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Transfer of Technology to and Technology Diffusion among Non-farm Small and Medium Enterprises in Indonesia

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Knowledge, Technology & Policy

Abstract

It is evident everywhere that levels of productivity are higher in large enterprises (LEs) and foreign-owned enterprises than in small and medium enterprises (SMEs), partly because they have higher levels of technology capacity. Thus increasing the productivity of non-farm SMEs might be facilitated through improved knowledge or technology. This study shows that foreign direct investment (FDI) is an important but limited channel for technology transfer from foreign countries to Indonesia. A case study of Tegal metalworking industry presented in this study shows that the most important channels for the diffusion of knowledge among domestic non-farm SMEs include sub-contracting arrangements. This study also shows that government agencies are currently the largest providers of training and similar assistance. However, these programs are marred by a low level of coverage, a lack of effective evaluation and assessment, and a supply rather than a demand orientation.

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Notes

  1. As generally realized, there is no universally accepted definition of technology. The most common approaches define technology as a collection of physical processes that transform inputs into outputs and the knowledge and skills that structure the activities involved in carrying out these transformations (Kim 1997: 4), or as stated in Rosenberg and Frischtak (1985) that technology is a quantum of knowledge resulting from the accumulated experience in design, production, and investment activities that is retained by individual teams of specialized personnel. This knowledge is mostly tacit and often (is) not made explicit in blueprints or manuals. So, technology and knowledge will be used interchangeably in this study.

  2. See, e.g., World Bank (1996); Kim (1999); Marcotte and Niosi, 2005); Thee (2005); Yusuf (2003); Coe and Helpman (1995); Coe, et al. (1997); Coe and Hoffmaister (1999); Freeman and Hagedoorn (1994); Iman. and Nagata (2002); and Saggi (2002) for a survey of literature.

  3. For example, diffusion can occur through magazines and newspapers, education programs and documentaries on television, seminars, workshops, training, plant visiting, and exhibitions. It can also occur if an Indonesian manager or senior technician employed with a foreign firm leaves this firm to work with a domestic firm. The knowledge and experience received while working for the foreign firm is then deployed in the new job with the local firm.

  4. KI, as many other LEs, requires their subcontractors to be a P.T. (Limited Liability Company), not a C.V. (a limited partnership not involving a legal person and personal assets are liable for obligations).

  5. KI, as many other LEs, requires the use of ISO standards even if the workshop is not officially certified.

  6. Cheap labor and relatively small, shifting job orders reduce incentives for them to specialize or acquire expensive machineries to increase productivity. As one seasoned metal worker explained, the strength of the plasma workshop is the flexibility to do smaller orders. However, this flexibility becomes a liability to capacity development when workshops must fill many small orders and never develop specialization that leads to expanded command of technology.

Abbreviations

SMEs:

Small and medium enterprises

MIEs:

Micro enterprises

Ses:

Small enterprises

Mes:

Medium enterprises

Les:

Large enterprises

MNCs:

Multinational companies

UPT:

Technical service unit

KOPINKRA:

Cooperatives of Small-Scale Industries

FDI:

Foreign direct investment

MNCs:

Multinational companies

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  1. Jl. H.R. Rasua Said X-5 Kav.2-3, Jakarta, 12950, Indonesia

    Tulus Tambunan

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Tambunan, T. Transfer of Technology to and Technology Diffusion among Non-farm Small and Medium Enterprises in Indonesia. Know Techn Pol 20, 243–258 (2007). https://doi.org/10.1007/s12130-007-9031-7

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