Technical, Marketing and Financial Support for Indonesia’s Small and Medium Industrial Exporters

Abstract

The goals of this chapter are three-fold. One is to highlight the role and potential of a crucial class of economic actors in Indonesia — dynamic small and medium enterprises (SMEs). Both in its industrial structure and its policy orientation, Indonesian industry has been characterized by a “missing middle”; employment and output are concentrated in large firms and micro-enterprises, with SMEs making only a modest contribution. Special incentives, opportunities and subsidies provided to large business groups and to large-scale public industrial enterprises have had something of a parallel in a long series of programmatic and regulatory interventions in support of microenterprises. But dynamic and independent SMEs lack the political influence to enjoy the benefits of special incentives, and are too large for the assistance to microenterprises to be of much value. (Indeed, as will be seen, most dynamic SMEs do not emerge by graduating from the ranks of microenterprises). Yet the benefits to Indonesia of a broad base of dynamic, independent entrepreneurs would be substantial — especially if pribumis comprised a significant share of these entrepreneurs. A dynamic middle range of entrepreneurship would help build a strong middle class that could increasingly immunize the society from the twin perils of rent-seeking by an unaccountable elite, and ethnic resentment leading to the implosion of a private-sector led development strategy in which non-pribumi are perceived to be the main beneficiaries.