Indonesia's Small and Medium-Size Exporters and Their Support Systems
74 Pages Posted: 20 Apr 2016
Date Written: December 1994
In Indonesia, public institutions generally lack the commitment, resources, and flexibility needed to provide quality support to small and medium-size enterprises, and industry associations often lack the professionalism and accountability needed to gain their confidence. But public support can be useful for relatively simple services, such as support to organize local fairs, to facilitate participation in foreign fairs, or to use foreign private consultants.
Berry and Levy survey a sample of 91 small or medium-size exporters of garments, rattan furniture, and carved wooden furniture (Jepara), and interview people in public and nonprofit agencies active about issues affecting small and medium-size enterprises (SMEs).
Indonesia's garment industry is dominated by entrepreneurs of Chinese descent and the Jepara industry by pribumi (Indonesian Malays); in rattan furniture, the two are reasonably equally mixed. About 75 percent of the entrepreneurs in garments and rattan furniture have some university education; less than half of those in the more traditional, skill-based Jepara industry do.
In most of the firms, international marketing was handled exclusively through private channels; that is also how most firms acquired technological capability. But such channels appeared to be more readily accessible by larger firms, by educated entrepreneurs, and by non-pribumi who could take advantage of the extended-family network that connects ethnic Chinese in the region. Relying exclusively on private channels means running the risk that participation in export markets will be limited to a relatively narrow base of entrepreneurs.
Pribumi and smaller firms relied heavily on collective marketing support provided with a light touch - for example, support for participation in trade fairs. The Ministry of Trade's international network of offices geared to providing information and facilitating transactions was of little use to the firms surveyed. Collective technology support also appeared to be somewhat more important for smaller, pribumi firms, although its impact was modest. Employing expatriates was a powerful mechanism for acquiring technological capability, especially in the rattan and garment sectors, although it was concentrated disproportionately among the non-pribumi entrepreneurs.
Indonesia's collective institutions suffer from pervasive organizational weaknesses that limit their ability to help broaden the base of private entrepreneurship in small and medium-size firms. Public institutions generally lack the commitment, resources, and flexibility needed to provide quality support to SMEs, and the industry associations often lack the professionalism and accountability needed to gain SMEs' confidence.
But public support can be useful when it involves relatively simple services, such as support to organize local fairs, to facilitate participation in fairs abroad, or to use foreign private consultants.
This paper - a product of the Finance and Private Sector Development Division, Policy Research Department - is part of a larger effort in the department to examine the impact of proactive intervention on SME performance.
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