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INNOVATION SYSTEM-BASED INDUSTRIAL CLUSTER DEVELOPMENT:
A COMPARATIVE STUDY OF INDUSTRIAL CLUSTER IN INDONESIA AND SOME
ASIAN COUNTRIES1
Yan Rianto, Muhammad Zulhamdani, Chichi Shintia Laksani, Dian Prihadyanti
Center For Science and Technology Development Studies, Indonesia Institute of Sciences
Widya Graha Building 8th Floor, Gatot Subroto Kav. 10
South Jakarta 12720, Indonesia
[email protected], [email protected], [email protected], [email protected]
Abstract
This paper is described industrials development and their policies in
Indonesia. Beside that, this study analyze industrial cluster development
which is conducted by using innovation system approach and is made
comparison it with some countries in Asia. This study shows that the
industrial cluster is designed to be an agglomeration based on the
network of the raw material for production, financing institutions, well-
provided human resources, and other economics infrastructure. There is
lack of interaction among actors in the cluster and R&D activities to
support innovation in the cluster. Comparative analysis of industrial
cluster development in Japan, Taiwan, and China shows that clusters are
supported by development of transaction market. It also involves
innovation stimulus from the benefit obtained from the presence of the
cluster which shows the concentration of large enterprise with various
human resources in smaller geographic area. We suggest a
recommendation regarding to industrial cluster development to increase
technological and innovation capability within cluster in order to make
more competitive industrial cluster in Indonesia.
Keywords: cluster-based industrial development, innovation system
approach, Indonesian Industrial policy
Introduction
Nowadays, economic activities are moving toward knowledge-intensive business,
accompanied by rapid development of technology in globalized economy era. This condition has
impact on the tight competition, and rapid change in business environment. Domestic
manufacturing products are directly compete with foreign products and business world must
accept reality that technology advancement has become a reason on the obsolent production
facilities, short product life-cycle, and lower profit margin. At the other side, globalizing
economy inevitably testifies whether individual regional economies and SMEs in them can
compete and survive by showing their own competitiveness or not. Once it was widely believed
that the very development of transporting and information technology and borderless economy
inevitably break the barrier of distance and make regional economies or industries almost
meaningless. Nevertheless, surprisingly a sort of reincarnation of regionalism started in the
1980s, and many academics and researchers then ignited debates as well as numbers of empirical
research works on the importance of regional industrial agglomeration and local networking
(Mitsui, 2003)
For the last three decades, industrial agglomerations have played a leading role in
the development of cities and regions and have formed a new industrial organizational
basis for economic planning and development. The industrial clusters are determined by the
trade dependency and concentration of small enterprises at the city and township level (Isbasoiu,
2007). It is also known that Alfred Marshal (Sonobe and Otsuka, 2006) has studied three benefits
of the presence of industrial cluster, as follows:
1. Information spillovers
2. Specialization and division of labor between companies
3. Development of skilled labor markets
Considering the benefits of industrial cluster for industrial development, Indonesia’s
government has formulated National policy of Industrial Development (KPIN) to compel new
direction for future national industry development, and solve problems blocking industrial
development at present. This policy is arranged in order to face world global economic challenge
and to be able to anticipate rapid environment change. International competition becomes new
perspective for all countries, so the focus of strategy of future industrial development is to build
sustainable competitiveness of industrial sectors in domestic or foreign market.
Industrial development policy in KPIN consists of core and operational strategy, and also
main points of policy on industrial development policy, include development of 10 core industry
clusters, development of supporting industries, and development of vanquish industry in the
future. Policy in KPIN has also considered national industry capability based on economic
resources potential, industrial performance, and problems faced by national industry.
Nevertheless, the strategy of industrial development in KPIN has not explicitly include element
of innovation system in industrial development through cluster approach. KPIN has just shown
the needs of the role of R&D institution, university and government in order to support industrial
cluster development. This can be seen from the relationship framework in KPIN document which
include the three actors. Unclear role of R&D institution and industrial sector have result in
Indonesia’s high import of raw or supporting material (technology), as shown in Fig. 1.
Source : Statistic Indonesia, 2009
Fig.1. Indonesia’s Import, 2007-2008
Thus, the presence of innovation-based industrial cluster can reduce import of raw or supporting
material. Therefore, this paper seeks to examine the development of industrial cluster in
Indonesia, as mentioned in National Policy of Industrial Development (KPIN). This paper also
discuss about industrial cluster development based on innovation system carried out by Japan,
Taiwan, and China. The result is then compared with Indonesia's industrial cluster development
based on innovation system.
Development of Industrial Policy in Indonesia
December 2008
6.482%
28.485%
65.033%
Raw Materials
Capital Goods
Consumption Goods
December 2007
8.90%
15.12%
75.97%Raw Materials
Consumption Goods
Capital Goods
In its development, the struggle of national industry at the end of 1960's has enthusiastic
progress, either in its structure, diversification, and market orientation. The development is not
detached from external development influencing industrial policy implemented. Chronologically,
industrial development policy describe that in rehabilitation and stabilization periods (1967-
1972), and periods when oil booming happened (1973-1981), the policy implemented is by
supporting the development of import-substitution industry, for example textile and garment
industry, paper, cement, or food and beverage. By the increase of oil price (oil boom), the policy
was prolonged and even intensified.
Even though, in period of 1982-1996, price of oil had weakened. Therefore, industrial
development policy was aligned by adding new mission: developing export-oriented industry,
and deepening and strengthening industrial structure. By economic crisis in 1998, the policy is
saving industry in order to make it preserved through Industrial Revitalization Program.
To define prospective industries, measurement of competitiveness was conducted, either
from demand or supply side, to catch a glimpse of its capability to compete either in domestic
area or overseas. The result of analysis for developed industry is grouped by two categories,
included export oriented and domestic oriented industry, which then divided into four categories:
natural-resource-based industry, labor-intensive industry, capital-intensive industry, and
technology intensive industry. In defining industrial building as what is dreamed, based on the
present industry, those chosen industries are fulfilled by other industry which is chosen based on
its potential. Figure 2 explains the development of industrial development policy in Indonesia.
Fig.2. Development of Industrial Policy from 1967 to 1972
Future strategy of industrial development in Indonesia mentioned in KPIN adapts latest
ideas at the moment related with globalization and 21st technology development in industrial
development approach through cluster concept at context of building sustainable industrial
competitiveness. Basically, industrial cluster is an exert of grouping the interrelating core
industry, either supporting industries, related industries, supporting services, economy
infrastructure, and related institution. Besides to reduce transportation and transaction costs,the
benefit of this cluster is also to increase efficiency, create collective asset, and pursue the
creation of innovation. In middle range term, increase of industrial competitiveness is conducted
through building and developing prioritized industrial cluster, while in long term is pointed out
in integration of cluster approach by managing the demand, and building core competence in
each cluster. To make it to be reality, it needs to be suppoted by managing the network, either for
local cluster or multinational corporation, and/or overseas cluster. KPIN also defines prioritized
industries which will be stimulated in the future. The selection of the industry has purpose that
the development process is more focused and easier to measure the criteria of success.
Based on the formulation of national industry policy, the development of industrial
cluster is aimed to achieve the followings:
Strengthening industries in the value chain includes core industries, related industries,
and supporting industries by location advantages, which may stimulate comparative
advantages to be a competitive advantage.
Strengthening relationships among/between clusters in the same sectors or
between/among clusters in the other sectors, all at once stimulate partnership between
SMEs and large enterprises and other relevant interactive relationships, which then
form industrial network and structure supporting increase of value-added through
productivity improvement.
Stimulating the growth of related industries which need supplies of the same raw
material and supporting material, therefore it can strengthen partnership
between/among prioritized, related, or supporting industries.
Facilitating marketing efforts either in domestic or overseas areas.
Concept of Cluster
Based on the studies by Alfred Marshal (Isbashoiu, 2007), three conditions for setting
an industrial cluster are identified: the existence of a pool of adequate labor, the existence of
specialized suppliers and the possibility of external spill-overs (the rapid transfer of know-
how and ideas inside the cluster). In addition, Walter Isard (Isbashoiu, 2007) expanded this
concept using the export-oriented industries and its linkages to other industries in the
region. According to him, these strong industrial linkages are indicating the existence of an
industrial cluster.
Porter popularized the concept of industrial clusters in his book The Competitive
Advantages of Nations (cited by Isobashoiu, 1997), in which he examines two types of clusters:
• vertical clusters, made up of industries that are linked through buyer-seller
relationships;
• horizontal clusters, that include industries which might share a common
market for the products, use a common technology, labor force skills and similar
resources.
Many academics point out that regional clusters had their origins in particular
local factor conditions, local demand, and the presence of a related industry.
Source: Enright ( Isobasoui, 2007)
Fig.3. Enright’s Typology of Clusters by Stage Development
Based on different kinds of knowledge (Ishobaoui, 2007), there are two types of
competitive clusters:
• techno clusters, which are high-technology oriented, well adapted to the knowledge
economy;
• historic know-how-based clusters, which are based on more traditional activities that
maintain their advantage in know-how over the years.
Industrial cluster in Perpres No. 28/2008 regarding the National Industry Policy is
defined as a group of core industry concentrated regionally or globally which relating and has
social interaction each other dynamically, either by related industry in improving efficiency,
creating collective asset, and encourage creation of innovation, so that it creates competitive
advantage. Moreover, formulation of national industrial policy explain that cluster industry is
industrial grouping which relating each other, either as core industry, supporting industry, or as
related industry.
Concerning with innovation, industrial cluster can be categorized in four groups (Pavitt,
1984). They are science-based clusters, scale-intensive clusters, supplier dominated clusters, and
specialized suppliers clusters. In sience-based clusters, access to basic research and government
R&D institution become important aspects in research activities. This type of cluster is patent
intesive and need high level of R&D. It tends to collaborate with government R&D sector. This
type of industry in this cluster is pharmaceutical industry. Scale-intensive clusters tend to build
relationship with universities and technical insitution as research performer. Therefore
companies are not conducting many research activities. Their innovative achievement depend on
their ability to import and build science developed in other area. Industry in this cluster is food
industry, and transportation industry. Supplier dominated clusters has tendency to import
technology, especially capital goods and intermediate products. Innovation in this cluster is
determined by interaction capability by supplier, e.g. in forestry and services industry. The last
category is specialized suppliers clusters. This cluster is R&D-based, and concern with product
innovation. It generally interacting with either supplier or user, for example hardware and
software industry.
Development of Industrial Cluster based on Innovation System
One of the main key as an effort to achieve sustainable industrial development is by
competing through innovation and learning. This can be conducted through several ways:
1. Developing linking with partner and international source of technology and knowledge
2. Use the existing foreign technology and knowledge with domestic resources
3. Carry out learning to increase adoption capability, using, and improving technology
obtained
4. Continuously repeating the three cycles
For this reason, UNIDO carefully examine industrial innovation and learning system as shown
in Fig. 3.
Source : UNIDO 2002
Fig. 3. Industrial Innovation and Learning System
As a whole, innovation performance is not only depending on how particular actor (e.g.
companies, research institution, university) play its role, but also on the interaction one another
as an element of an innovation system, either on local, national, or international level. Related
with it, OECD conceptualizes a comprehensive framework of important actors and
relationship in innovation system (Fig. 4). From the figure, it seems that industrial cluster
becomes part of national innovation system.
Source : OECD, 1999
Fig. 4. Innovation System
Besides, innovation is also a part of a natural process in industrial development. As what
is analyzed by Sonobe and Otsuke (2006) to industrialization in Japan, China, and Taiwan,
industrial cluster has impact to industrial development in those countries. Despite significant
differences in political regimes and stages of economic development among the three countries
and in production methods and skill requirements across the selected industries, we found
extremely similar processes of industrial development across the eight cases. Thus, these
processes may be termed “An East Asian Model of Cluster-Based Industrial Development.” We
characterized the development processes into three distinct phases: (1) initiation, (2) quantity
expansion, and (3) qualitative improvement (See Fig. 5).
Source : Sonobe and Otsuka 2006
Fig.5. Endogenous Model of Industrial Development
Based on the process, industrial development is started from initiation stage. In this
stage, companies tend to use simple production methods and technology used is the one which is
already available. If these industries are having difficulties in selling their product, they will
build an industry located in suburban, because of the great competition in urban area and also
based on the experiences of their business partners. Companies in this stage have low education
level. But, it there is company which already used little more complex production methods it will
become a new company. A new product in this process is obtained through many experiments
and failures which then result in a product. This experiment and failure happened because they
imitate many products for trials. This development is said by Schumpeter as economic
development theory (Sonobe & Otsuka, 2006)
Source : Otsuka, 2005
Fig.5. Cluster Based Industrial Strategy
Fig. 5 shows that industrial development is started from initiation supported by cluster
formation. This formation is supported by the building of a model design, and attract for joint
venture. For next, the industry will be able to increase product quantity, then it will decrease
transaction cost. Nevertheless, if the company develops to quality development, then innovation
is needed. To stimulate the innovation, technology and management training program are
needed. Technology research is also necessary in order to increase probability of innovation. At
last, if the company has developed in final stage, it will attract joint venture and more globalize
customer.
Industrial Cluster Development based on Innovation System in Japan, Taiwan, and China
Literature review on industrialization by Sonobe dan Otsuka (2006) in three Asian
countries shows the rapid development of industry through innovation-based industrial cluster.
The result of natural process of industrial development as explained earlier shows occurrence of
successful imitation and assimilation of foreign technologies, the formation of geographically
dense industrial clusters consisting of a large number of small enterprises producing similar and
related products, and the advent of multifaceted innovations leading to a great leap forward in the
industrial structures are three of the important ingredients of the East Asian model of cluster-
based industrial development (Sonobe and Otsuka, 2006).
A critical question is why East Asian economies have developed so successfully. Like
China for the last 28 years, the Japanese economy had grown at a rate of about 10% per year
during the “miraculous growth periods” from the late 1950s to the early 1970s. The growth rate
of the Taiwanese economy has been no less rapid than in Japan in the past and in contemporary
China. Furthermore, the patterns of industrial development among the three countries are more
similar than they are dissimilar (Sonobe and Otsuka, 2006)
In the case of Taiwan, foreign joint ventures, foreign trading companies, and the
Industrial Technology Research Institute (ITRI), a leading national R & D center founded in
1973, played major roles in introducing new technologies from abroad since the 1960s. Spin-offs
from the joint ventures and those who were trained at ITRI often became the founders of new
enterprises in this country. In the case of China, state-owned enterprises (SOEs) were the main
sources of human resources, industrial technologies, and managerial know-how for the
development of collective township and village enterprises (TVEs) and private enterprises. Thus,
SOEs played the role of model plants. According to Otsuka et al. (1998), SOEs were inefficient
in management due to regulations but knowledgeable about modern technologies. Moreover,
SOEs have established marketing channels. Thus, the assimilation of technologies and
management know-how from SOEs as well as the use of SOEs’ marketing channels were the
major means for collective TVEs and private enterprises to improve the efficiency of production
and management. (Sonobe and Otsuka, 2006).
Sonobe and Otsuka (2006) remark that information spillovers are common and they are
also important for the cluster. For example, in the garment clusters in both Japan and China, if a
new design introduced by an enterprise turns out to be popular, many other enterprises copy it
within a few days. But information spillovers, which are essentially imitation, are not always that
simple. In the case of the printed circuit board enterprises in Suzhou, a group of spin-off
enterprises, whose managers used to work at the same founding enterprises, employ the same
technology to produce the same products. Thus, information spillovers in the industrial cluster
are inseparably related to the development of skilled labor markets, wherein skilled workers
move from one enterprise to another.
Another important aspect of the industrial cluster is that it reduces transaction costs.
Transaction costs have been neglected in the literature on economic geography and spatial
economics, where the role of transport costs has been discussed extensively. Transaction costs
arising from moral hazard and hold-up problems are low in the industrial cluster because rumors
of such opportunistic behaviors quickly become public knowledge by word of mouth in the
cluster. This is the major reason why the division of labor develops in the industrial cluster
(Sonobe, and Otsuka, 2006)
In other case, successful industrial development formed based on industrial cluster
(Sonobe, Hu and Otsuka, 2006) can be seen from motorcycle industry in Chongqing, the sizable
entry of new enterprises took place in the 1990s, which was made possible by the formation of an
industrial cluster by relatively early entrants. Without the benefits of external economies arising
from the industrial cluster, it would have been difficult for tiny private enterprises to enter the
industry and compete with the large SOEs. The formation of industrial clusters has been
prevalent in China since privatization began in the early 1990s and, hence, it can be regarded as
an important result of the privatization. A drastic decline in product prices occurred due to the
sizable entry of private enterprises in the mid-1990s. Its impact on the course of this industry’s
development was quite large. It accelerated the decline of the dominant SOEs, and, as in many
industries in other countries as well as the coastal region of China, it triggered the improvement
of product quality, which led to the shakeout of the industry and the rise of large private
enterprise groups. To achieve qualitative upgrading, the private enterprises in Chongqing
obtained technical and managerial expertise by recruiting engineers and managers from SOEs.
Thus, the success of this industry in large measure derives from the combination of the positive
features of the industrial development in Wenzhou, in which industrial development is based on
the cluster of private enterprises, and in southern Jinagsu, in which industrial development is
based on the effective use of human resources of SOEs.
M. Porter's theory of 'industrial cluster' model and competitiveness is now the most
popular one in Japan, and many governmental ministries, local governments and public
organizations are enthusiastically trying to apply it to seek regional innovation system,
promotion of local business networking and new industrial development. Not only theoretical
ideas but also its practical deployments and their attainments in Western countries such as in
Finland, Ireland, Sweden, UK or USA are also attractive and frequently visited. As a result, new
expected players are not necessarily existing local SMEs and skilled craftsmen, but universities,
research institutes, or public institutions which can be linking together and creating critical mass
for further innovation and industrial development (Mitsui, 2003)
Another case on the successful development of industrial cluster is the development of
manufacturing industry cluster at Tokai, Japan (Industrial Cluster Project, 2005). This program
aims to support effective innovation through support system which is the result of collaboration
among industry, university, and government. Besides, this program facilitates foundation of
innovation by support which depends on the needs of each stage of R&D purposed for protecting
its market. Manufacturing industry cluster at Tokai has its own network consists of 800
institutions formed by organization, university, government R&D institution, local government,
finance institution, and other organization. Then, this program result in the collaboration with
other cluster outside the area, strengthened to support commercialization.
Fig.6. Manufacturing Industry Cluster at Tokai, Japan
The figure above shows that industrial development through cluster approach becomes a
unity of integrity among government, university, R&D institution, and companies. The
relationship shows that the role of innovation system is to be the fundamental element in
building manufacturing industry cluster.
Learning from successful experience of other countries was also likely to be the key to
the success, even though it is extremely difficult to quantify this effect. Sonobe and Otsuka
(2007) explain that Taiwanese enterprise managers learned a great deal from the Japanese
experience. Similarly, Chinese enterprise managers seem to have learned a number of lessons
from both Taiwanese and Japanese experience. While it is difficult to provide the answers to the
question of why Japan has been successful in the transition from the quantity expansion to the
quality improvement phases in much earlier years, it seems clear that the successful development
of the Japanese industries became the model of the industrial development in other East Asian
countries
Development of Industrial Cluster in Indonesia
Design of industrial development formulates in the industrial development policy is
based on the great potential of Indonesia which can be derived as the locomotive to pull
industrial growth in Indonesia (see Fig.7). This potential is a chance for Indonesia in
formulating strategy of industrial development in the future.
Source : National Policy of Industrial Development, 2005
Fig.7. Indonesia’s Potential for Developing National Industry Sector
Future strategy of industrial development adopts latest ideas - the industrial development
through cluster approach in order to build sustainable industrial competitiveness. In medium
range, effort to increase industrial competitiveness is conducted by building and developing
prioritized industrial clusters with effort to manage the demand, and build core competence in
each cluster. To make it a reality, it needs to be supported by managing the network, either for
domestic cluster or with MNC, and/or overseas cluster (KPIN, 2005).
Based on Bangun Industri 2025 and Perpres No. 7/2005 about national plan of medium
range development, Indonesia’s government has grouped prioritized industry by developing 10
core industrial cluster, developing related and supporting industry for future, and particular
branch of SMEs.
Moreover, Indonesia’s government has defined the direction of development for
industrial sectors for the next five years:
1. Strengthening and deepening industrial structure
2. Create more conducive competition climate
3. Increase industrial revitalization, consolidation, and restructure
4. Increase the role of SMEs
5. Spreading industrial development
6. Increase in capability for mastering industrial technology
Based on the urgency of the problem, development priority of core industry in 2004-2009
is defined by the criteria. From those criteria and from result of analysis of international
competitiveness, in medium range, core industry cluster is emphasized on the effort to strengthen
and to grow cluster of:
1. Food and beverage industry
2. Sea-product manufacturing industry
3. Textile and garment industry
4. Footloose industry
5. Oil-palm industry
6. Wood product industry (include rattan and bamboo)
7. Rubber and rubber product industry
8. Pulp and paper industry
9. Electrical machine and electrical devices
10. Petrochemical industry
To support core industry clusters development, it should be stated further in a national
industry development strategy which more comprehensive and integrative, showing related
industry development plan, and supporting industry from the 10 prioritized industrial cluster. The
branch of related or supporting industries either in medium or long range includes:
1. Iron industry
2. Machine and plant devices, construction, and mining
3. Agriculture tools/machine
4. Cement industry
5. Ceramic industry
6. Consumer electronics industry
Meanwhile, the future prioritized industry in the future includes three branches: agriculture-
based industry, telematics industry, and vehicles industry.
Development of industrial cluster in some countries e.g. Japan, Taiwan, and China
becomes a lesson of industrial development. It is significantly different if it compared with
industrial cluster design in the national industry development policy. For example, model in
development of automotive industry in Indonesia becomes part of cluster design. Figure 8 show
that automotive industry cluster program has no clear role of each of their actors externally.
Source : National Policy of Industrial Development, 2005
Fig.8. Relation Framework of Automotive Industry
The figure above is an example of relation framework in automotive industry. Based on
it, role of government (either central or local), competitiveness forum (working group dan
fasilitatior klaster), R&D institution and university, services, and association are needed to
develop automotive industry. Unfortunately, there is no connection to have cooperation in
supporting industrial development. Development of cluster strategy based on innovation needs
connectivity among/between actors, indeed industrial development will be more directed and
clear. Defining the role and coordination is needed to support the design and development of
national industry.
In national industry policy formulation about framework of development of automotive
industry in Indonesia, cluster development is more aimed to get core, supporting, and related
industry closer (Fig. 9).
Core Industry
Two and four wheel vehicles
Supporting Industry
Engines & Parts; Electrical Parts;
Transmissions & Parts; Axie;
Universal Components; Machining;
Iron/steel; Glass; Suspensions; Plastic
Parts; Car Body Parts; Carburators
Related Industry
Maintenance service; distribution/dealer
services; transportation services
Medium Term Target (2004-2009)
1. Achievement of four-wheel vehicle production to 750.000 unit/year
(90% for domestic demand)
2. Achievement of four-wheel vehicle export for 10%/year
3. Achievement of two-wheel vehicle production to be 5.000.000
unit/yr, export growth for 10% per year
4. Achievement of industrial capability for automotive component
industry, supplying 80% of main component demand for four wheel
vehicle assembly and conducting in-house-engineering for two-
wheel vehicle components
Long Term Target (2010-2025)
1. Concretion of domestic vehicle
industry capability conducting
design and engineering of vehicle
2. Concretion of national vehicle
industry which contributes in global
design engineering activities
Strategy
Sector: Development of commerce vehicle production base, small passenger vehicle and motorcycle, product
technology and manufacturing technology of component industry.
Technology: Development of full manufacturing, design and engineering of full motorcycle
Principal Point of Medium Term Action Plan (2004-2009)
1. Increasing investment for component industry at 2nd and
3rd tiers level
2. Increasing component industry capability in mastering
manufacturing technology or product technology
3. Increasing productivity and quality of component and
motorcycle assembly industry
4. Increasing capability and relationship of SMEs with
motorcycle assembly industry
Principal Point of Long Term Action Plan
(2010-2025)
1. Developing R&D center for motorcycle
development
2. Increasing cooperation among automotive
industry, raw material industry, and
university
3. Increasing industrial cooperation with
world main motorcycle industry
4. Benefiting from global marketing
networks for motorcycle component
product
Supporting Element
Periodical Technology Improvement
A. Two wheel
a. Rapid development (2010-2015): full manufacturing,
design and engineering
b. Mature (2016-2025): industry & technology upgrading
Human Resources:
a. Increasing human resources competence in
mastering manufacturing technology and
product development
b. Developing human resources capability in
management and engineering
B. Four wheel
a. Initiation (2004-2009): Design and engineering local
component
b. Rapid development (2010-2015): industry & technology
upgrading
c. Mature (2016-2025): Design and engineering of full
vehicle (commerce car and passenger car in small size), full
manufacturing
Market:
a. Increase export to ASEAN countries
b. Increase cooperation with component supplier
c. Building global marketing networks
d. Developing component exchange
Infrastructure:
a. Harmonization tariff and taxation
b. Preparing tax allowance for new investment
and enlargement
c. Credit/compensation for tax for human
resources and R&D business development
d. Building R&D center for motorcycle
development
e. Increasing capability of testing institution in
order to obtain vehicle certification
f. Preparing automotive export/import harbor
Source : National Policy of Industrial Development, 2005
Fig.9. Framework for Development of Automotive Industry
As already known, the role of R&D institution in industrial policy of automotive industry
cluster has not seen significant yet. The presence of R&D institution is only as supporting
element outside industrial cluster activities. From above description, it can be seen that industrial
cluster in Indonesia is still at stage of industrial agglomeration, it has not directed on how the
future industrial development will be. The natural process of industrial development occurs on
three stages, starting from initiation, quantity expansion, and quality improvement. In the
industrial cluster policy framework, it can be seen clearly that the design of industrial cluster
building has just start at initiation stage, and quantity expansion for delivering the needs of
domestic and foreign market. Framework on quality improvement has not seen yet.
Even though, Indonesia’s national industry policy has defined two strategies in
developing industrial sector, include main and operational strategies. The main strategies defined
by the government are as follows:
Strengthen connection on all level of value chain of industries include activities from
supporting industries, related industries, infrastructure suppliers, and other supporting
services industries. This connectivity is further developed as an effort to build networks
of industry and increase competitiveness to stimulate innovation.
Increase added-value along value chain by building core competence
Increase productivity, efficiency, and kind of resources used in industry, and focus on the
use of green product
Development of SMEs through: (a) business stock scheme and technical and managerial
support, and also special facilities for expansive growth and achieve high reliable
competitiveness in its area. (b) Stimulating SMEs synergy with large enterprises through
alliance. (c) Building supportive business environment for SMEs.
While the operational strategy defined include the followings:
Development of conducive business environment
Focus of industrial development is conducted by stimulating growth of prioritized
industrial cluster
Defining priority of spreading the industrial development to areas which make the raw
material located nearer
Development of innovation capability in industrial technology and management
Based on the strategies, it can be seen that development of national industry sectors is
using cluster concept. Nevertheless, government is not further detailing how innovation may
grow in the industry. Seen from the natural process of industrial development by Sonobe and
Otsuka (2007), innovation will occur after initiation and expansion of product quantity, and
innovation grows for improving quality. From focus of Indonesia’s industrial cluster
development, government is only dividing areas and industrial sectors, although includes actors
supporting innovation into the cluster scheme (See Fig. 8).
Even though, industrial cluster development based on innovation system is difficult to be
implemented in Indonesia. This is as what has been described in the formulation of national
policy of industry development, which states that technology development has been conducted
by R&D activities in science and technology (S&T) institutions, universities, and business.
Nevertheless, problems faced are on the limited utilization of S&T in business and society,
compared with the number of research outputs which are potential to be implemented. There are
many factors causing this condition, especially on the result/output of domestic research and
technology. One of them includes the great number of business which still depending on foreign
technology, or technologies from its parent company, besides the limited access to sources of
information, technologies, and S&T services. The presence of Foreign Direct Investment (FDI)
which have potential for technology transfer also has not used optimally by the companies.
Another problems in the development of industrial cluster based on innovation system in
Indonesia is the unsynchronized management of S&T among R&D institutions in many
organization based on the need of industries, then the optimization of strategic activities affecting
national level cannot be seen yet.
Conclusion
Industrial development through industrial cluster based on innovation system in
Indonesia is basically needed considering the great potential of the available resources, and also
to increase industrial capability in international competition. Based on literature analysis that
there is need to define stages in building industrial cluster based on innovation system in
Indonesia, include the followings:
a. Analysis of area characteristics, industrial resources (companies, technology, human
resources, core personnel, local community) and market needs. This stage aimed to
define share vision and area (pembagian) scenario.
b. Building networks
c. Create 'new fusion' by collaborating with academician-industry, industry-industry to
broaden the cluster, promoting new business, venture, etc.
d. Industry network agglomeration is purposed for producing further innovation to
create positive cycle for further cluster forming
To support stages on developing industrial cluster based on innovation system, there is
need of policy schemes e.g. networks forming, business support, and promoting collaboration.
Government through its policy must stimulates the forming of networks, either
between/among actors in innovation system (industry, universities or R&D institutions, and
government) or between/among industrial cluster. This policy scheme can also become a
stimulus for broadening industrial cluster including collaboration with local industry support
institutions, etc. Government must also give business support to R&D, market growth,
incubation institution development, collaboration among/between industries, innovation
management, human resources supplies, etc. At last, to stimulate innovation in industrial cluster,
government needs to promote collaboration with some institution, e.g. finance institutions, trade
companies, education, etc.
References
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