Small and Medium Enterprises (SMEs) and Technology Incubation Program in Indonesia - Current Issues and Challenges

Abstract

The significant magnitude contribution of SMEs to Indonesia's economy is one of the consideration for the government of Indonesia to launch many policies and programs to support the enhancement of the competitiveness of SMEs. For example, Presidential Decree Number 30 of 2003 on government procurement of product and services give preferences for SMEs especially if the products and/or services are locally manufactured or produced and/or use local technology or intellectual property. Mid-Term National Development Plan (RPJM) 2005-2009 clearly specified the government commitment to strengthen SMEs, e.g., through the of science centers and actualization of incubator role and technical implementation units and Technopreneur development, such as development of new venture based on research results through technology incubator.In June 2007, the government launched a new policy to further accelerate the innovation capacity of the real sector and empower small and medium enterprises aimed, among other, at encouraging the growth of newly technology-based enterprises and establishment of center for innovation and for that purposes the government will support the establishment of Innovation Center for the expansion of entrepreneurship by optimizing the role or already existing institutions. Technology incubation program or even Iptekda program (if it is directed more to assist newly-technology based companies) can then play important role to help materialize the objective of this latest policy through creation of newly technology-based companies.A closer look at the Indonesia's industry structure suggest that in 2005, the number of SMEs consist of more than 99.8% of total number of enterprise and its contribution national GDP is more than 56% of total national GDP. On the other hand contribution of SMEs to total export value in 2005 is only 14.76% of the total (small enterprise: 3.75%, medium enterprise: 11.01%) which indicate low competitiveness of SMEs to compete in the global market. It is therefore necessary to enhance innovation capacity of the SMEs in Indonesia in order to increase its competitiveness. This is one of the reasons the government of Indonesia keep introducing policies and programs to stimulate this sector so as to strengthen its competitiveness level.As has been recognized widely, innovation in its wide definition is one key to competitiveness. And in many cases, technology contribute in enhancing innovation capacity of the industry. It is along this line that technology incubation programs become an important mechanism to nurture and create the growth of newly-based technology companies especially the ones using research results and/or intellectual property from research institutes and universities.Incubation program in Indonesia started in 1990 by running a pilot project called Pilot Business Incubator Indonesia assisted by UNDP. Since then the development of incubators in various part of Indonesia has grown supported by various government programs like Ministry of Research and Technology, Ministry of Industry, Ministry of National Education, and Ministry of Cooperative and SMEs empowerment. Up to now there has been around 33 incubators in Indonesia, six of them, to some extent, can be categorized as technology incubator and the other 26 as business incubators. These business incubators provide services such as training, mentoring, consultancy, etc. Most of them do not provide physical infrastructure to host technology-based company or tenants using its affiliation technology.Coordination of technological-incubator program in Indonesia seems to be an issue. The issuance of Presidential Instruction Number 7 of 2007 for example through the establishment of innovation center Innovation Center for the expansion of entrepreneurship by optimizing the role or already existing institutions might address this lack of coordination, especially in ensuring implementation of government programs in a consistent manner and sustainably. Given the risky nature of establishment of newly technology-based companies through technology incubation program, required sustainable funding support from the government; while the management of technology incubator can obtain other sources of revenue from commercializing its professional services and possibly get a portion of technology transfer revenues (commercialization of which facilitated by technology incubator) from its affiliation.The impact of technology incubation program in Indonesia has not been very encouraging. There are several factors contribute to this condition, some of them are(1) unsustainable funding support, (2) low implementation of policies and programs, (3) low active involvement of business professional in the incubator management — mostly managed by internal peoples. It is expected that implementation of PI 7 of 2007 can address these issues. Especially for the third issue, it is necessary to conduct a series of capacity building program in order to enhance the professionalism of the incubator management. Experts and incubator practitioners from countries which has already succeeded nurture and develop technology incubator will also be very useful to be carried out. This capacity building program can also be conducted together with other Asian countries that might have similar problems with Indonesia. Cooperation with other regional or multilateral organization can accelerate implementation of this capacity building; however dependence of this source must be avoided.