME Agency; Ministry of Economy, Trade and Industry), Study
team
The number of total participants: 41
Program
Time Topic Speaker
8:00 – 8:45 Registration
8:45 – 9:10 Opening Remarks -Ms. Euis, Directorate General of SMI,
Ministry of Industry
-Mr. Meliadi, 7th
Deputy Minister,
Ministry of Cooperatives and SMEs
9:10 –10:00 Presentation on the
survey results
-Study team
10:00 – 10:20 Break
10:20 – 11:10 Policy on
supporting
industry and SMEs
in Indonesia and
future policy
-Mr. Janu, Deputy Director of Legal &
cooperation, Secretariat Directorate
General of SMI, Ministry of Industry
-Ms. Dewi, officer, Office of 7th
Deputy Minister, Ministry of
Cooperatives and SMEs
11:10 – 12:20 Discussion Moderator: Study team (Note 1) Language: Indonesian and Japanese (consecutive interpretation)
(Note 2) Presentation materials and handouts: refer to Attachment 2
43
Ms. Euis, Directorate General of SMI, MOI Mr. Meliadi, Deputy Minister of MCSME
A scene of the workshop
Directorate General of SMI, MOI MCSMEs
Mr. Janu, Ms. Dewi
Deputy Director of Legal & Cooperation Officer of the 7th Deputy Minister
44
Discussion session Moderator: Study team
Discussion session
These workshops served to communicate the nature of related policy and future direction for
companies by the Ministry of Industry and the Ministry of Cooperatives and SMEs,. First, an
officer from Ministry of Industry explained the four foundational aspects of industrial
development – 1) cluster development, 2) support for entrepreneurs, 3) One Village One
Product programs, and 4) initiatives (international cooperation, promotions, etc.) – as well as
the underlying policy (KUR credit guarantee system, Restructuring Linkage Program17
, ICT)
and the results and other information about cooperation with JICA and JETRO. Then an officer
from Ministry of Cooperatives and SMEs explained the ministry’s efforts to date (improving
regulations, developing human resources, promoting business, providing subsidies and loans,
employing a credit guarantee system, etc.) for nearly 210,000 cooperatives and the 35.24
million microenterprises that are members of the cooperatives, as well as plans for programs for
business establishment and support, production assistance, financial assistance (subsidies and
17 A fixed subsidy (40% of the purchase price of domestically manufactured machinery, 30% for
foreign-manufactured machinery) from the Ministry of Industry for introducing new facilities for textile-related,
footwear and leather industries)
45
loans), operational assistance (dispatch of experts, etc.), capacity development (for agriculture
and fishing) and management guidance.
Finally, the presentation from the study team built upon Indonesia’s policy and strategies for
developing supporting industries, comments gathered from Indonesian SMEs and comparative
analysis of related policy and strategies by the Japan side (see Attachment 3) to communicate
the circumstances and unadulterated opinions of SMEs to Indonesian policymakers to help them
determine how to consider policy, and to re-emphasize the importance of listening to what
companies have to say. Policymakers and businesspeople then presented their opinions candidly
during a discussion session that produced direction for policy recommendations.
[Direction for Policy Recommendations]
● Direction
・ Both policymakers and businesspeople identified two specific types of assistance needed to
develop supporting industries, with particular focus on leading medium-sized manufacturers
– marketing (building a supporting industry database that can be used to plan public- and
private-initiated business matching events, sample events and exhibitions, shared orders,
etc.) and financing (establishing an institution to support companies’ equipment funding,
such as a policy-based financial organization).
・ However, general theory holds that considerable ingenuity is required to overcome the
daunting hurdles faced by government initiatives to build a supporting industry database or
policy-based financing system, specifically in the system design stage.
● Building a Supporting Industry Database
・ Many major obstacles stand in the way of efforts for supporting industries as a whole –
information gathering (SMEs’ reluctance to provide information to civil servants (industry
diffusion personnel and SME consultants), government agency bureaucracy hurdles),
database updating (establishing and securing a budget for an updating system), and
inadequacy of the Ministry of Industry’s existing company data.
● Financial Assistance
・ The credit guarantee system is the foundation of policy-based financing for SMEs in
Indonesia; the country lacks policy-based financial institutions that provide direct loans as
the Japan Finance Corporation does. One major point of contention is whether or not
establishing an institution to directly provide policy-based loans is a valid way to provide
assistance for equipment funding as part of the development of Indonesian supporting
46
industries. First, commercial banks in Indonesia view loan exposure to manufacturers as
highly risky, meaning that, even if the Japan Finance Corporation’s “agency loan program”
(a financing system where commercial banks act as liaisons for handling policy-based loan
products) were considered for Indonesia, commercial banks would be reluctant to deal with
policy funds unless their risk of uncollectable debt was removed completely. However, the
closer to zero such a risk grows, the more likely it is to create moral hazards for the
commercial banks; this approach is unrealistic in the interest of designing an appropriate
system.
・ If an Infrastructure-Agriculture-SME Development Bank (tentative name)18
or similar
government-run bank were established, it could accumulate know-how on policy-based
financing for SMEs through its practical business dealings. However, whether or not such a
government-run bank can be established is still unclear, and even if it were possible,
challenges in the course of managing it would not be few: they include securing a brilliant
financial workforce, the long time it takes to accumulate know-how and improve capacity in
a new organization, and the challenge of systematically guaranteeing financially sound
decision-making in the loan screening process.
・ What does appear to be highly feasible in the future is modifying the Ministry of
Cooperatives and SMEs’ revolving fund program and establishing the modified fund within
the proper supervisory agency (for example, the Ministry of Industry). However, the utmost
care must be taken to draw a line between this fund and subsidies, and to demand that the
design of the system incorporate the strictest financial discipline.
● Approaches
・ It is best to create a model program to intensively and efficiently support automotive parts
industries and others chosen as priority industries. Most of the 60 KIKO member companies
have some technical capacity, and supposing they have a desire to expand but are limited by
their capacity to market and raise funds (for equipment), it is appropriate to target them with
this support for developing supporting industries. A detailed implementation scheme would
include the concurrent (1) dispatch of experts (Japanese and non-Japanese experts in the
fields of supporting industries, marketing and policy-based financing) and (2) system-based
financing from Indonesian government funds (establishing a revolving fund to operate
18 The establishment of “Infrastructure-Agriculture-SME Development Bank” (tentative name) is one of the current
President’s campaign promises, and this idea is expected to be discussed within the government by the initiative of
Ministry of Finance.
47
under the Ministry of Industry). One suggestion based on lessons from JICA SME service
delivery improvement projects currently in progress is to dispatch leading SME consultants
from the Ministry of Industry (the supervisory agency) to serve as facilitators at the program
implementing agency targeted for support (for example, the KIKO office).
After the workshop were finished, the Employers’ Association of Indonesia (APINDO) were
interviewed in detail about the business and financial management, banking transactions and
work with subcontractors of typical small and medium-sized Indonesian manufacturers to
compare their circumstances with those of small and medium-sized Japanese manufacturers (see
Attachment 4). The results highlighted the weaknesses of small and medium-sized Indonesian
manufacturers (6,650 of the nearly 7,000 APINDO member companies are small and
medium-sized manufacturers).
Marketing aspects (particularly exporting, with the difficulty of finding new sales channels
and the complication of procedures and customs clearance) presented the biggest business
challenges. APINDO member companies had planned amongst themselves to establish a shared
order system, but discussion has since stalled (details are unclear). However, the fashion, food
product, handicraft and other so-called creative industries are proactively moving forward with
such efforts.
On the business and financial management aspect, very few SMEs consistently keep records
(intuitively, it seems to be around 20%). The financial statements they prepare are limited to
records of assets and liabilities, and sales and expenses. Nearly all companies have bank
accounts, and though their borrowing circumstances are unclear, Bank Mega (an APINDO
member) did receive assistance from a Norwegian aid agency in the past, and used it to
implement a microcredit scheme that provided unsecured loans of up to 500,000 yen at an
annual interest rate of 9% to APINDO member companies. This scheme required the acceptance
of management guidance from APINDO, and APINDO wrote letters of recommendation for
member companies that applied for financing.
The result that advancing operations was the biggest business challenge matched that of the
company interviews, but suggested that, given the state of small and medium-sized
manufacturers’ business and financial management, any policy support (including policy-based
financing systems) established and implemented in the future would require robust management
support for creating financial statements, business plans and other documents vital for business
operation.
48
Chapter 4 Policy Recommendations for Developing Supporting Industries
in Indonesia
Section 1 Basic Strategy for Supporting Industries and SME Development
Policy
The Project focused on automotive parts industries dealing with automobiles as
representative of Indonesian supporting industries, but the future implementation of support
policy for supporting industries will focus on supporting the growth of supporting industries and
clusters of leading medium-sized enterprises and SMEs, which form the supply chain for
Japanese manufacturers operating in Indonesia, as they strive to improve mass production
capacity and productivity. The following is a recommendation to the Indonesian government of
a basic strategy for that focus.
Strategic
Objective
Develop supporting industries that form or could form the supply chain
for Japanese manufacturers operating in Indonesia
Action Focus on leading medium and small-sized manufacturers (particularly
secondary and tertiary suppliers) that form or could form the supply chain
for Japanese manufacturers operating in Indonesia, and make intensive
efforts to improve the business environments they require.
Approach Late development capacity, mass production capacity and improvement
capacity are the capacities required of companies targeted for support to
do business with Japanese companies operating in Indonesia. Action will
support the growth of target companies by focusing on mass production,
which has been overlooked in policy support from the local government
and international cooperation; on productivity improvement and
equipment modernization, which are required by the increasingly
competitive external environment; and furthermore in the area of business
promotion. Then it would be best to create and implement a model
program of support for designated industries that show the potential to
produce leading medium-sized manufacturers that form and drive the
industrial supply chain.
49
Section 2 Proposed Policy for Supporting Industry and SME Development
(1) Specific Direction of Supporting Industry Development Policy
The Indonesian government ranked the following 35 industries as Priority Industrial Cluster
Development sectors in the National Industrial Policy (2008–2020) and, based on the strategy
described above, is expected to strive to develop supporting industries, namely automotive
industries and parts suppliers dealing with the electronics and IT industries. In addition, the
Indonesian authorities responsible for specific policy (the Ministry of Industry’s Directorate
General of Small and Medium Industry and the Ministry of Cooperatives and SMEs) are
expected to create programs that produce specific benefits for local SMEs and supporting
industries.
1.Agro Industry (1) Palm oil processing industry, (2) Manufacture of rubber and rubber goods, (3) Cocoa industry, (4) Coconut processing industry, (5) The coffee processing industry, (6) Sugar industry, (7) Tobacco processing Industry, (8) Fruit processing industry, (9) Furniture industry, (10) Fish processing industry, (11) Paper industry, (12) Milk processing industry
2.Transportation equipment industry (13) Automotive industry, (14) Shipping industry, (15) Aerospace industry, (16) Train industry
3.Electronics and ICT Industry (17) Electronics industry, (18) Telecommunications industry, (19) Computer and its equipment Industry
4.Manufacturing Based Industry Basic Materials Industry: (20) Iron and steel industry, (21) Cement Industry, (22) Petrochemical Industry; (23) Ceramic Industry Machinery Industry: (24) Electrical equipment and electrical machinery Industry, (25) Machinery and general equipment Industry. Labor-Intensive Manufacturing Industry: (26) Textiles and textile products industry; (27) Footwear industry;
5.Creative Industry (28) Software and multimedia content industry, (29) Fashion industry, (30) Craft and art industry, (31) Precious stones and jewelry industry, (32) Public salt industry, (33) Pottery and decorative ceramics industry, (34) Essential oils industry, (35) Food industry
The first recommendation to the Indonesian government was to target automotive parts
industries, the target of this study, as focused-support industries.
Regarding major reasons for selecting automotive parts industries, firstly as mentioned
before, the automotive-related industry contributes greatly to the Indonesian economy. In 2013,
the share of manufacturing sector is 21% in the Indonesian GDP, and in the manufacturing
50
sector transport equipment and machinery is 28%, which is followed by the food industry (36%)
at the first rank. In terms of value added by industries, transport equipment (automotive-related)
is 10.4%, which is followed by food industry (19%), but the annual increase rate of transport
equipment reaches to 21.1%, which is more than that of food industry (14.8%). Automotive
industry is a main highly value added industry in Indonesia and one of the most important
industries having much influence on the Indonesian economy. Secondly, most materials and
parts are imported dependently from Japan, Thailand, etc. and the trade deficits of machinery
and automotive-related products are huge predominantly (The total trade deficit is US$ 4.1
billion, and trade deficit of machinery and automotive-related products is US$ 35.7 billion),
which is one of the factors of causing worsening trade deficits and weakening Indonesia rupiah.
In such a situation, it is expected that fostering automotive-related industry will have a positive
impact on the macro economy.
Other focused-support industries include the metal, chemical, shipping and food product
industries.19
It is best to consider implementing the model programs incrementally according to
the priority rankings.
Technical and human resources development will continue to be important areas for the
Indonesian government to support, but it should focus further on strengthening support for
marketing and improving access to financing given the need for support voiced by supporting
industries and leading medium and small-sized manufacturing industries yearning to expand.
(2) Model Program for Supporting Industry Development
In order to focus on automotive parts industries studied as part of the Project and strive to
support the growth of clusters of supporting industries, which form the supply chain for
Japanese manufacturers operating in Indonesia, and in light of the various system design
challenges confirmed in this study, a supporting industry development project that efficiently
and effectively tackles all business challenges, but namely those on the aspects of operations
and fundraising, is recommended to the Indonesian government. The Table 4-1 is a draft of an
overview of the model program.
19 Those industries were explicitly mentioned by Euis, Directorate of Small and Medium Industry, Ministry of
Industry, and Meliadi, the seventh Deputy Minister of the Ministry of Cooperatives and SMEs, at the workshop held
on January 14, 2015.
51
Table 4-1: Draft of Overview of Model Program for Supporting Industry Development
Name: Indonesian Automotive Supporting Industry Development Project
Background,
Necessity ・Automotive industries are promising industries that are expected to grow.
・Supporting industries that bolster assembly manufacturers are beginning to
cluster as foreign assembly manufacturers expand into Indonesia and expand
their local production. However, Japanese auto parts suppliers are one part of
that cluster, and there is little awareness of the existence of local parts
suppliers.
・Indonesia relies on imports from Japan, Thailand and other countries for
many of its materials and parts. Fluctuations in trade balance by industry in
recent years show huge deficits for machinery and automotive products, which
contributes to the worsening balance of trade across Indonesia and to the
weakening of the rupiah.
・Business challenges for supporting industries and leading medium and
small-sized manufacturers seeking to maintain or expand their business are
moving to mass production, improving productivity and modernizing
equipment, and they recognize a potential need for equipment funding.
・Business challenges for Japanese assembly manufacturers operating in
Indonesia are further reducing costs by improving their local procurement
rates.
・Automotive industries are a Priority Industrial Cluster Development sector as
defined in the National Industrial Policy (2008–2020), but in actuality are not
eligible for support from the Ministry of Industry’s Directorate General of
Small and Medium Industry. The Breaue is working together with KIKO to
explore policy to address this.
Related ODA
Projects in Progress ・JICA Project on Small and Medium Industry Development Based on
Improved Service Delivery: Targets shipbuilding, traditional textiles and
cacao in North Sumatra and two other regions (began in 2013)
・JICA Project on Enhancement of Metalworking Capacity for Supporting
Industries of Construction Machinery: Enhances casting technology and
production management capacity through expert dispatch and training in
Japan (began in 2014)
Project Objective Continuously develop the Indonesian economy by supporting the growth of
automotive supporting industries and leading medium-sized & SME
manufacturing industries that form or could form the local supply chain
Project Description Efficiently provide all management resources required by leading medium and
small-sized manufacturers (particularly secondary and tertiary suppliers) who
form or could form the supply chain for Japanese manufacturers operating in
Indonesia. In particular, late development capacity, mass production capacity
and improvement capacity are the capacities required of companies targeted
for support to do business with Japanese companies operating in Indonesia.
The Project will support (fundraising support, marketing support, technical
assistance, etc.) the growth of target companies by focusing on mass
production, which has been overlooked in policy support from the local
government and international cooperation, and on productivity improvement
and equipment modernization, which are required by the increasingly
competitive external environment.
Scheme ・Long-term dispatch three Ministry of Industry-affiliated SME consultants as
facilitators who assist in coordination work
・Dispatch experts (Indonesian and non-Indonesian experts (private sector))
who assist in the followings: 1) Creating a company database (including
detailed technical information) of KIKO member companies by providing
technical guidance; and 2) Establishing a joint order receiving system of
KIKO member companies, hosting business matching event and trade fair,
52
preparing/ distributing company pamphlets, etc.
・Establish revolving fund in the Ministry of Industry (apply the strategy,
management support, loan conditions, etc. mentioned in Table 4-3) and
dispatch experts (policy-based financing), in order to introduce a policy-based
financing program from Indonesian government funds.
Direct Beneficiaries Indonesia side: 60 KIKO member companies
Japan side: Local Japanese automobile assembly manufacturers (improved
local procurement rate), local Japanese SME manufacturers (finding of local
partners of JV, technical cooperation)
Required Experts ・Experts (Ministry of Industry-affiliated SME consultants): Coordination
work as facilitators
・Supporting industry experts: Experts in presses, machining, etc. to create a
company database that includes detailed technical information, and offer
technical guidance and training. Through this work, these experts will teach
facilitators to maintain and update the database so that it can be maintained
after the Project is finished.
・Marketing expert: An expert to help establish a shared order system, host
matching events and sample events, create and distribute company pamphlets,
etc.
・ Policy-based financing experts: Experts to offer guidance and
recommendations in relation to the execution of system-based financing for
small and medium-sized manufacturing industries (drafting execution
manuals, financing and management support)
Project term/
Necessary number of
experts
・Experts (Ministry of Industry-affiliated SME consultants): 3 facilitators
(full-time)
・Supporting industry experts (external): 12M/M x 3 people = 36M/M
・Marketing experts (external): 12M/M x 1 person = 12M/M
・Policy-based financing experts (external): 12 M/M x 2 people = 24 M/M
Total external experts of 72 M/M
Implementation
Schedule
FY2016 – FY2018 (three years)
Implementation
System
Organization in charge: Directorate General of Small and Medium Industry of
Ministry of Industry
Relevant agency: Ministry of Cooperatives and SMEs
Implementing agency: Office of the Automotive Components Industry
Cooperative (KIKO)
There are no full-time employees at the KIKO office, thus the Ministry of
Industry dispatched three facilitators (SME consultants) to work in the office.
Expected Outcomes Indonesia side: Ministry of Industry-affiliated SME consultants provide
practical development support to help target manufacturers in pyramid-shaped
Indonesian automotive industries grow, thus contributing to sustained
economic development.
Japan side: Improve local procurement rate, reduce costs, etc. for Japanese
companies operating in Indonesia, Find out local partners of JV, technical
cooperation for Japanese SME manufacturers operating in Indonesia, etc. (Source) Prepared by the study team
53
(3) Marketing Support
Companies need to work together with the relevant authority (the Directorate General of Small
and Medium Industry of Ministry of Industry) and industrial organizations (KIKO, Indonesian
Chamber of Commerce and Industry (KADIN), etc.) to build a database of supporting industries
that includes detailed technical information that can be used to find local parts suppliers and
support marketing activities (public- and private-initiated business matching events, sample
events and exhibitions, shared orders, etc.).
There are many hurdles – information gathering (SMEs’ reluctance to provide information to
civil servants (industry diffusion personnel and SME consultants), government agency
bureaucracy hurdles), the need for database updating (establishing and securing a budget for an
updating system), and inadequacy of the Ministry of Industry’s existing company data among
them – and they are extremely difficult to clear for far-reaching efforts for supporting industries
as a whole.
In response to these hurdles, it is probably best to build a detailed database that can promote
business within a specified time period through the joint efforts of the Directorate General of
Small and Medium Industry of Ministry of Industry and the cooperatives and associations that, like
KIKO member companies (in automotive industries) interviewed in this study, want to expand
and recognize the operational need for a detailed database. Some hurdles can be cleared, and
others like those on Table 4-2, while not insurmountable, must be cleared for practical reasons.
The policy outcomes of this support are expected to help, thus building a database of
automotive parts and supporting industries focused on the 60 KIKO member companies is
recommended to the Indonesian government.
54
Table 4-2: Hurdles in the Building of a Supporting Industries Database
Hurdle Description Current Situation
(i) Information
gathering
(1) SMEs’ reluctance to
provide information to
civil servants
The managers of prominent KIKO member companies
understand the need to build a database and are willing
to disclose information. Thus, if the database is one of
KIKO member companies, this hurdle is relatively
low.
(2) Government agency
bureaucracy hurdles
The Ministry of Industry must remove bureaucracy
hurdles by launching a new project to build a database
separate from the functions of the Bureau of Statistics
and the Management Support Department. Thus, the
ministry must be fully aware of this need.
(ii) Underdevelopment of the relevant
government agency’s existing company data
Basic data remains from a past attempt by KIKO to
build a database, and should be usable in the current
attempt. Thus, this hurdle is relatively low.
(iii) Continuous
database updating
Establishing and securing
a budget for the updating
The Indonesian government and Ministry of Industry
make decisions as to whether or not to doo the
continuous database updating. Thus, as with (i) 2)
removing bureaucracy hurdles, they must be fully
aware of this need. (Source) Prepared by the study team
(4) Support for Improving Access to Financing
One way to provide medium- and long-term financing for equipment to help improve mass
production capacity and productivity for Indonesian supporting industries (local parts suppliers)
aiming to expand is to establish departments dedicated to supporting those supporting industries
in regional development banks and the Infrastructure-Agriculture-SME Development Bank
(tentative name) discussed earlier, and to have those departments create policy-based financing
schemes to accumulate know-how.
Table 4-3 is a draft of an overview of the Indonesia Supporting Industry Financial Scheme.
Companies targeted for financing should be flexibly determined in line with relevant
government agency policy for priority industries. Before then, however, the strategy of targeting
promising automotive parts industries is practically recommended to the Indonesian
government.
55
Table 4-3: Outline of Financial Scheme for Indonesian Supporting Industries
1) Name: Indonesia Supporting Industry Financial Scheme (ISIFS)
2) Relevant Government Agencies: Indonesian Ministry of Industry, Ministry of Cooperatives and
SMEs, Bank Indonesia
3) Implementing Agency: Infrastructure-Agriculture-SME Development Bank (tentative name) or
local development banks, etc.
4) Objective: To develop supporting industries that form the supply chain by providing Indonesian
supporting industries and leading medium and small-sized manufacturers with medium- and
long-term stable funding for equipment, and thus contribute to the sustained economic
development of Indonesia
5) Basic Policy:
・ Target region: All Indonesian territory
・ Target companies: Supporting industries and leading medium and small-sized manufacturing
industries as defined in the National Industrial Policy (2008–2020)
・ Strategies: Medium- and long-term “vitamin” funding (medium- and long-term funding plus
management support) (Support local supporting industries and small and medium-sized
manufacturers with the utmost effort of a reliable, local financial partner so that they can
continue operations with confidence and achieve sustained, consistent growth)
・ Finding new business: Finding companies through individual efforts, or receiving introductions
from Project partners
・ Management support: Consulting after completion of screening process and before execution
(one-month period). Advisory to management teams, rebuilding business models for growth,
business operation support, medium-term plan drafting support. In addition, continued
hands-on support, management support, customer introduction, etc. after execution of
investment.
6) Terms and Conditions: Maximum 10-year period, preferential interest rates, secured (real property,
order forms from major companies, etc.), guarantor (manager)
7) Funding Scale: Preliminary funding demand survey required
8) Project Partner Candidates: Ministry of Industry, Ministry of Cooperatives and SMEs, local
development banks, Association of Indonesia Automotive Industries (GAIKINDO), Indonesia
Automobile Parts Industry Association (GIAMM), KIKO, relevant cooperatives and business
associations, etc. (Source) Prepared by the study team
There are advantages and disadvantages to selecting either a new state-run bank such as the
Infrastructure-Agriculture-SME Development Bank (tentative name) or an existing local
development bank to be the implementing agency. In light of the fact that loans for small and
medium-sized manufacturing industries are not common in the Indonesian banking sector,
implementation problems would not be few; they include problems assigning a percentage of
uncollectable debt risk to commercial banks in an “agency loan program,” the considerable
amount of time required to accumulate know-how and enhance capacity, and uncertainty about
the ability to consistently guarantee financially sound decision-making in the loan screening
process. However, one highly feasible method for providing a policy-based financial scheme
mentioned in Table 4-3 is to adopt the Ministry of Cooperatives and SMEs’ revolving fund
program and establish the fund within the Ministry of Industry. However, a line must be drawn
56
between this fund and subsidies, and the system must be implemented in accordance with the
strictest financial discipline.
57
Section 3 Future Japanese Collaboration and Technical Cooperation with
Indonesia
Below are thoughts about future Japanese collaboration and technical cooperation with
Indonesia in the automotive parts industries targeted in this study in light of the proposal
described in the previous section.
Marketing support:
The Japanese government made policy recommendations about SME development in the
Urata Report, and promoting collaboration between Indonesian parts suppliers and
Japanese companies operating in Indonesia (major companies as well as small and
medium-sized manufacturers) will continue to be critical toward achieving the concrete
and effective development of supporting industries.
Now once the Indonesian government builds a detailed database of automotive supporting
industries, the Japanese government could promote business collaboration between major
Japanese assembly manufacturers and Japanese small and medium-sized parts suppliers,
who are mindful of the supply chain, and local parts suppliers. The following are two
concrete ideas toward that end:
1) Develop a system for promoting business collaboration between Japan and Indonesia:
Dispatch experts that can help bridge the gap between Japanese companies that have
already or have recently expanded into Indonesia, and Indonesian companies. For
example, senior volunteer programs and other initiatives send experts for each
supporting industry segment, and they provide technical guidance and build a system
where they introduce local part suppliers to local Japanese companies (big assemblers
and SME parts suppliers).
2) Hold sample markets and seminars for specific segments: Hold sample markets and
seminars that combine business matching opportunities once the upstream and
downstream industrial structures of specific segments are understood. Still, when the
detailed company database effective for trade fairs/ seminars are prepared, expert
dispatch of Japanese skilled workers having segmented technique/ skills would be an
effective cooperation because they could precisely grasp the local suppliers’ technical
level and strong points.
58
Support for improved access to financing:
A level of policy-based financing measures are vital toward overcoming the problem of
procuring medium- and long-term financing for equipment, which is hampering the
development of supporting industries.
As mentioned by officers from the Ministry of Industry at the workshop, Indonesia is
awaiting the transfer of experience and know-how from Japan and other countries. If the
Indonesian side develops some form of policy-based financial scheme for supporting
industries, the Japanese side could transfer its experience and know-how regarding
policy-based financing for small and medium-sized manufacturing industries through such
initiatives as the technical cooperation and dispatch of experts. Immediately after the new
president took office in September 2014, the Jakarta Japan Club sent written
recommendations to the Indonesian government. The recommendations included a section
on strengthening the financial market, in which the Japanese side offered to provide its
experience with policy-based financing. In the future ahead, if the Indonesian government
starts the preparation of establishing “Infrastructure-Agriculture-SME Development Bank”
(tentative name) mentioned in the current President’s campaign promises, Japanese
cooperation mentioned in Table 4-4 would be worth considering about.
59
Table 4-4: Draft of Japanese Cooperation for Establishing Infrastructure-Agriculture-SME
Development Bank (tentative name)
Progress Stage Scheme of
Japanese
Cooperation
Contents of Cooperation
Examination
within the
Government in
terms of
Establishing
Infrastructure-
Agriculture- SME
Development
Bank (tentative
name)
Basic Survey - Background of Survey: “Infrastructure-Agriculture-SME
Development Bank” (tentative name) is mentioned in the
current President’s campaign promises, so it is supposed to be
examined within the government in the future.
- Purpose of Survey: To collect and analyze relevant
information for government’s consideration and making a
decision on whether or not to establish the bank, and make
policy recommendations on desirable system of policy-based
financial system in Indonesia and rules & organization of the
Bank.
- Target Area: Jakarta
- Counterpart Organization: Bilateral Cooperation Dept. of
Ministry of Finance
- Objectives of Survey:
1) Comparative analysis of development bank model in
foreign countries and their lessons (e.g. Japan, Korea, The
Philippines, India, Malaysia, China, Brazil, etc.) (Survey
in Japan: survey through documents and internet)
2) Collection and comparative analysis on outlines of SME
policy-based financial systems in foreign countries
(Survey in Japan: survey through documents and internet)
3) Identify the problems (e.g. lack of mid-to long-term
capital fund, lack of funding for SMEs/ leading
medium-sized manufacturers) and expected roles of
policy-based finance and funding demand (Field survey in
Indonesia: interview with Bank Indonesia, commercial
banks, KADIN, etc.)
4) Making of recommendations on desirable development
bank and SME policy-based loan scheme (Survey in
Japan)
- Term of Survey: About 1 year
- Experts (12M/M):
Team Leader/ Policy-based Finance (4M/M)
Development Finance for Infrastructure, etc. (4M/M)
SME Policy-based Finance (4M/M)
60
Establishment of
Infrastructure-
Agriculture- SME
Development
Bank (tentative
name)
Technical
Cooperation
Project
- Background of Survey: If “Infrastructure-Agriculture-SME
Development Bank” (tentative name) is newly established, it
will be necessary to make some preparations for the Bank.
- Purpose of Survey: To assist in newly establishing the Bank
- Target Area: Jakarta
- Counterpart Organization: Relevant departments of Ministry
of Finance and “Infrastructure-Agriculture-SME Development
Bank” (tentative name)
- Objectives of Survey: Assistance in the fields below
1) Making of basic law on the Bank
2) Preparation of internal regulations and Manuals
3) Design and introduction of credit appraisal and credit risk
management system
4) Making of mid-term management plan
5) Planning and implementing training programs for human
resource development
- Term of Survey: About 3 years
- Experts (72M/M):
Team Leader/ Policy-based Finance (12M/M)
Development Finance for Infrastructure, etc. (12M/M)
SME Policy-based Finance (12M/M)
Credit Appraisal/ Credit Risk Management (12M/M)
Fund-raising/ ALM (Asset Liability Management) (12M/M)
Nurturing of Financial Experts (12M/M)
Operations of
Infrastructure-
Agriculture- SME
Development
Bank (tentative
name)
Technical
Cooperation
Project
- Background of Survey: If the operations of SME policy-based
loans in “Infrastructure-Agriculture-SME Development Bank”
(tentative name) is well established, it will be necessary to
strengthen the organizational capacity and some training
programs for the officers.
- Purpose of Survey: To facilitate continuous training programs
and capacity-building
- Target Area: Jakarta and surrounding industry areas
- Counterpart Organization: “Infrastructure-Agriculture-SME
Development Bank” (tentative name)
- Objectives of Survey: Capacity-building in the fields below
1) Credit appraisal
2) Establishment of scoring system for SMEs
3) Management support
4) Monitoring and debt collection
- Term of Survey: About 3 years
- Experts (60M/M):
Team Leader/ SME policy-based Finance (12M/M)
SME Finance 1 (12M/M)
SME Finance 2 (12M/M)
Guidance/ nurturing of SME financial experts 1 (12M/M)
Guidance/ nurturing of SME financial experts 2 (12M/M) Source: Prepared by the study team
61
Support for technical improvement and human resources development
Technical improvement and human resources development in Indonesian SMEs and
supporting industries continues to be a pressing policy challenge and the continuation and
expansion of policy by the Indonesian government is vital. However, it is worth noting
that the Astra Foundation, major assembly manufacturers and other private-sector entities
have actively provided technical training and guidance to the automotive parts industries
highlighted in this Project.
It is highly likely that raising technical standards and developing engineers will continue
to be significant policy challenges as the Indonesian government considers supply policy
for supporting industries other than automotive parts industries. In those cases, the
following approach mentioned in Table 4-5 of international cooperation between the
Indonesian and Japanese governments is worthy of consideration.
Table 4-5: List of Assistance for Technical Improvement
Item Support Policy
Raising technical
standards of local
suppliers
1) Implementing technical assistance that emphasizes collaboration with
Japanese companies: Technical assistance that emphasizes collaboration
between Japanese companies and local companies, not simply human support
for developing local suppliers. This will include education on global business
customs, understanding of required standards of customer service and QCD
(quality, cost, delivery), training for such interactions, 5S20
, TPM21
, QC
circles22
and other specific business activities.
2) Development policy for local companies in locally-concentrated industries:
Organization-wide technical and development support built on collaboration
between Japanese and local companies in areas that feature a significant
concentration of supporting industries
3) Improving technical capacity at the employee level: Indonesians complete
training in Japan, return to Indonesia and create a circulation of human
resources in Indonesian companies who collaborate with Japanese
companies.
20 5S is the activity for making foundation of workplace management, and it stands for Seiri (Sorting), Seiton
(Setting-in-Order), Seisou (Shining), Seiketsu (Standardizing) and Shitsuke (Sustaining the Discipline). 21 TMP (Total Productive Maintenance) is the concept proposed by Japan Institute of Plant Maintenance in 1971. It
is defined as “In order to strengthen companies pursuing efficiency of production system ultimately, ‘you create a
system practically where you can prevent any kinds of losses such as ‘Zero accidents’, ‘Zero defective products’,
Zero breakdowns”, etc., Everyone from the top management to employees of the front line in all departments
including development, marketing, administration, etc. takes part in and achieve ‘Zero losses’ by overlapped small
group activity”. 22 QC circles are small groups where workers of front line workplace manage and improve their quality of products,
services, tasks, etc., operate independently and show creativity self & mutual development by making use of the QC’s
way of thinking and method.
62
Developing
engineers 1) Education emphasizing collaboration with Japanese companies: Education on
globally required standards and specific business activities that emphasizes
collaboration between Japanese and local companies (management system
(financial, quality, environmental, employment) understanding and
development; capacity to draft business plans for use during equipment
funding)
2) Developing a technical training system in Japan for employees of local
suppliers: Training at Japanese companies through partnerships between local
suppliers and Japanese companies will create technically and creatively
sound employees. For example, strive for a fuller system for supporting
industries that sends trainees to Japan (HIDA, JICA, etc.).
3) Career design guidance to prevent job-hopping: Creative technical capacity
carries a lot of weight in technical realms related to forging. Technical
education involves a long period of development, thus local engineers should
be encouraged to design their careers with their entire working lives in mind.
(Source) Japan Economic Research Institute, “FY2009 Industry Upgrading Promotion Project for Promotion of
Economic Partnership/ Seminar Project Report on Dispatch of Mission on Possible Partnership (Technical
Cooperation) for Promotion of Supporting Industries/ SMEs.
Model Program for Supporting Industry Development
The Japanese government could dispatch supporting industry, marketing and policy-based
finance experts as necessary if the Indonesian government decides to launch the
Indonesian Automotive Supporting Industry Development Project (Table 4-1).
Considerations for Small and Medium-Sized Japanese Parts Suppliers Expanding into
Indonesia
The automotive parts suppliers studied in the Project include many Japanese parts
suppliers operating in Indonesia throughout Indonesia, namely Indonesian Automotive
Parts & Components Industries Association (GIAMM) member companies. Therefore,
when the Japanese government offers any kind of support for the Indonesian government
in its implementation of various policies (including financing schemes) related to
supporting industries and SMEs in the interest of creating a fair, competitive environment
in Indonesia, it is appropriate to consider including Japanese small and medium-sized
manufacturing industries, which comprise local support industries, as eligible for that
support.
63
Attachment
Attachment 1: Questionnaire to SMEs/Supporting Industries
Questionnaire to SME/ Supporting Industry in Indonesia
Name of the Company_______________________________________________________
Interviewee: Name______________________ Position__________________________
E-mail __________________________________________________________
Interview Date and Time:____________________________________________________
Interviewer: Name__________________________________________________________
A. Outline of the Company
A-1. Company Profile
A-1-1. Address: ______________________________________________________
A-1-2. Telephone Number: ____________________________________________
A-1-3. Fax Number: __________________________________________________
A-1-4. Year of Establishment: __________________________________________
A-1-5.Number of Employees: __________________________________________
A-1-6. Paid-in Capital: ________________________________________________
A-1-7. Ownership Structure (Name, % of share holding): __________________
_____________________________________________________________
A-1-8. Approximate Annual Sales in 2013: _______________________________
A-1-9.Approximate Annual Profits in 2013: ______________________________
A-2. Profile of the Company President
A-2-1. Age _________ years old
A-2-2. Sex 1) Male 2) Female
A-2-3. Educational Background
1) University/college
2) Vocational Education (post secondary level)
3) High School/Vocational Education (upper secondary level)
4) Primary or lower secondary Education
5) Others (Please specify: )
A-2-4. Founder or not 1) Founder 2) Business Successor
A-2-5. Work experience before becoming the president of this company
64
A-2-6. What inspired you to found your company? (if you are the founder
of this company)
1) You were proud of the quality of the technique/service.
2) You wanted to make the most use of your qualification.
3) You wanted to make more salary.
4) You were advised or encouraged by your family/friends/
acquaintance.
5) Others (Please specify: )
A-2-7. Expertise of the President
1) Technical/Production
2) Marketing
3) Administration/Accounting
4) Legal
5) Others (Please specify: )
A-2-8. President’s type: How would you evaluate yourself?
1) Strategist
2) Technician
3) Sales person
4) Financial manager
5) One-man leader
6) Well-balanced leader
A-2-9. Management Brief: What is the most important thing for your
business?
1) Management value 2) Acquiring the sales
3) Profits/ Profitability 4) Going-concern
5) Employees 6) Customers
7) Shareholders 8) Technique/know-how
9) Others (Please specify: )
A-3. Products
Please write main products of your company in order of sales amount
in 2013. Please clarify the main processing method, usage, and annual
production volume of each product, choosing a symbol from the below
classification shown in A-3-1 and A-3-2.
65
Name of Products
A-3-1 Processing
method (A - K)
A-3-2 Components
/parts of : (1 – 10)
Annual production
volume
1
2
3
4
5
A-3-1. Processing method
A. Casting B. Forging C.Press/stamping work
D. Plastic molding E. Rubber molding F. Machining
G. Heat treatment H. Surface treatment/Electro plating
I. Glass working J. Sheet work/welding
K. Assembling of parts/components
L. Others (please specify: )
A-3-2. The product is a part/component of:
1. Passenger cars/Vans 2. Pick-up trucks/Mini buses
3. Big trucks 4. Big buses
5. Motorcycles 6. Others (please specify: )
A-4. Markets and customers
A-4-1. Customer Composition (in 2013)
1. Subcontracting business (OEM): ( ) % of total sales
2. General market or after-market: ( ) % of total sales
100%
A-4-2. Market composition (in 2013)
1. Domestic market : ( ) % of total sales
2. Direct export : ( ) % of total sales
3. Indirect export : ( ) % of total sales
A-4-3. Information on your customers
1. Top three customers in order of the sales amount in 2013
Name of
Customer Ownership*
Share to
total sales
Number of years of
business with your company
1
2
3
*Please clarify the ownership of the customer by (A) 100%
domestic, (B) a joint-venture with a foreign investor(s), and (C)
fully owned by a foreign investor(s).
66
2. Total number of your customers in 2013 : __________companies
A-4-4. Business experience with a Japanese assembler(s)
Has your company ever had business experience directly and/or
indirectly with a Japanese assembler? 1. Yes 2. No
If your answer is Yes, please provide the information of your
Japanese customer.
Name of Customer
Share to total
sales
Number of years of business with your company
1
2
3
4
5
A-5. Procurement of raw materials
1. Top three suppliers in order of the purchase amount in 2013
Name of Supplier Ownership*
Number of years of
business with your
company
Reason of choosing this
supplier
1
2
3
4
5
*Please clarify the ownership of the customer by (A) 100% domestic, (B)
a joint-venture with a foreign investor(s), (C) fully owned by a foreign
investor(s), and (D) overseas company (importing).
A-6. Production facilities
1. Please write the main machines and equipment in order of importance on
the production line.
Name Capacity Brand/Country Year of
Introduction
1
2
3
4
5
6
7
67
8
9
10
2. Is your current production capacity good enough to cope with market
demand?
1) Over capacity 2) Appropriate 3) Short capacity
3. Do you have a plan to modernize your existing machine and equipment,
and/or expand the existing capacity by purchasing new
machine/equipment?
1) Yes 2) No plan at present.
If your answer is yes, please write the machine/equipment that you
desire to purchase. Name Capacity Brand/Country Price
1
2
3
4
5
A-7. Future business strategy and plans
Please write future business strategy and/or plans of your company, such
as expansion of production capacity (introduction of modern
machines/equipment, etc.), development of new customers/markets.
About how much and when would you need to get to realize your plan?
B. Current status and issues of the company’s business operation
B-1. What are the most critical factors for your company’s success/ good business
performance? (Select main 2 items)
1) Vision and business policy
2) Ability of R&D/ technology
3) Ability to develop a new business model/ plan
4) Ability to deal with changing environment
5) Marketing ability
6) Transferred know-how/ reputation/ customers
7) Excellent management system
8) Human resource development
9) Ability of fund-raising
68
10) Others (Please specify: )
B-2. What are the most serious challenges for your company? (Select main 2
items)
1) Marketing
2) Human resources (recruitment, HRD)
3) Technology/ Development of new products
4) Procurement of raw materials
5) Financing/ Financial management
6) Business environment
(Infrastructure, procedures for government permits, etc.)
7) Others (Please specify: )
B-3. Please elaborate the status and issues of the 2 items you select in B-2.
B-3-1. Marketing
B-3-2. Human resources (recruitment, HRD)
B-3-3. Technology/ Development of new products
B-3-4. Procurement of raw materials
B-3-5. Financing/ Financial management
B-3-6. Business environment (infrastructure, procedures for government permits, etc.)
B-3-7. Others
69
C. Assistance and governmental incentive measures
Please write the assistance and governmental incentive measures you have received
so far and their effectiveness.
C-1-1. Any assistance the company received so far
C-1-2. Evaluation of effectiveness of the assistance
C-2-1. Utilization of governmental incentive measures
C-2-2. Evaluation of effectiveness of the measures
D. Expected governmental/ public and other support
Please write the governmental/public and other support you expect.
70
Attachment 2: Explanatory Materials for the Workshop
[The handout for presentation by study team]
JOINT WORKSHOP ON SMES/SUPPORTING INDUSTRY IN INDONESIA
Feedback of the Survey on the Indonesian SMEs/Supporting Industry [2014]
January 14, 2015
I. OUTLINE OF THE SURVEY
1. Objective
To survey on the practical situation of SMEs/supporting industry that could have the key
role in supply chains of manufacturing sectors.
To make policy recommendations for promoting local SMEs/supporting industry in
Indonesia.
2. Things to Do
Review the policies on SMEs/supporting industry in Indonesia [Sept 2014]
Conduct the interview survey with SMEs/supporting industry [Oct - Nov 2014]
Hold a workshop to discuss the necessary policies for SME/supporting industry [Jan 2015]
Prepare and submit the Report [Feb 2015]
3. Counterparts
Ministry of Industry, Ministry of Cooperatives & SMEs, and KIKO
II. OUTLINE OF SME INTERVIEW SURVEY
The sample interview survey with 17 SME managers in late-Oct to early-Nov 2014
Target sector Automotive parts and related industry
Target SMEs Member companies of the Indonesian Automotive Component Industry
Cooperative (KIKO)
Q&A items Company outline, company history, business status, business plan,
production process, issues/challenges, etc.
Methodology 1) Individual visit interview (10 SMEs);
2) Group focus discussion (7 SMEs and KIKO Chairman).
71
III. ANALYSIS ON SME INTERVIEW SURVEY RESULTS
Company Profile
Background of the President
Business Condition
Success Factors & Challenges in Business
SWOT of Indonesian automotive-related component SME manufacturers
IV. POLICY IMPLICATIONS WE GOT FROM THE INTERVIEW SURVEY
[1] Self-help efforts by SMEs and Improvement of business environment by the government
[2] Management issues depending on SMEs’ growth stage
[3] As a common issue against company’s growth, there is room for the improvement of
financial environment (particularly in terms of mid-to long-term loans for capital
investment).
V. INFORMATION SHARING FOR MAKING SME/SI POLICIES
Comparative analysis on Indonesian policy, the Indonesian SME/SI’s challenges and
Japanese policy.
A Basic Strategy: Assistance for SI’s Growth
In which fields are there serious environmental obstacles against SI’s business growth?
72
Attachment 3: Indonesian Policy/ Programs on Fostering Supporting Industry, Voices of Indonesia SMEs, Relevant Japanese
Policy/ Programs
Indonesia Japan
Policy Policy on industrial structure SME policy SME policy
Relevant
Ministry
Directorate General of Small
and Medium Industry, Ministry
of Industry (MOI)
Ministry of Cooperative and
SME
SME Agency, Ministry of Economy,
Trade and Industry (1948)
Basic Laws Based on the Mid-to Long-term
State Development Plan, The
President Regulation
No.28/2008 and MOI’s
Strategic Plan (2010-2014)
Law No.9/1995 on Micro
Business, Ordinance
No.32/1995 on Micro Business,
Law No.20/2008 on Micro,
Small and Medium Enterprises
SME Basic Act (1963, revised in 1999
and 2013)
Vision &
Purposes
Industrial reinforcement by
improving supporting industry/
value chain, Reduction of
inequality among regions
through the enhancement of
regional industries
Growth of state economy,
Employment increase,
Enhancement of
competitiveness, Income
increase of lower-income class,
Development of generous and
fair national economy
Economic democratization and
anti-monopoly (Establishment of SME
Agency) => Industry development and
inequality reduction (The first half of
1950s - SME Basic Law 1963) =>
Diversified active growth and
development of independent SMEs (SME
Basic Act revised in 1999)
Approach Cluster formation of specific
industries with high priority
Yearly review, budgeting,
implementation of necessary
policy measures under the
framework of basic laws, Focus
on micro businesses from the
viewpoint of social policy
Implementation of systematized
programs: 1) Promotion of business
innovation and start-ups of SMEs; 2)
Strengthening of business fundamentals
of SMEs; 3) Smoothing adaptation to
changes in economic and social
environment; and 4) Facilitation of
financing and enhancement of equity
capital. (Chapter II, SME Basic Act)
Budget Scale Rp. 420 billion（2013） Rp. 1,111.6 billion (2008) Budget for SME programs: JPY 111.1
billion (2014)
73
Target
Companies
Manufacturer having total
assets (including land and
building) of Rp. 5 billion or less
(Minister of Industry’s Decision
No.257/ 1977)
Light meal, jewel/ jewel
accessory, accessary, collar/
bracelet, natural salt, fashion,
handicraft, IT are selected as
supporting target. MOI is
searching for possible
collaboration with
automobile-related supporting
industry through KIKO.
Micro businesses are main
target.
Total Assets
(excluding
Land and
Building)
Annual Sales
Micro
business
Less than
Rp. 50 mil
Less than Rp.
300 mil
Small
business
Rp. 50 mil –
Rp. 500 mil
Rp. 300 mil –
Rp. 2.5 bil
Medium
business
Rp. 500 mil
– Rp. 10 bil
Rp. 2.5 bil –
Rp. 50 bil
According to the statistics (as of 2013),
there are 57.9 million micro and SMEs,
which occupy 99.9% of total businesses,
97.2% of total labors and 57.1% of GDP.
While almost all of micro and SMEs are
classified into micro enterprise, there are
about 50,000 medium businesses and
about 630,000 small businesses.
Manufacturing sector occupy about 6%
(3.42 million) of total manufacturers and
about 11% of total labors.
Manufacturer: Capital of JPY 300 million
or less or Number of employees of 300 or
less
There are 5.37 million SMEs in Japan
(establishment abase) (as of 2012).
They occupy 99.0% of total businesses
and 69.7% of total labors. There are 4
million micro businesses having
employees of 20 or less (74.4% of total
businesses). Manufacturing sector occupy
9.1% (490,000; including 41,000 micro
manufacturers) of total manufacturers
and 72.5% of total labors.
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
People
(Overall
management,
Non-
technology)
- Cluster development: Once
enterprises formulate industry
promotion plan/ activity plan
and get the budget for it, the
central and provincial
governments provide
equipment, technical training
and support for opening a shop
at exhibition event.
- JICA/ Project on Small and
Medium Industry Development
Based on Improved Service
Delivery (SMIDEP): Establish a
system providing with services
efficiently for SME promotion,
realize strengthening of SMEs’
competitiveness and establish a
model to expand the obtained
knowledge into other regions.
Focus on three regions such as
North Sumatera and three
- Although automobile-related supporting
industry is one of the priority industries
mentioned in the State Industry Policy
2008-2020, SME subcontractors
supporting automobile assemblers are not
focused currently by the Directorate
General of Small and Medium Industry of
MOI.
+ Strengthening of business
fundamentals of SMEs (securing of
managerial resources such as human
resource, technology, information, etc.;
acceleration of exchange/ collaboration/
corporation; revitalization of industry
agglomeration; labor measures;
improvement of subcontracting
transactions; promotion of subcontracting
SMEs; etc.): Comprehensive programs
focusing on all SMEs in Japan.
74
industries such as shipbuilding,
handicraft and cocoa (2013 -
on-going).
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
- Management diagnosis and/ or
entrepreneurs support by
Industry Advisors and Certified
SME Management Consultants
(464; public officer belonging
to the central government or
regional department of
commerce & industry (DINAS)
- Management consultation by
management consultants of
KADIN (Chamber of
Commerce and Industry)
(JETRO’s support in
2004-2012; participation from
each provincial branch of North
Sumatra, South Sulawesi,
Bengkulu and Riau).
- Training programs facilitated
by the Astra Foundation
(YDBA): they are diversified in
management technic;
marketing; mold; QC circle;
improvement of productivity,
- JICA/ Project of Fostering
SME Management Consultants:
464 Certified SME
Management Consultants had
been fostered by March 2008.
- Difficult to acquire new customers in
case that customers are gig assemblers
- Expect the assistance in making
enterprise & technology database for
establishing joint order system (This
database could be utilized later for
business matching events, exhibition
events and others.).
- Worry about business succession
because of autocratic President
- Expect practical and effective support
such as what YDBA has provided
comprehensively; i.e. loans, management
consultation, introduction of big
companies, introduction of customers at
exhibition events, training programs, etc.
- SME Management Consultant system
- SME Support Center (60 centers)
- Management consultation, spread of
book-keeping practice, etc. by
management instructors of Chambers of
Commerce and Industry
- Marketing assistance for enterprises
with new excellent products (Market
Development Coordination Program)
- Management consultation for
small-scaled enterprises (Dissemination
of Management Improvement Program)
- Dispatch of experts for solving
managerial challenges (One-stop
Comprehensive Support Program for
SMEs and Small-scaled Enterprises)
- Dispatch of experts for promoting IT
introduction (Strategic CIO Fostering
Support Program)
- Dispatch of experts for promoting local
resource development (Promotion of
Local Resources Utilization)
- Assistance in securing and retain new
75
etc. graduates and highly professional human
resources (SME Human Resources
Support Program)
- Free training programs (in
accordance with each need of
the times): main programs are
related to management rather
than manufacturing technology.
For example, ISO,
website-making, etc.
- Difficult to book for the MOI’s free
training programs and expect training
programs of manufacturing technology
rather than management.
- Expect the improvement of management
training programs
- Want a guidebook on management
- Training programs at the Institute of
Small Business Management and
Technology (management strategy,
marketing strategy, production
management, etc.)
- Consultation on developing
occupational skills for human resource
development (Human Resource
Development Service Center)
- Awards systems (Green
Industry; design, etc.)
- Awards systems (300 of Japan’s Vibrant
Monozukuri (Manufacturing) SMEs,
SME IT Management Award, Good
Company Award, etc.)
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
Things
(Production,
Technology)
- Technical service assistance
by Metal Industries
Development Centre (MIDC of
MOI): R&D and technical
service (training programs/
workshops, consultation/
development of trial products)
in terms of metal processing
(casting, mechanical
processing, welding, heat
- JICA/ Capacity-building for
Construction Machinery of
Supporting Industry Metal
Processing (Support for MIDC
of MOI): Implement the
reinforcement of casting skill
and production management
skill through dispatch of experts
and Japan study tour (2014 –
on-going)
- Difficult to develop human resources
supporting technology and expect to
make this kind of support better (e.g.
practical trainings, technical coaching by
Japanese technicians, enhancement of
MOI’s free training programs in terms of
contents, the total number of trainings
and frequency, etc.).
- Difficult to manage delivery time
+ Promotion of business innovation
and start-ups of SMEs (Promotion of
business innovation, enhancement of
start-ups and creative business activities)
- Technical consultation and technical
support such as analysis by public
experimental and research institutes
76
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
treatment, surface treatment,
testing and inspection, etc.)
- Training programs by YDBA
- JETRO/ Dispatch of experts to
KADIN and IMDIA
(organizational management
method, establishment of
molding skill qualification test)
- HIDA/ Training programs in
Japan, etc.
- ILO/ SCORE Program
(Improvement of work
environment, coaching on
production factory): ILO’s
program sponsored by SECO
and NORAD. This program
consists of 5 modules such as
improvement of work
environment, quality/
productivity improvement, etc.
Semarang, automobile
components, food/ drink,
medical instruments are focused
in Middle Jawa, South Sulawesi
and South-east Sulawesi. 91
enterprises and 507 people in
total have attended this program
so far. This program was
provided through YDBA and
- Improvement of productivity (e.g.
introducing machinery, production
improvement) has become a challenge
due to the increase of manufacturing costs
and severe customers’ request on sales’
unit prices.
- Technical improvement by
modernization of machinery has become
a challenge under the intensified
competition in ASEAN.
- Difficult to deal with the lot required by
big assemblers (Countermeasures:
Introducing machinery for mass
production, establishment of joint order
system among KIKO member companies)
- Expect JV, technical corporation, etc.
with Japanese SME component
manufacturers
- Practical guidance for younger
skilled-workers (Monozukuri
(Manufacturing) Meister System)
- Business Incubation Center of
Organization for SMEs and Regional
Innovation, Japan (32 centers, more than
550 tenants)
77
Ministry of Manpower and
Transmigration.
- GIZ/ Vocational Training
School/ Facility Strengthening
Program: Vocational training
school/ facility strengthening
project by GIZ (2010-2017).
Through the reinforcement of
vocational training school/
facility, this program
contributes to the development
of highly skilled human
resources.
- DANIDA/ Business
Partnership: DANIDA’s
program for the developing
countries. This program
implements the knowhow
transfer by bridging Denmark
companies and local companies,
technical coaching, trainings,
etc.
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
78
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
Money
(Loans/
Credit
guarantee/
Subsidiaries,
Tax system)
[Loans/ Credit guarantee]
- Credit guarantee by
state-owned guarantee company
JAMKRINDO
- KUR: Loan program with
credit guarantee has been
implemented since November
2007. The purpose is to
improve the financial access of
micro and small businesses.
- Loans by YDBA’s venture
capital: The loan conditions
(interest rates, collateral) are the
same as those of commercial
banks, but the loan procedure of
YDBA’s venture capital is
simpler and quicker than that of
commercial banks.
- JICA/ Project for
Capacity-building of Credit
Guarantee System: Dispatch of
an expert to establish regional
credit guarantee system in
Indonesia and promote loans to
micro and SMEs by referring to
the Japanese credit guarantee
corporations’ nation-wide
network. (2010-2012)
- IFC/ Investment and loans to
local banks: This contributes to
the loans facilitation for micro
and SMEs by local banks. (e.g.
Bank Tabungan dan Pensiunan
Negara <BTPN>, Bank
DANAMON)
- Because the loans interest rates of
commercial banks are high (about 14% -
16%), SMEs are likely to hesitate to get
bank loans and rely on their own capital.
- Limited fund-raising capacity is an
obstacle against the business growth of
supporting industry/ medium-sized
enterprises.
- Policy-based finance (lower interest
rates, mid-to long-term capital investment
loans) is necessary for medium-sized
enterprises/ SMEs.
+ Facilitation of financing and
enhancement of equity capital
(Facilitation of financing, Enhancement
of equity capital, Tax system for SMEs)
- Long-term and low-interest loans by
Japan Finance Corporation (JFC) (Fields
with higher policy effects: start-ups, new
industries, technology innovation,
development of regional resources,
employment increase, etc.)
- SMEs’ credit guarantee by credit
guarantee corporations
- Small and Medium Business Investment
& Consultation Co., Ltd. (SBIC): Capital
contribution for enhancement of SMEs’
equity capital (acceptance of a third-party
share issuance, etc.)
[Subsidiaries]
- Restructuring Linkage
Program: MOI provides
subsidiaries for new capital
investments of SMEs in textile/
garment, shoes and leather
industry.
- No benefits for automobile-related
supporting industry so far.
- Subsidiaries for technology innovation/
capital investment (challenge to
innovative attempt, development of
regional resources, etc.)
- Partial subsidiaries for manufacturers’
core human resources’ trainings
79
(Development of Monozukuri
(Manufacturing) Human Resources of
Small Enterprises)
- Partial subsidiaries for SMEs’ internal
training (Authorized Employment
Training System)
- Subsidiaries for subcontractors’
becoming independent, etc. (Support for
Being Independent of Small and Medium
Subcontractors)
- Subsidiaries for receiving internship of
new graduates, etc.
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
[Financial Mediation]
- KKMB (Financial mediation
by financial consultant): Private
financial consultants whom
Bank Indonesia has fostered
jointly with provincial
governments, etc.
- Provide chances to make presentation
on business plan for SMEs aiming at
fund-raising (Venture Plaza)
[Tax System]
- Corporation tax benefits:
While the basic corporate tax is
25%, enterprises with annual
sales of Rp. 4.8 billion or less
only have to pay 1.0% of
monthly sales every month.
- Corporation tax benefits: The reduced
rate of corporation tax payable by SMEs
(applicable to up to JPY 8 million of
annual income) is 15% (Normal rate:
25.5%).
- Carryover of losses
80
For enterprises with annual
sales of Rp. 50 billion or less,
the taxable incomes of up to Rp.
4.8 billion are subject to
taxation with half of basic tax
rate.
- Investment promotion tax system for
SMEs: SMEs can choose “30% special
depreciation of purchased equipment” or
“ Tax deduction of 10% of purchased
equipment”. The others are Tax System
for Productivity Improvement and
Capital Investment Promotion, Tax
System to Promote Environment-related
Investment, Tax System for Promoting
Research & Development, Tax System to
Promote Employment, Tax System for
Income Expansion, etc.
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
Information
(Exhibition
events,
Provision of
Information,
etc.)
- Exhibition events (The
exhibition space on the 1st floor
of MOI is made use of)
- Micro and SMEs’ “Info
UMKM” on Bank Indonesia’s
website: This provides with the
information on the situation of
SMEs’ financing, loan
programs, local promising
industries, etc.
- Don’t know the government’s programs
(in particular, training programs)
- Exhibition events: Japan International
SME Exhibition
- Web information-providing: SME
supporting policies, supporting
organizations, successful cases,
management information, information
related to fund-raising, etc. (J-NET21,
“MIRASAPO”<Future Support>)
81
Indonesia Japan
Relevant
Programs
Programs by the Indonesian
government and others
Assistance projects by foreign
countries
Voices of Indonesian supporting industry/
SME managers (business challenges,
requested items to the Government)
Programs by the Japanese government
(Implementing organizations:
Organization for SMEs and Regional
Innovation, Japan; societies of commerce
and industry/ chambers of commerce and
industry; prefectural governments; credit
guarantee corporations; Japan Finance
Corporation, etc.)
External
Environment
- Actions to improve the
regulatory environment
- Severe customers’ request on decrease
of sales’ unit prices
- Significant increase of labor costs
- Expect the development of domestic
material industry (Currently SME
manufacturers rely heavily on imported
raw materials.)
- Expect faster and simpler administrative
procedures (business permit,
export-import, etc.).
- Expect the relaxation of regulations on
importing secondhand machinery.
- No government’s compensations by
employing unemployed young people as
a social contribution.
+ Smoothing adaptation to changes in
economic and social environment
(Preventive measures against bankruptcy,
Disaster countermeasures, Measures for
adjusting the fields with big enterprises)
- Consultation on various troubles in
subcontracting transactions (Consultation
Centers for Subcontractors)
(Note 1) The SME Agency of Japan was established as an external bureau because SME policy was recognized as a policy separated from the Ministry of Industry’s industry structure policy. “SME
Policy Summery” approved by the Cabinet on November 7th, 1947 emphasizes the independency of SME Agency from Ministry of Industry, saying “SME Bureau (tentative name) shall be established
independently in the Ministry of Industry and shall appoint a Director General who has rank equal to a vice-minister and the spokesperson of SMEs in all meetings in the government and the National
Assembly.”
(Note 2) Also in Indonesia, there are policy-based loan programs that mainly include programs for agriculture and food industry. They are classified into three: KKPE (Loan program for food and
energy safety), KPEN-PP (Loan program for bioenergy and plantation) and KUPS (Loan program for livestock cows). (Source) Prepared by the Study Team, based on the interview with Indonesian related-organizations, websites of relevant organizations, JICA reports, Guide to Use Support Measures for SMEs (SME
Agency of Japan), etc.
82
Attachment 4: Reference Materials for the Interview on the Actual Situation of
SME Manufacturers’ Management Conducted after the Workshop
1. Management/ Financial Management & Bank Transaction
Questionnaire
Choices
(Implementation Status)
Reference in Japan: Survey
result of 11,000 excellent
SMEs (Collection rate: 52.5%)
in “TKC Management
Indicators” (Source: Yahachiro
Miyata, July 2003, “Profit
Crystallized Theory”)
Management/ Financial Management
1. Does your company
prepare the financial
statement?
1. Yes
2. No
-
2. Does your company
have the accounting
audit?
1. Yes
2. No
-
3. How does your
company make use of the
financial statement?
1. Grasp the actual situation
2. Prepare profit prediction and
profit plan
3. Hardly make use of it
4. Hardly look at it
-
4. How does your
company make use of
monthly trial balance
sheet?
1. Grasp the actual situation
2. Prepare profit prediction and
profit plan
3. Hardly make use of it
4. Hardly look at it
1. 66%
2. 16%
3. & 4. 16%
5. Do you think that
performance management
by department is
necessary?
1. Necessary
2. Not necessary
1. 50%
2. 46%
6. (To anyone who
answers “necessary” to 5.)
Does your company
implement the
performance management
by department (budget
result management)?
1. Implement
2. Not implement
1. 63%
2. 36%
7. Does your company
grasp the contributed
profits by department and
ordinary profits by
department?
1. Grasp
2. Not grasp
1. 44%
2. 37%
8. Does your company
prepare cash flow
1. Prepare
2. Not prepare
1. 46%
2. 50%
83
projection plan every
month?
9. Does your company
prepare annual
management plan (profit
plan, cash flow projection
plan)?
1. Prepare
2. Not prepare
1. 45%
2. 51%
10. Does your company
introduce mid-term
management plan?
1. Introduce
2. Not introduce
1. 26%
2. 70%
11. Does your company
make use of cost
accounting system such as
standard cost, actual
costs, etc. appropriately?
1. Make use of it
2. Not make use of it
1. 46%
2. 49%
Questionnaire
Choices
(Implementation Status)
Reference in Japan: Survey
result of 11,000 excellent
SMEs (Collection rate: 52.5%)
in “TKC Management
Indicators” (Source: Yahachiro
Miyata, July 2003, “Profit
Crystallized Theory”)
Bank Transaction
1. How has the bank
transaction been in the
recent 2-3 years?
1. Has become severe
2. No change
3. Getting loans has been
easier
-
2. Does your company
have “Main Bank”?
1. Yes
2. No
1. 93%
2. 6%
3. If yes, what type of
bank is it?
1. Major banks
2. Regional banks
3. Shinkin banks
4. Credit associations
5. Financial institutions such
as agricultural cooperative,
fishermen are cooperative, etc. * The types of bank in Indonesia:
State-owned banks (4)
Forex commercial banks (36)
Non-forex commercial banks (30)
Regional Development Banks (26)
Joint Venture Banks (14)
Foreign Banks (10)
Credit Cooperative Banks (1,837)
1. 18%
2. 57%
3. 21%
4. 2%
5. 1%
4. How often does you
company report business
performance to the bank?
1. Every month
2. Every quarter
3. Semiannual
4. Annual
5. Hardly report
1. 6%
2. 6%
3. 8%
4. 50%
5. 30%
5. Which statements are
correct? (Select 3 choices)
1. Indirect finance-oriented
system is good as until now
1. 6%
2. 8%
84
2. Want a direct financial
channel for SMEs (activated
non-public stock market,
corporate bond market, etc.)
3. Credit crunch should be
eliminated through reviewing
the bank inspection system.
4. Loans without collateral
should be made through
reviewing the existing
collateral-oriented system.
5. Resolution of NPLs should
be accelerated.
6. Banks should try hard to be
on the customers’ side and
restore public confidence.
3. 13%
4. 18%
5. 12%
6. 23%
No response 21%
(Note) 227,000 SMEs in “TKC Management Indicators” include 11,000 “Excellent Company”
including 1,892 manufacturers.
85
2. Subcontractors’ Activities
Choices (Implementation
Status)
Reference in Japan
(manufacturers): Reply
rate answering “1. Yes”
(Source: SME Agency
of Japan FY2013, The
Report of Study on
Improvement of
Transaction Conditions
such as Order Method,
etc., March 2014,
surveyed by Tokyo
Shoko Research)
1. Activities by Joint Order System 1. Yes 2. No
12.1
1) Joint order system for getting new customers and expansion of transactions
1. Yes 2. No
46.5
2) Joint order system for getting more transactions from existing customers
1. Yes 2. No
33.1
3) R&D 1. Yes 2. No
32.9
4) Actions for reducing costs 1. Yes 2. No
19.3
5) Facilitation of workshop on technology, production management, etc.
1. Yes 2. No
17.0
6) Human resource development 1. Yes 2. No
11.3
2. Main activities for developing new customers
1) Direct marketing activities to target 1. Yes 2. No
53.5
2) Cost reduction 1. Yes 2. No
29.0
3) Participation in business matching events such as business talks conventions, etc.
1. Yes 2. No
26.7
4) Consultation by existing customers and financial institutions
1. Yes 2. No
25.7
5) Open a shop in business exhibition events 1. Yes 2. No
23.1
6) Participation in business matching events such as different business exchange meetings, etc.
1. Yes 2. No 20.5
7) Human resource development 1. Yes 2. No
18.7
3. Activities for Improving Production Efficiency 1. Yes 2. No
79.0
1) Cleanliness and tidiness 1. Yes 2. No
54.9
86
2) Making and revision of operational rules 1. Yes 2. No
38.0
3) Automation by machinery 1. Yes 2. No
35.1
4) Improvement of manufacturing yield
1. Yes 2. No
33.9
5) Reduction of products in progress 1. Yes 2. No
31.2
6) Review of workers’ operational line 1. Yes 2. No
26.2
7) Review of lines and component placement 1. Yes 2. No
21.9
8) Data collection of challenges every day/ every week
1. Yes 2. No
17.4
9) Nothing done 1. No 2. Yes
17.4
4. Coaching by outside experts
1) Not receive outside expert’s guidance 1. No 2. Yes
77.0
2) Receive a retired person from big company 1. Yes 2. No
8.9
3) Receive an advisor from public organization, etc.
1. Yes 2. No
7.0
4) Receive a retired person from SME 1. Yes 2. No
2.9
Choices (Implementation Status)
Reference in Japan (manufacturers): Reply rate answering “1. Yes” (Source: SME Agency of Japan FY2013, The Report of Study on Improvement of Transaction Conditions such as Order Method, etc., March 2014, surveyed by Tokyo Shoko Research)