Overcoming the Declining Competitiveness through SME Innovation: A View from the Perspective of Daegu Initiative

Self Assessment Report: Indonesia Overcoming the Declining Competitiveness through SME Innovation: A View from the Perspective of Daegu Initiative Totok Hari Wibowo Agency for the Assessment and Application of Technology Jln. MH. Thamrin No. 8 Jakarta, Indonesia 10340 totokw@gmail.com

Rationale OUTLINE Challenge Self Assesment Report Implementation Initiatives in SMEs Capacity Building Working Definitions SMEs Innovation Centre Conclusion 2

I. Rationale: 3 Key Elements of Sustainable Development Environmental Sustainability Social Sustainability Environment Economic Sustainability Economy Society

I. Rationale: Vision of a Green City Urban Structure Transport Energy & Material Socio- Economy

II. Challenge Low Productivity 2009 SMEs Big Enterprise Total Business Units Labor Force Total (unit) 48.900.000 9.782 48.909.782 Percentage (%) 99,98 0,02 100,00 Total (people) 85.400.000 3.391.849 88.791.849 Percentage (%) 96,18 3,82 100,00 Contribution Total (trillion Rupiah) 177.875 155.945 3.338,20 to GDP Percentage (%) 53,28 46,72 100,00 * Small-sized Enterprise 37,7% & Medium-sized Enterprise 15,6% Source: CBS (2009) 5

Comparison of Knowledge Economic Indicators 2006 II. Challenge Country Economic Incentive Regime Innovation Education Information Infrastructure Finland 8.61 9.63 9.17 9.13 AS 7.81 9.39 8.43 9.03 Australia 8.14 8.62 9.14 8.67 New Zealand 8.28 7.94 8.95 8.43 Germany 7.95 8.82 7.87 8.82 Japan 7.23 9.26 8.09 8.40 Singapore 9.53 8.67 5.61 9.13 Korea 6.10 8.04 7.80 9.03 Malaysia 5.52 4.42 4.51 6.81 Thailand 5.88 3.58 5.80 4.94 The World 4.55 4.88 4.90 4.96 China 2.42 4.13 3.04 4.35 Indonesia 2.41 1.74 3.43 2.71 India 2.78 3.20 2.13 1.95 Source: Online Data from the World Bank s site 1998-2006 6

Country Comparison on Some Competitiveness Indicators Variable Indonesia actual / normalized Malaysia actual / normalized US actual / normalized Average Annual GDP growth (%) -0.10 / 0.33 2.40 / 3.22 3.00 / 4.21 Human Development Index 0.68 / 2.92 0.79 / 5.92 0.94 / 9.33 Tariff & non-tariff barriers 6.00 / 4.17 6.00 / 4.17 8.00 / 6.25 Regulatory Quality -0.68 / 1.57 0.58 / 6.12 1.51 / 8.60 Rule of Law -0.80 / 1.49 0.58 / 6.28 1.70 / 8.60 Researchers in R&D 21160.00 / 6.39 3415.00 / 2.89 1114100.00 / 9.88 Scientific and technical journal articles 142.00 / 4.33 416.00 / 5.83 163526.00 / 9.92 Patent applications granted by the USPTO 10.00 / 5.23 56.00 / 6.92 98666.00 / 9.91 Adult literacy rate (% age 15 and above) 87.50 / 4.21 88.00 / 4.30 100.00 / 8.18 Secondary enrollment 57.00 / 2.64 70.33 / 3.80 95.16 / 7.36 Tertiary enrollment 14.58 / 3.42 28.16 / 5.42 72.62 / 9.75 Telephones per 1,000 (landlines & mobiles) 91.20 / 2.40 546.70 / 6.12 1147.00 / 7.60 Computers per 1,000 11.00 / 2.17 126.10 / 6.78 625.00 / 9.91 Internet users per 10,000 191.23 / 3.55 2731.09 / 7.52 5375.06 / 9.59 7 Source: Country Competitiveness,the World Bank 1998-2004 II. Challenge

III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Area A: Developing Human Resources and Technology through Linkage between Industry and Educational and Research Institutions The role of technology and innovation in Indonesian economy is low: Example in Patent Applic s: During 1997-2007 averaging 3957 applic s/year 90,2% Foreign applic s 9.8% Domestic applic s (388 patents, from which about 46,7% are simple patents) 220 Million population 1.76 patents/million people while World average: 148 patents/million people These indicates that Indonesian industry still relies - to a greater extent - on public domain technology or licensing of foreign technology. 8

III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Area A: Developing Human Resources and Technology through Linkage between Industry and Educational and Research Institutions Trend of Patent Application 9

Number III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Area A: Developing Human Resources and Technology through Linkage between Industry and Educational and Research Institutions Trendt of Patent Applic s to USPTO by Various Countries Source: Indonesia S&T Indicator Book 2006 10

III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Area A: Developing Human Resources and Technology through Linkage between Industry and Educational and Research Institutions Recent Initiatives: The Establishment of SME Innovation Centre in 2009 that focuses on the development of three priority sectors: Agro, Manufacturing, and Creative Industry. The Agreement between 3 (three) Ministries: Ministry of Education (MOE), Ministry of Cooperatives and SME (MCSME), and Ministry of Science and Technology (MOST) to focus on the development of Business Incubators. The Agreement between 3 (three) Ministries: Ministry of Industry (MOI), Ministry of Workforce, and Ministry of Cooperatives and SME (MCSME), to focus on job creation for youth. 11

III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area B: Access to Specialist Assistance and Advice The SMEIC improves people access to expert for advice and specialist assistance Many Ministries found the importance of entrepreneurship and has it as program. 12

III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area B: Access to Specialist Assistance and Advice Role: National Policy Coordination Financing National Team SC Adv OC Institutionalizing SMEIC Role: Local Policy Coordination Financing Role Technology services HRD Intermediation & Business Networking Facilitating access to Funding resources Local Team Adv SC OC ENI ENI ENI ENI ENI ENI: Enterprise Nurturing Institution 13

III. Daegu Initiative Self-Assessment SMEIC Report (2010) - Roadmap Checklist for Area B: Access to Specialist Assistance and Advice M A R K E T Institutionalizing SMEIC 2008 2009 Demand pull, primary extractiveincreased low added value MSME based industries Sustainable Green MSMEs 2010 2015 Supply push resource based, new market, higher added value, innovation based MSMEs & Innovationbased networkedsymbiotic industries > 2015 Market leader in selected niche: (genetic) resource and knowledge based MSMEs high end and boutique products and services Pilot Project Replication of Best Practises Agribusiness, manufacture and creative industry 14

III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area B: Access to Specialist Assistance and Advice Coordinating Ministry for Economic Affairs SMEIC PRESIDENT Parliement SMEIC - Position within National Innovation System Private Industries and their R&D Centers MOF BAPPENAS MOST State Owned (Strategic) Enterprises Private Research Institutions and Private Universities DRN LIPI LAPAN BPPT BATAN Bakosurtana l BAPETEN BSN Ministries: MOI Coop and SMEs Education State-owned Enterprises Others Departmental R&D Institutions Public Universities State Enterprises Venture Capital and Financial Inst 15

III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area B: Access to Specialist Assistance and Advice Track 1 SMEIC Technopreneurship Salient Minority Track 2 Improvement of Technological Capability Bulk Majority Start-Up Business & Improved Existing Business 16

III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area B: Access to Specialist Assistance and Advice Start-Up Business Improved Existing Business SMEIC Nurturing New SMIs Technology Diffusion 1. Technology Incubator 2. Business Incubator 4. Extension works 5. Facilitation 3. Business Innovation Fund Prototyping Centers Risk Capital W o r k i n g U n i t s BPPT LIPI MOI SMESCO Dir.Gen. Higher Educ. Universities Other Institutions Implementing Institution

Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs III. Daegu Initiative Self-Assessment Report (2010) Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs IV. SME Development I. Aid and Social Security Target: Food, Health, and Education Policy: Raskin, PKH, BOS, JPS, BLT, JAMKESMAS, etc. II. Capacity Buiding Target: Social activities Policy: PNPM Mandiri, Labor Intensive Project, Training, etc. III. Entrepreneurship Building Target: Social activities to become businesses Policy: Entrepreneurship, Access to financial source, access to market. Target: Improved competitiveness and business sustainability Policy: Technology, innovation and business creativity development

Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Criteria D: Network and Clustering for Innovative SMEs Policy Government Regulation Nr. 24 Year 2009 on Industrial Estate Clustering Innovative SMEs found more recent legal base in Law nr 39 Year 2009 on Special Economic Area Further, effort in clustering SMEs found a substantial support in the decree by Minister of Industry on One Village One product Programme and in a policy by Coordinating Minister for Social Welfare on the development of Creative Industry Sector. 19

Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs III. Daegu Initiative Self-Assessment Report (2010) Checklist Items for Criteria D: Network and Clustering for Innovative SMEs No Location Industrial Area in Indonesia as of February 2009 Number Total Developed Total Tenaga IA Area (Ha) Industry (Ha) Tenant Kerja 1 DKI JAKARTA 3 1.800,00 914,00 491 210.000 2 B A N T E N 14 5.230,00 1.117,00 270 90.000 3 JAWA BARAT 26 11.560,00 6.118,00 2.335 620.000 4 JAWA TENGAH 7 2.148,00 520,00 1.747 215.000 5 JAWA TIMUR 8 2.500,00 833,00 611 125.000 6 KEP. RIAU - BATAM 20 850,00 450,00 296 81.000 KEP. RIAU - BINTAN 1 4.000,00 250,00 30 6.250 7 RIAU 1 400,00 150,00 5 1.250 8 SUMATERA UTARA 3 1.300,00 522,00 346 60.000 9 SUMATERA BARAT 1 200,00 45,00 5 1.000 10 SULAWESI SELATAN 1 700,00 350,00 180 19.000 11 SULAWESI UTARA 1 22,00 n/a n/a n/a 12 SULAWESI TENGAH 1 1.500,00 n/a n/a n/a 13 KALIMANTAN TIMUR 1 250,00 52,00 5 700 TOTAL 88 32.460,00 11.321,00 6.321 1.429.200 Net Area = 70 % x Total Area = 0.7 x 32.460 = 22.722 hektar Sumber: HKI, 2009, n/a : Tidak ada data 20

Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs IV. Daegu Initiative Recapitulation (1 of 2) Some elements are still missing or not performing well in Indonesia like: 1. The non-existence of appropriate funding scheme for start-up companies 2. Lacking of focus and clarity of programs on SME development by diverse institutions, which is a problem in institutional arrangements. 3. Lacking of proper networking for market access, for technology and expert asistance, and for access to facilities (laboratory, etc) 21

Checklist for Area C: Enhancing Availability of Capital to Innovative SMEs IV. Daegu Initiative Recapitulation (2 of 2) 4. Prominent role of the university is put onto educating people while other roles are still at minimum. 5. Firms have generally not exhibited strong interest in University Industry Linkage/Partnership. 22

V. Policy Recommendations Given the visionary framework of knowledge economy, Indonesia s innovation systems have confirmed the weakest arena among others. Strengthening education system (i.e. education reform) and outputs to increase qualified workforce particularly in S&T skills, including putting in place incentives for firms in the-job training system; Building new knowledge through basic research, R&D spending, technology transfer including developing strong linkages in universities, research institutes and firms (i.e. university-industry linkages) as foundation for knowledge generation and technology catching-up;

V. Policy Recommendations Given the framework of knowledge economy, Indonesia s innovation systems have confirmed the weakest arena among others. Ensuring sufficient incentives for firms to innovate in new products and processes for industry and services sectors, given new trend in technology and market demand; Establishing S&T infrastructure (e.g. business incubators, science parks, research funding, IT infrastructure etc.) and increasing private involvement in developing the knowledge economy.

Terima kasih Questions, Comments and Suggestions can be directed to totokw@gmail.com 25