Innovation and Export Activity among Manufacturing SMEs– Case Study of Cimahi City, West Java – Indonesia By Elivas Simatupang, SE (Unpar), G. Dpl (ISS of Erasmus Uni.), MSc (LSE) Local Development Planning Board of Cimahi City Emaill: [email protected]Presented in International Seminar on “SME: The Soul of Innovation - The Role of Innovation in Enhancing SME's Competitive Advantages towards AEC 201” - UNPAR 2015 The author thank you to the Local Government of Cimahi City for supporting the data and to Mr. Dr. Bagdja, SE from Unpad for his valuable comments and support. Errors and opinions expressed here are those of the author and not those of Local Development Planning Board of Cimahi City.
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Analysing Innovation and Export Activity among Manufacturing SMEs – Case of Cimahi City, West Java – Indonesia
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Innovation and Export Activity among
Manufacturing
SMEs– Case Study of Cimahi City, West Java –
Indonesia
By Elivas Simatupang, SE (Unpar), G. Dpl (ISS of Erasmus Uni.), MSc (LSE)
Source:http://geology.com/articles/night-satellite/satellite-photo-of-asia-at-night-lg.jpg, accessed on 1 August 2014.
GIS PLOTS OF ISSUED PERMITS OF FIRMS IN 2009 AND 2010
Source: Bappeda Kota Cimahi (2014), pictures were scanned
INTRODUCTION
Sate of the Art
Linking micro economic development to macro economic development by analyzing
innovation activities done by SMEs in Cimahi city
Questions to address?
1. What kind of innovation activity exist in the economy of Cimahi city?
2. What factors influence innovation amid SMEs in Cimahi city?
3. Is there any spatial pattern of innovation of SMEs in the city?
4. What is the effect of innovation to export probability?
Arrangement:
1. Introduction and the Geography of Cimahi city
2. Macro Economy of Cimahi city
3. Geographical Economics of Cimahi City
4. Innovation among SMEs
5. Econometrics LOGIT model of innovation and export activity
6. Conclusions and recomendation
1. GEOGRAPHY
Capital : CimahiArea Size : 4025,73 hectareEast longitude : 107° 31’ 15’’ - 107°34’ 30’’South Latitude : 06 ° 50’ 00’’ - 06°56’ 00’’Height : 690 –1.075 meter
above sea levelDistance from Jakarta : 180 KmRain Fall : 1.500 MM – 3.000 MMTemperature : 18° - 29° C
BoundariesCimahi City shares borders with Bandung Municipality and Bandung Regency:
On the North, the common borders includes Parongpong, Ngamprah and Cisarua Sub Districts ofBandung Regency.
On the South, Cimahi shares borders with Margaasih, Bandung Kulon and Batujajar Sub Districts ofBandung Regency.
On the East, it share borders with Sukasari, Sukajadi, Cicendo and Andir Sub Districts of BandungMunicipality.
On the West, it shares borders with Padalarang, Batujajar and Ngamprah District of Bandung Regency.
1.1. CIMAHI IN REGIONAL
CONTEXT
Estabisished in 2002 andlocated in the BandungBasin/Plateau Area.
The Area consists of 5autonomous regions andCimahi is attached withBandung City, the Capital ofWest Java Province
forming “a compact urbanarea”.
Cimahi City and BandungCity are established as oneof national activity centers.
Cimahi is located in thecreative industry andmanufacturing industrialdistricts/corridors MasterPlan for Accelerating andExpansion of Indonesia’sEconomic Development(MP3EI).
1.2. EXISTING LAND USE •Total coverage area
: 4,061.49 Ha
•Developed Area: 61,54% (2.499, 62 Ha)
•Undeveloped Area : 38,46% (1.561,89 Ha)
•Districts (Kecamatan): 3 (North, Central and South)
•Sub-districts(Kelurahan): 15
•Population: +550.000 inhab
•Pop Desity: 14,085 inhab/km2
•Av. Pop. Growth: 0,97%
Source: Bappeda Kota Cimahi (2014), Spatial Development Planning of Cimahi city
1.3. DEMOGRAPHY
30,000 20,000 10,000 0 10,000 20,000 30,000
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75+
Laki-Laki Perempuan
Source: Bappeda Kota Cimahi (2014), Preliminary Report of Master plan of Ec. Development of Cimahi city
4.45
12.12
7.88
12.38
7.25
4.27
8.982.33
3.24
6.69
4.48
9.14
7.45
5.94
3.41
Cibeber Cibeureum Leuwigajah
Melong Utama Baros
Cigugur Tengah Cimahi Karangmekar
Padasuka Setiamanah Cibabat
Cipageran Citeureup Pasirkaliki
CountyPopulation Growth per Year
2008 2009 2010 2011 2012
South Cimahi 2.51% 2.52% -4.44% 2.67% 1.94%
Central Cimahi 1.95% 1.99% -7.46% 1.58% 0.87%
North Cimahi 3.92% 3.95% -0.79% 2.49% 1.77%
Average Growth 2.70% 2.72% -4.42% 2.29% 1.57%
Number of Labour per Sector
Year
2009 2010 2011 2012
Agricultural 8,550 4,589 2,974 4,318
Manufacturing 84,342 80,540 63,923 65,457
Whose seller, retail, hotel and restaurant 54,999 53,915 65,575 63,438
Private and public services 44,790 41,961 53,102 55,915
Electricity, gas, estate, communication,
transportation, and finance40,574 32,965 40,227 36,635
Total 233,255 213,970 225,801 225,763
Source: Bappeda Kota Cimahi (2014), Preliminary Report of Master Plan of Ec. Development of Cimahi city
2. MACRO ECONOMY AND GEOGRAPHICAL ECONOMIC
2.1. MACRO ECONOMY
2.1.1. HUMAN DEVELOPMENT INDEX
No Indexes
Year
2007 2008 2009 2010 2011 2012
1 Human Development Index 74.42 74.7 75.17 75.51 76.01 76.12
2 Educational Index 89.22 89.22 89.58 89.77 90.07 90.38
3 Health Index 73.28 73.4 73.52 73.63 73.75 99.8
4 Purchasing Power Parity 60.77 61.75 62.41 63.14 63.91 64.24
Source: Statistical Biro of Cimahi city and Bappeda Kota Cimahi (2007 – 2013), Cimah in
Number
2.1.2. GROSS DOMESTIC PRODUCT (GDP)
No SectorYear
2009 2010 2011 2012
1 Agriculture 9.64 10.1 10.07 10.26
2 Mining - - - -
3 Manufacture 3729.34 3832.25 4019.59 4207.72
4 Electricity, Gas and Water 225.42 240.01 251.64 264.88
5 Construction 385.89 406.54 423.94 444.46
6 Trade, Hotel and Restaurant 1243.9 1397.54 1502.1 1587.31
7 Transportation and communication 95.78 107.98 120.54 134.27
8 Finance, estate and corporate services 128.69 141.66 149.97 173.19
9 Services 362.74 373.24 386.55 409.29
Total GDP 6181.4 6509.32 6864.4 7231.38
Source: Bappeda Kota Cimahi (2009 – 2013), Gross Domestic Bruto (GDP) of Cimahi city. Constant price year 2010
2.1.3. ECONOMIC GROWTH
4.63%
5.30%
5.45%5.35%
4.20%
6.69%6.79%
6.53%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
2009 2010 2011 2012
Kota Cimahi Jawa Barat Indonesia
Source: Bappeda Kota Cimahi (2014), Preliminary Report of Master Plan of Ec. Development of Cimahi city
2.1.4. ECONOMIC CONTRIBUTION PER SECTOR
0.16%
57.90%
3.20%
6.88%
20.60%
1.97%2.57%
6.72%
Pertanian Pertambangan & Penggalian Industri Pengolahan
Listrik, Gas & Air Bersih Konstruksi Perdagangan, Hotel & Restoran
Pengangkutan & Komunikasi Keuangan, sewa & Jasa Perusahaan Jasa-jasa
Source: Bappeda Kota Cimahi (2014), Preliminary Report of Master Plan of Ec. Development of Cimahi city
2.1.5. LOCATION QUOTIENT
Sector/Sub Sector 2008 2009 2010 2011 2012 Av. Basic/Non-basic
Small 92.418.111.600 78.897.608.900 75.475.102.500246.790.8
23.0002,05 1,75 1,67 5,47
Medium 303.122.498.100 214.166.634.700 64.160.462.800581.449.5
95.6006,72 4,75 1,42 12,89
Large 2.042.591.510.000 1.594.677.210.000 32.513.000.0003.669.781.
720.00045,27 35,34 0,72 81,33
TOTAL 2.443.664.325.700 1.893.088.118.270 175.608.965.3004.512.361.
409.27054,15 41,95 3,89 100,00
1. SMEs encountered for 97.8% of all business units in Cimahi
2. Composition of SMEs in Cimahi is predominately by small enterprises (61%).
3. Most enterprises in the south are more labour intensive significantly. Despite its bigger proportion of capital accumulated in the centre areas, proportion of enterprises are capital intensive as well.
4. Overall, SMEs are labour intensive (53.8%) while large companies are more capital intensive. (81%).
5. Number of SMEs has augmented significantly (±52%) and unemployment has descended (±9,4 %) but have not been followed by a significant (local) Ec. Growth. This may show a “shopkeepers” or “refugee” effect and or low innovation level among the SMEs.
NOTES ON SMES OF CIMAHI CITY
5. Small enterprises mostly located in the middle of the city
and capital and labour is concentrated more in the south.
6. Northern area are most legged in ec. production factor
utilization. Developing agriculture sector is imperative.
7. There has been a consistency between data of number of
business enterprises with the IO Tabel and SAM Tabel
and also consistent with the GIS plots of Economic
growth.
8. Because of its big proportion and role in absorbing labour
force therefore encouraging innovation is important to
boost the economy growth.
4.2. INDUSTRIAL CLUSTERS OF SMES
D E F I N I T I O N S :
" C L U S T E R S A R E G R O U P S O F I N D U S T R I E S R E L A T E D B Y
K N O W L E D G E , S K I L L S , I N P U T S , D E M A N D A N D O T H E R
L I N K A G E S I N A R E G I O N ( P O R T E R , 2 0 0 3 A N D D E L G A L D O E T
A L , 2 0 1 3 )
C O N C E N T R A T I O N S O F F I R M S T H A T O P E R A T E I N T H E S A M E
S U B S E C T O R ( S A N D E E A T A L L : 2 0 0 2 ) .
B E N E F I T S :
- K N O W L E D G E S P I L L O V E R
- I N N O V A T I O N D I F F U S I O N
- I N T E G R A T E D V A L U E C H A I N
- E A S Y N E S S I N M A N A G I N G S M E S A C T I V I T I E S
4.3. STAGES OF DEVELOPING A CLUSTER
Slide BI
4.4. Manufacturing Industrial clusters of SMEs
1.Textile and fashion industrial clusters
2.Culinary clusters
3.Craft clusters
4.Printing cluster
(source: business directory of Cimahi City 2014)
4.5. SUB-SECTOR CLUSTERS OF SMES OF CIMAHI CITY
1.Hot Cassava chips cluster (Keripik Setan)
Setiamanah District
2.Milk Cow cluster in Cipageran District
3.Puppets Dolls Cluster in Melong District
4.Muslim Fashion Cluster in Cibeureum and
Cigugur Tengah Districs
5.Concrete Tile (Batako) Cluster in Cibeber
District
6.Jeans and T-shirt Cluster in Melong DistrictThese are 6 out of 21 potential traditional (product-based) clusters in Cimahi city
5. ECONOMETRICS MODEL OF INNOVATION AND EXPORT ACTIVITIES
a. Data taken form In-depth Business Directory of Cimahi city (2014)
b. Sample number = 504 (α = 4%) and analyzed using SPSS v.22
c. Limited dependent variable model (Binary Logit model):
d. Dependent variables:
- Output innovation: if producing new product in the last three years
- Process innovation: if changing management in the last three years or
Improving in quality in the last three years or
Using new machine in the last three years or
Changing supplier in the last three years or
Conducting pricing method (promotion, placement and
product pricing).
- Dummy variable of exporting abroad
1
u
i u
eY
e
0 1 1
ˆ( 1| )ln ln
ˆ(1 ( 1| )) (1 )
P Y Xb b X
P Y X
0 1 1 2 2
ˆln
ˆ(1 )k kb b X b X b X
f. Independent variablesFor Innovation
- Education level of the owner
- Main sales
- Frequency of innovation
- Respond towards source of knowledge or information internally (worker
or member of the family).
- Social capital using a proxy for blood donor.
- Dummy variable for cooperation or training form a university
- Dummy variable for cooperation or training form local government of
Cimahi city
- Logarithm of total asset (excluding land and house)
- 3 dummy variables of regions (south, middle and north)
a. Informal institution (i.e social capital) does significantly
influence innovation among manufacturing SMEs
b. Human recourses is important in enhancing innovation
c. Higher frequency of conducting innovation leads to
higher probability to be innovative. This means
continuity is important.
d. The role of government (local) and universities is
prominent in pushing product innovation diffusion
among SMEs in Cimahi city but not process innovation.
e. The middle part of the city is the most innovative and the
southern part of the city is the least innovative.
f. Textile cluster produce less new products (less out put
innovative) but together with printing cluster are more
process innovative than the other two counterparts.
h. Financial aspects influence innovation significantly.
i. There seem to be a sequence process of innovation in Cimahi. A firm can produce a new product and can export when are some improvements in the process. Most new product can not be exported directly.
j. Only process innovation will increase the probability of SMEs in the city to involve in international trade. Hence, to be able to compete in ASEAN free trade era, improving process innovation is imperative.
k. Tacit knowledge significantly influence innovation. This is proved by the significant influence of internal source of information and knowledge.
l. Region defines more innovation especially in output process. This proves that in the case of Cimahi city localised economies is more dominant than urbanasied economies.
m. There is autocorrelation between regions and clusters. This depicts the persistence of innovation spatially.
n. Simulation, moving from region to clusters gives a hint that geography does matter
o. Overall, micro ec. anlayisis is consistent with the macro ec. analysis of the city.
9. RECOMMENDATION
a. Local government and university can improve innovation through providing training, therefore leveraging technical skill. University can become the source of information and knowledge. Unfortunately, their influences are limited in the process because cooperation may tend to be ‘project oriented’ or limited in duration. Cooperation should be designed for longer time.
b. Exploiting social capital through community development
c. The smaller of the regions propose an idea to simulate the influence of sub-sector clusters in relation to innovation level among SMEs. This also support policy to develop sub-sector or product based clusters i.e. ‘sentra’.
d. This research may indicate that urbanized economy is still weak therefore developing value chain between clusters is urgent.
e. Policy to push (process) innovation is imperative so to be able to compete in the globalised competition era.
f. As labour variable does not influence innovation, call for a need to use an aggregate variable like number of labour force or concentration of population in the regions to indicate pooling of labour.
g. Different results given by the region and cluster variables may indicate that a smaller scope area variable like product based cluster dummies veriables give more significant improvements in the model. If so, this depicts the significant role of product based cluster to competitiveness of the city. The analysis will move from sector-cluster to region then to product based cluster (sentra).
h. A call for developing a panel data analysis or spatial econometrics model of innovation among SMEs in Cimahi city.