Export‐oriented small and medium industry clusters in Indonesia

The Indonesian government has been trying to support the development of small and medium enterprises (SMEs) in the country, as these enterprises are expected to play a crucial role not only for employment creation but also for GDP formation and export development. The paper aims to address the following three questions. First, are networks important for the development of SME clusters, especially for those involved in export activities? Second, in what type of clusters are networks well developed? Third, what is the role of government; does it also play as an important network for SME cluster development?

This paper is based on an ongoing research on the importance of networks in the development of export‐oriented SME clusters in Indonesia. Although the paper also discusses other important issues related to the development of SMEs in the country, i.e. constraints facing the enterprises and women entrepreneurs, the paper focuses on the importance of networks.

First, SMEs are of overwhelming importance to Indonesia because they account for more than 90 percent of all firms outside of the agricultural sector. Second, the main constraints faced by small entrepreneurs are, lack of finance and difficulties in marketing. Third, the representation of women entrepreneurs in Indonesia is still relatively low which can be attributed to various factors, e.g. low level of education and lack of training opportunities that make Indonesian women severely disadvantaged in both the economy and society. Finally, although in general Indonesia is not well represented with small and medium industrial clusters that feed into global commodity chains, some clusters have gradually become export‐oriented. Among many factors, well developed networks especially with traders, trading houses, and foreign tourists are indeed an important factor for their increasingly export activities. Even these agents have played more important role than supports from government for their successful export.

The paper examines the importance of networks for the export‐oriented SME clusters in Indonesia.