Indonesian Manufacturing Firms Research Articles

The role of dynamic capabilities and innovation on the competitiveness of the manufacturing firms in Indonesia

This study seeks to explore how dynamic capabilities and innovation impact competitiveness within the Indonesian manufacturing sector. It specifically investigates how Domestic Component Level (DCL) certification, influenced by government involvement, mediates this relationship. The focus is on how government support shapes the certification process, ultimately affecting competitiveness. Through quantitative methods and surveys conducted among 344 manufacturing firms holding DCL certification in Indonesia, the research finds that while enhanced dynamic capabilities may not directly correlate with increased competitiveness, they play a crucial role in a company's journey toward competitiveness, requiring a gradual process. Additionally, companies with higher DCL values are better positioned to compete for government contracts and services.

The role of service innovation and competitive advantage ad mediators of product innovation on marketing performance: Evidence from the SME manufacturing firms in Indonesia

The role of service innovation and competitive advantage ad mediators of product innovation on marketing performance: Evidence from the SME manufacturing firms in Indonesia

Influence Factors on Income Smoothing in Manufacturing Companies: Evidence from Indonesia's Stock Exchange


 
 
 
 
 
 This study investigates the determinants of income smoothing in Indonesian manufacturing firms listed on the stock exchange during 2016-2021. The research examines the impact of Institutional Ownership, Managerial Ownership, Return on Assets, Debt to Equity Ratio, and Ln Total Sales on Income Smoothing using binary logistic regression analysis. The findings reveal that Institutional Ownership, Managerial Ownership, and firm size significantly influence income smoothing, while Financial Leverage and Profitability do not exhibit significant effects on Income Smoothing. These results contribute to the understanding of income smoothing practices and hold implications for corporate governance and financial reporting practices in emerging markets.
 Highlight:
 
 Determinants of Income Smoothing: This study delves into the factors driving income smoothing in Indonesian manufacturing companies listed on the stock exchange between 2016 and 2021.
 Influential Factors: Institutional Ownership, Managerial Ownership, and firm size are identified as significant influencers of income smoothing, shedding light on their impact within this context.
 Implications for Governance and Reporting: The study's outcomes offer valuable insights for corporate governance practices and financial reporting strategies, particularly in the dynamic landscape of emerging markets.
 
 Keyword: Income Smoothing, Manufacturing Firms, Institutional Ownership, Managerial Ownership, Emerging Markets
 
 
 
 
 

Rewards Effects Through Entrepreneurial Orientation to the Performance of the Indi 4.0 Manufacturing Industry

Purpose: The main intention of this study is to better comprehend the potential of rewards, entrepreneurial orientation (EO), and their impact on the performance of Indonesian manufacturing firms transforming into Industry 4.0.
 Design/methodology/approach: This study achieved its objectives by conceptual analysis of the rewards relationship with the performance of an organization, expectancy theory, resource-based view (RBV) theory, and extant literature.
 Findings: This study indicates that a comprehensive rewards policy alone is insufficient to improve the performance of the Indonesian manufacturing industry. The fully mediating models hypothesised with the application of expectancy theory and RBV models suggested that the dimensions of EO have significant impacts on improving the performance of the manufacturing firm. 
 Practical Implications: This study measures the adoption of EO as a mediator in examining the mechanism of rewards management to improve the performance of the manufacturing industry underpinned by the expectancy and RBV theories.
 Originality/Value: The originality of this study is to demonstrate that the implementation of rewards management in the Indonesian manufacturing firm can be enhanced using a proper mechanism, to improve better firm’s performance.

Clustering of business strategies among Indonesian manufacturing firms

This study aims to to classify business strategies adopted by manufacturing firms. Data were acquired by sending questionnaires to Indonesian manufacturing firms in Java. Factor and cluster analysis were performed on 435 survey data. Using principal component analysis and varimax rotation, the factor analysis identified two distinct business strategies based on Porter's generic strategy: cost leadership and differentiation. Hierarchical and K-means clustering conducted sequentially enabled the identification of three clusters of business strategy: cost leadership, differentiation, and no strategy. According to the findings, the majority of Indonesian manufacturing firms utilize the differentiation strategy, followed by the cost leadership strategy. Only a small percentage of firms employ no strategy at all. The descriptive analysis of each cluster shows that the number of firms adopting the differentiation strategy is significantly higher than those pursuing the cost leadership strategy in a number of products, including food and beverage, computers, electronic, and optical products, as well as machinery and electrical equipment. For some products, such as automotive and furniture, the percentage of firms using cost leadership or differentiation strategies is comparable. Large firms dominate both clusters. Nevertheless, there are more large firms in the differentiation cluster than in the cost leadership cluster. The findings of this study enrich the body of knowledge in the domains of strategic management and manufacturing by classifying the business strategies that help firms achieve their business objectives, particularly in the context of emerging countries.

Technical Inefficiency in Nine Clusters of Indonesian Manufacturing Firms And its Determinants: Stochastic Frontier Analysis

The current study examines the technical inefficiency of Indonesian manufacturing firms and its key determinants. Extending the previous research that mainly focuses on firms in a specific industry, the current study groups firms into nine industrial clusters and estimates them separately to find a variety of results among the clusters. The stochastic frontier analysis (SFA) method is applied to estimate the inefficiency score and the key determinants of 5,848 firms for five years (29,240 total observations). Data period ended in 2014 due to the substantial change in the classification code of the manufacturing industry in the survey by the Indonesian Central Board of Statistics. Five notable findings are recorded. First, the average efficiency score of all observed firms is 0.8815. Second, firm size is found to have a negative effect on inefficiency in the sample of all firms and three out of nine clusters (ISIC 34, ISIC 35, and ISIC 37). Third, foreign ownership generates a negative contribution to firms’ technical inefficiency in both the sample of all firms and the sample of each nine industrial clusters. Fourth, export orientation has various effects on firms across nine industrial clusters, with a dominant significant negative impact in paper and paper product industry (ISIC 34) and metal product industry (ISIC 38). Finally, import intensity provides a significant negative impact on firms in most industrial clusters. These findings support the argument on the importance of absorption capacity and unique firm characteristics in analyzing the impact of key determinants of technical inefficiency.

Does Managerial Ability Affect Segment Disclosure? Evidence From Indonesia

Research aims: While prior study around segment disclosure has mainly focused on firm characteristics, there is little study on whether managerial characteristics are associated with segment disclosure. This study, therefore, aims to examine the effect of managerial ability on the level of segment disclosure.Design/Methodology/Approach: This study used panel data regression with 556 firm-year observations of Indonesian manufacturing firms during 2017-2020. This study employed the checklist based on PSAK 5 (2015 edition) and adopted a content analysis approach. To measure managerial ability, this study utilized the managerial ability score developed by Demerjian, Lev, McVay (2012) for Indonesian firms. Research findings: The results of this study revealed that managerial ability significantly and positively affected the level of segment disclosure. Higher-ability managers also tended to disclose their segment information more extensively.Theoretical contribution/Originality: This study contributes to the managerial ability literature and the disclosure literature (specifically for segment disclosure). This study is also the first to provide empirical evidence about the effect of managerial ability on the level of segment disclosure.Practitioner/Policy implication: This study results can be used by the Financial Accounting Standards Board of the Institute of Indonesia Chartered Accountants regarding the effectiveness of management approach implementation in Indonesia. Furthermore, the result of this study suggests that managers need to improve their capabilities to accommodate a dynamic business environment.Research limitation/Implication: This study used content analysis to measure segment disclosure, including subjectivity. Nevertheless, this study only investigated manufacturing firms. Further research may expand the industry sample to get a better understanding.

Foreign direct investment and labor demand by skill in Indonesian manufacturing firms

A recent debate on globalization addresses the importance of skills for firms’ performance in developing countries. Employing microdata from Indonesian manufacturing, we examine the externality effects of inward foreign direct investment (FDI) on labor demand by skill in local firms and identify the relative contribution of each effect to their skill structure. The results show that local firms replace unskilled workers with skilled ones to enable transactions with foreign firms in downstream industries. However, severe labor market competition for skilled workers with foreign firms hinders them from upgrading the skill structure. Moreover, severe product market competition decreases demand for unskilled workers in local firms. Thus, an adequate supply of skilled workers is crucial for the better performance of local firms. The results also highlight the necessity of policies to mitigate the negative impact of inward FDI on unskilled employment in the host economy.

Study of CoVD19 Pandemic, Financial Ratios, and Macroeconomic Impact on Financial Distress in Indonesian Manufacturing Firms Traded on the Indonesian Stock Exchange

The study examined CoV19, financial distress, and other macroeconomic and financial ratios to draw their conclusions. Profitability, liquidity, and leverage were used for financial measures, while inflation and currency exchange rates stood in for macroeconomic indicators. Companies in a financial crisis have lost money for two years, have negative equity, or have a debt-to-asset ratio of more than one. Included in this sample are all 186 manufacturing firms trading on the Indonesia Stock Exchange between 2017 and 2020. From 2017 to 2020, 482 businesses were observed during course time, and the sample was chosen randomly. Logit regression was used to analyze the data. No correlation was found between financial distress and variables like the COVID-19 epidemic, inflation, or currency exchange rates. profitability has a detrimental impact on distress. However, both liquidity and leverage can alleviate distress. Findings are consistent across all segments of the industrial industry. This research shows that financial distress are caused less by general economic conditions and the covid 19 epidemics than by profitability, liquidity, and debt issues.

The role of technology capability in supporting firm performance in the high-tech manufacturing industry

Background: Technology has influenced many aspects of life, particularly in the digital era of today. Companies that are closely related to technology are also challenged to keep innovating to stay competitive in the market, especially the higher their technology intensity their products and services are related. This study focuses on examining the technology capability of high-tech manufacturing firms in Indonesia. According to the International Standard Industrial Classification, high-tech manufacturing firms are firms that manufacture computer, electronic, and optical products. The aim of this study is to identify the role of technology capability that influences a firm’s performance and identify whether the value chain mediates the relationship between technology capability to firm performance. Methods: The method used in this study is descriptive quantitative analysis, using multi-linear regression and path analysis to test the hypothesis. The data used in this study is secondary data that came from Badan Pusat Statistik (BPS), Indonesia's official statistics agency. The survey data used in this study comes from Indonesia's annual survey of manufacturing firms in 2017. Result: Technology capability and value chain have significant effects on firm performance. Nonetheless, the value chain as an intervening variable has no significant effect on firm performance. In other words, with or without technology utilization of the value chain, both produce similar results. Conclusion: Firms in the high-tech manufacturing industry are expected to have sufficient knowledge and capability in utilizing their technology resources to ensure the firm's long-term viability and to enable them to continuously create innovations, which leads to improved firm performance and thus to their competitive market survival. By identifying the effect of the value chain as an intervening variable and identifying the difference between direct and indirect effects, this study also adds to previous research on the effects of technology capability and value chain on firm performance.

A mixed-method study on the barriers of industry 4.0 adoption in the Indonesian SMEs manufacturing supply chains

PurposeThis paper aims to investigate the adoption barriers of Industry 4.0 in the Indonesian manufacturing supply chains.Design/methodology/approachThe mixed method was deployed to validate the findings. First, the qualitative study was conducted based on the interviews. Then, the companies were approached using filter questions on the involvement in adopting industry 4.0 and its impact on the supply chain.FindingsBased on the qualitative study, nine main barriers were found in the thematic analysis. Thus, to get a consensus on the barriers in the industry, the barrier indicators were tested using a structural equation model retrieved from 173 small and medium Indonesian manufacturing firms. Results indicate that five main barriers (e.g. unclear Industry 4.0 policy, higher-risk investment, insecure data sharing, lack of expertise and lack of incentive) are confirmed as the adoption barriers.Practical implicationsThe successful adoption of supply chain integration with Industry 4.0 technology can strengthen the manufacturing sector and competitiveness. Therefore, this study can be a complimentary assessment to evaluate the Indonesia Industry 4.0 Readiness Index (INDI 4.0) and the effectiveness of the government support program.Originality/valueThe results can be used as the framework to foresee the successful implementation of smart manufacturing supply chain management and its integration. Therefore, the authors proposed the framework to foresee the successful implementation of smart manufacturing, supply chain management and integration.

FOREIGN DIRECT INVESTMENT AND WAGE SPILLOVERS IN THE INDONESIAN MANUFACTURING INDUSTRY

We examine whether foreign direct investment (FDI) influences wage spillover in the manufacturing sector in Indonesia from the perspective of three recipients (dimensions): industry, province, and technology intensity. Annual data of Indonesian manufacturing firms from 2011 to 2015 is employed. Using the Fixed Effect Model, we found the spatial (province) dimension to matter the most as it consistently indicates that inward FDI depresses wages in the recipient province. When we split the observation based on firm size, FDI inflows within the same technological intensive subsectors were found to discourage wages. Only FDI inflows within the host industries support higher salaries for smaller domestic firms. The coordination between central and local governments remains essential to ensure that local companies are sufficiently competitive with foreign companies.

Foreign investment regulation and firm productivity: Granular evidence from Indonesia

When regulating foreign direct investment (FDI), countries often face a trade-off between pursuing national policy interests and suffering efficiency losses due to FDI restrictions. We demonstrate the presence of this trade-off in the case of a protectionist FDI policy in Indonesia. Using a yearly census of Indonesian manufacturing firms from 2000 to 2015, we link product-level changes in binding FDI regulation due to major regulatory tightening to changes in firm-level productivity. Controlling for an extensive set of fixed effects as well as potential political economy drivers of regulation, we show that a tightening of the regulatory environment was successful in reducing foreign capital reliance among regulated firms, and led to increases in FDI among non-regulated firms producing the same product. Despite compensating increases in domestic capital, regulated firms experienced relative productivity losses. This points towards either a less efficient allocation of domestic capital or a general inferiority of domestic capital as compared to foreign investments.

Does foreign ownership structure increase Indonesian firms’ risk-taking?

This research seeks to investigate the effect of foreign ownership structure on the level of listed Indonesian manufacturing firms’ risk-taking behavior. We predict that foreign owners prefer high-risk investment projects because they aim for short-term profits, and we use earnings volatility as the proxy of risk-taking behavior. This study uses unbalanced panel data from listed Indonesian manufacturing firms from 2014- 2017, resulting in 438 firm-year observations. The research results show that foreign ownership structure has a significantly positive impact on firms’ risk-taking behavior. Furthermore, the robustness test indicates that only firms with 80-90 percent of foreign ownership exhibit a significantly positive effect of foreign ownership on firms’ risk-taking behavior. Thus, foreign shareholders can affect firms’ risk-taking behavior more effectively when they have (almost) full control.

The Generalized System of Preferences and Ngo Activism

Can preferential market access help to enforce Labor Laws in beneficiary countries? The US Generalized System of Preferences (GSP) is accorded conditional on compliance with labor rights and leaves room for petitioning and revising the scheme upon request by interest groups. Using data from Indonesian Manufacturing firms, we show that GSP renegotiation combined with the activism of workers' rights groups helped increase firm-level average wages up to the minimum-wage level, not only inside but also outside the export sector. GSP leverage allowed labor NGOs to act more effectively by putting the violation of national Labor Laws under the international spotlight.

Dynamic Capital Structure and Its Speed of Adjustment: a Case of Listed Manufacturing Firms in Indonesia

This study aims to examine the dynamic aspects in the capital structure decisions of manufacturing firms in Indonesia, offering a continuation to the existing literature on Indonesia by using a dynamic model, including the existence of optimal capital structure, the determining factors, the speed of adjustments, and the aiding theories to explain the findings. The findings show that Indonesian manufacturing firms do practice optimal capital structure and are altered by firm-specific and time-varying factors. Despite relatively recent data and more specific sample firms (one industry only), the results of this study still need to be further developed. The sample chosen focused on listed firms, hence the results may not be generalized to all Indonesian manufacturing firms. This research is expected to have profound implications for future studies of capital structure and might one day be able to help firms, investors, and authorities in making effective decisions, as well as analysts in observing the correlation between the capital structure theories and the financing practice of manufacturing firms in Indonesia.

Location, Working Capital, Corporate Governance, and Profitability: The Case of Indonesian Manufacturing Firms

This study scrutinizes the effect of location, working capital and corporate governance toward return on assets (ROA) in Indonesian manufacturing firms. 61 manufacturing firms listed on the Indonesia Stock Exchange were taken as samples in this study. The results show that location does not affect manufacturing firms’ profitability. Furthermore, this study proves that working capital management, as measured by current ratio (CR) and quick ratio (QR), has a positive and significant influence on return on assets (ROA), but cash ratio (CR) and the cash conversion cycle does not have a significant influence on return on assets (ROA). This study also found that the Good Corporate Governance Index (GCGI) has a positive and significant influence on return on assets (ROA) in Indonesian manufacturing firms.

Exploring the Relationship between Formal Management Control Systems, Organisational Performance and Innovation: The Role of Leadership Characteristics

Manuscript type: Research paper Research aims: This study aims to examine the relationship between the formal management control system (MCS) on organisational performance and innovation. It also evaluates the role of leadership characteristics as the moderating variable between MCS and innovation. Design/Methodology/Approach: This study employs a survey questionnaire, and data collected from business units of Indonesian manufacturing and services firms. The warp partial least squares structural equation modeling (PLS-SEM) approach was employed to analyse the data and test the proposed model. Research findings: The findings demonstrate that: (1) A welldesigned formal MCS can improve organisational performance and innovation; (2) managers with good characteristics such as showing good behaviour through compliance with company rules, involving themselves in subordinates’ activities, and supporting subordinates’ ideas, can improve subordinates’ creativity in producing innovation. Theoretical contribution/Originality: This study expands the existing literature by examining the role of leadership characteristics as a moderating variable between the formal management control system (MCS) and innovation. Practitioner/Policy implications: The findings of this study demonstrate that, for Indonesian firms to compete in globally-competitive markets, they need to implement well-designed formal MCS. For formal MCS to contribute to innovation, managers who demonstrate good leadership characteristics are crucial. Research limitation/Implications: Future research can investigate comparative analyses of different ASEAN countries since different Asian countries have different dominant cultures and values, which may have some impact on MCS, organisational performance and innovation. It may also consider how different types of MCS improve organisational performance and innovation performance.

The effects of wage spillover from foreign firms on total factor productivity: do job characteristics matter?

This study investigates whether an increase in wages of foreign firms generates the total factor of productivity (TFP) growth of Indonesian manufacturing firms by considering different job characteristics and geographical boundaries. Using system GMM, the result shows that on average the wage spillover in production jobs within an industry positively affects the TFP, while the wage spillover in non-production jobs contributes negatively. Moreover, the wage spillover in production jobs and non-production jobs within a province do not affect the TFP of Indonesian manufacturing firms. These results indicate that employees in production jobs have larger contributions to increasing TFP than those in non-production jobs when foreign firms increase their wages. Such contributions occur within an industry, not within a province. For the Government, the different contributions to the TFP of firms from wage spillovers in production and non-production jobs indicate the importance of skill mobility to the national economy.

Determination Causes of Tax Avoidance on Indonesian Manufacturing Firms with Capital Intensity as Intervening Variables

The aim of this study is to examine and analyze the effect of the independent variables, namely return on assets (ROA), debt to assets ratio (DAR), company size, and capital intensity on the dependent variable in the form of tax avoidance. The population in this study was manufacturing companies listed on the Indonesia Stock Exchange for the period 2016 - 2019. By using purposive sampling technique, data analytical technique used is descriptive statistic, classic assumption test and hypothesis testing in the form of SmartPLS analysis. The test results show that the variables return on assets (ROA), debt to assets ratio (DAR), company size, and capital intensity affect the tax avoidance. Capital intensity can mediate the relation for variable return on assets (ROA), debt to assets ratio (DAR), company size to tax avoidance.