The Role of Government in Technology Transfer to SME Clusters in Indonesia

Abstract

It is evident that levels of productivity are higher in large enterprises (LEs) and foreign-owned enterprises than in small and medium-sized enterprises (SMEs), partly because they have higher levels of technology capacity. But increasing the productivity of SMEs might be facilitated through improved knowledge or technology. The literature on the development of SME clusters in developing countries argues that clusters are an effective means of technology transfer to SMEs, and government can play a major role as the main source of technology transfer to the clusters, especially in regions where production linkages between LEs and SMEs are not yet well developed. This study shows that in Indonesia, government agencies are currently the largest providers of training and similar assistance. However, these programmes are marred by a low level of coverage, a lack of effective evaluation and assessment, and a supply rather than a demand orientation. The case study of the Tegal metalworking industry also shows that the important channels for the transfer of technology to SME clusters are not only government agencies but also subcontracting arrangements with LEs.