Changing structure and competition in the kretek cigarette industry

Abstract

Kretekproduction has developed from a traditional industry into an important manufacturing sector in terms of value added, employment and government revenue. Kretek firms have outcompeted the large foreign 'white' cigarette companies. Originating in the late 19th century, the industrygrew only after World War II. Production rose from 20 billion cigarettes in 1961 to 140 billion in 1993, and employment from 65,500 workers in 1929 to 137,600 in 1993. This success was confined mainly to the four largest firms; the number of kretek firms has shrunk from 1,200 in the 1950s to 141 in 1993. The industry is highly concentrated in Central and East Java, but consumption is widespread throughout the archipelago. Government intervention is high, in employment, taxation, pricing and investment policy, in promotion of small-scale firms and through the clove marketing monopoly. Promotion of small-scale enterprises has been unsuccessful in this industry.