The moderating effect of efficiency and non-market capability in relationship between government involvement and resources to performance of water supply companies (PDAM) in Sulawesi, Indonesia

Abstract

PurposeThis paper aims to investigate the moderating effect of efficiency and non-market capability in the relationship between government involvement and resources to performance of water supply companies (PDAM) in Sulawesi, Indonesia.Design/methodology/approachThis paper is explanatory in nature, i.e. it explains the relationship (causality) between the external environment variables (government involvement), internal environment variables (resources and non-market capabilities) and the performance of taps in Sulawesi through hypothesis testing. The research was conducted in six provinces in the northern peninsula of Sulawesi Island: North Sulawesi Province, Gorontalo Province, Central Sulawesi Province, Southeast Sulawesi Province, South Sulawesi Province and West Sulawesi Province. The research was undertaken from September 2011 to December 2011. The analysis unit in this research was PDAM, while the research population was the regional water company (PDAM) in Sulawesi. A quantitative approach was used for data analysis, i.e. variance-based inferential statistical analysis with structural equation modeling, known as partial least squares, with variable non-market capability acting as a moderating variable.FindingsGovernment involvement has a significant and positive effect on the performance, indicating that the higher the government involvement, the higher the performance of a company. Efforts to reduce water loss level for PDAM is a strategic move, as they are associated with PDAM’s stakeholders. Water loss will lead to poor customer service, low contribution to the acceptance of regional governments and failure to meet natural conservation programs. On the other hand, to reduce the water loss level, considerable capital is needed for investment, for example, to finance the installation and repair of pipelines, pumps, mains water meter, customer water meter, the cost of water treatment, fuel costs and the expansion of the water source. In general, PDAM in Sulawesi still has problems in terms of expansion because of the lack of funding sources; hence, the role of regional government as the owner is expected, both in the form of financial aid and the tariff adjustment. The government should be in favor of thorough development of drinking water, as embodied in the form of finance, budget commitment and the commitment to the development of PDAM.Research limitations/implicationsThe limitations of this study are that the data used in this study are cross-sectional, so they only describe the condition at a particular time. Also, the sample was limited to Sulawesi taps; therefore, to generalize the findings, a larger sample needs to be considered.Practical implicationsThe practical implications of this study are that development of water supply company cannot be separated from the government’s involvement as one of the stakeholders to improve corporate performance, especially through financial assistance. In connection with it, a board of directors or management of PDAM in every department of a company constantly works on government involvement, especially financial aid to fund or investment fund sharing, to improve service to customers. Such activities run a company aimed at achieving efficiency with emphasis on the efficiency of production and distribution capacity by managing the leakage rate, the emphasis on labor costs by keeping the ratio of employees ideal, the emphasis on aspects of the supply and distribution through control of water resources and water meter mains and water customers and an emphasis on the use of raw materials or chemicals with attention to the quality of raw water.Social implicationsThe social implications of this study are that government interventions are supported by the availability of resources according to the needs able to create efficiencies that have an impact on improving the performance of taps. Companies performing well can operate optimally in providing drinking water that meets health standards. In addition, the performance achieved allows the taps to embody the organization’s mission as a creator of jobs and local revenue for local governments.Originality/valueOriginality for this paper shows the moderating effect of efficiency and non-market capability in the relationship between government involvement and resources to PDAM. The originality also includes the location of this study (six provinces in the northern peninsula of Sulawesi Island: North Sulawesi Province, Gorontalo Province, Central Sulawesi Province, Southeast Sulawesi Province, South Sulawesi Province and West Sulawesi Province) as no previous research has investigated this relationship in this geography.