Policy Approaches and Support Mechanisms to Promote Innovation in SMEs in Indonesia: A Case of Iptek

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Policy Approaches and Support Mechanisms to
Promote Innovation in SMEs in Indonesia A Case
of Iptekda

• Manaek Simamora and Syahrul Aiman
• Center for Innovation
• Indonesian Institute of Sciences-LIPI
• Jl. Jend. Gatot Subroto Kav. 10, Jakarta 12710,
  INDONESIA
• Telp. (62-21) 5276023 Fax [phone]
• manaek_at_inovasi.lipi.go.id, manaek_at_yahoo.com
  syahrul_at_inovasi.lipi.go.id

National Workshop on Sub-national Innovation
Systems and Technology Capacity Building Policies
to Enhance Competitiveness of SMEs, 27 30
October 2006, Beijing, China
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Outline

• Policies aimed at strengthening innovation
  capacity of national industry
• Mid-Term National Development Plan 2005-2015
  (RPJM) on ST
• Incentive Programs supporting promotion of
  innovation before and after 2005
• Promotion of innovation to SMEs Case of Iptekda
  Program
• Conclusion

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On National Innovation System of Indonesia-1

• Studies on national innovation system of
  Indonesia conclude that there is a weak linkage
  amongst the element of national innovation
  system. Factors contribute to this condition,
  among other
• absence of a national innovation
  policyfragmented and sector-based policies and
• institution responsible to lead the process of
  its development and its implementation has not
  been clear (Aiman and Simamora, 2004 and
  Aminullah, 2006).

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On National Innovation System of Indonesia-Cont.

• In the last few three years there has been an
  increasing attention and efforts to accelerate
  the development national innovation policy and
  its implementation.
• The national innovation system of Indonesia has
  become one of national development agenda
  (Short-Term and Long-Term National Development
  Plan)

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Policy Directions of ST in Mid-Term National
Devt Plan, 2005 - 2011

• Enhance the focus and ST capacity of RD
  institution,
• Accelerate diffusion and utilization process of
  ST results,
• Strengthen ST institutional aspects, and
• Create conducive climate for innovation in the
  forms of appropriate incentives schemes in
  attempts to strengthen industry competitiveness

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Program on Diffusion and Utilization of ST -1

• Aimed at supporting dissemination process of RD
  results and its utilization by business
  community, industry, and society. Main activities
  to be supported in this program include
• Dissemination of RD result to business
  community, industry, and society through
  provision of information on ST and
  commercialization of technology
• Provision of consultancy services and technical
  assistance through development of liaison officer
  to assist provide technological solution needed
  by industry and local government.
• Development of communication system,
  coordination, and partnership schemes amongst ST
  institution (in RD institution, universities,
  industry, and supporting institution) both in
  Indonesia and overseas.

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Program on Diffusion and Utilization of ST
Cont.

• Enhancement of local government participation and
  development ST partnership schemes between
  central and local government, and amongst local
  governments themselves.
• Development of infrastructure in supporting
  implementation of standard and conformance
  assessment of product quality of businesses.
• Recognition and appropriate appreciation of
  society participation in the promotion of ST
  through development of techno-education,
  techno-exhibition, techno-entertainment, and
  technopreneurship as well as development of
  innovation and ST creativity of society.
• Development and utilization of ST traditional
  knowledge-based and other local resources

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Strengthening of ST Institution-1

• Aimed at enhancing capacity and capability of ST
  institution to support national economy growth.
  Main activities to be supported in this program
  include
• Development of science centers and actualization
  of incubator role and technical implementation
  units in intermediary function
• Optimalization of Local Research Council (DRD) in
  determining specific priority local product and
  formulation of development of ST based on local
  content
• Development and implementation of supervision of
  research activities, development and application
  of high risk technology, law enforcement,
  prevention and alertness on nuclear

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Strengthening of ST Institution-Cont.

• Enhancement of integrated ST management system,
  include regulation improvement that supporting
  RD result commercialization, intellectual
  property management, quality standard, safety,
  and environment
• Improvement of incentive system and ST funding
  scheme
• Enhancement of involvement of scientific
  profession organization involvement, universities
  and society in strengthening ethical foundation
  in ST policy formulation
• Provision of national ST indicator and
  statistics
• Improvement of quality and quantity as well as
  optimalization and mobilization of ST human
  resources through national and international
  collaboration.

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Program on Enhancement of ST Capacity and
Production System-1

• Aimed at supporting technological capacity
  improvement and production system of businesses,
  raise synergy amongst various elements of
  innovation system. Activities to be focused in
  this program include
• Acceleration of transformation process of
  local-based and high-tech industry
• Development of supporting regulation
  infrastructure and conducive policy in the form
  of tax incentives, technology insurance for SMEs
  and Cooperatives
• Development of financial institution venture
  capital and start-up capital, provision of
  compatible research contracts

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Program on Enhancement of ST Capacity and
Production System-Cont

• Technopreneur development, such as through
  development of new venture based on research
  results through technology incubator
• Promotion and implementation of technology
  audit/assessment
• Enhancement the role of metrology and testing
  personnel in formulating development of
  Indonesian National Standard (SNI)
• Capacity enhancement of technology-based SMIs
  (small and medium industry) and cooperatives
  through utilization of technology information
  system and technical assistance, training,
  encourage partnerships with large industry, and
  develop various incentive schemes.

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Focus of ST Programs

• Food security
• New and renewable energy sources
• Transportation technology and management
• Information technology and communication (ITC)
• Defense technology and
• Medicine and health technology.
• ? White paper for each area

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White Papers for the Six Areas/Priorities

• Elaborate specific quantitative target for each
  priorities for short-term (2005-2010), mid-term
  (2011-2015), and long-term (2016-2025).
• Elaborates expected role of the government
  (including RD institutes and universities) and
  that of industry in the roadmap.
• Somehow, the document has yet to indicate the
  necessary public fund or the size of investment
  that needed to achieve the target

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GERD, 1994 - 2004
Given the limited RD investment by the Gov.
(est. 70 of the total), there is an urgent need
to focus that investment on a very focus areasix
areas too many
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GERD, 1994 - 2004
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White Paper and Linkages of National Innovation
System Elements

• There is a need to make a specific commitment
  reflected in the form of resource allocation for
  each of the six priority areas so as to attract
  or stimulate all elements of the national
  innovation system to direct their efforts to
  strengthen national innovation capacity in those
  priority areas

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Incentive Programs to Promote Innovation before
2005

• Partnership Competitive Research Grant (RUK),
• Catalyst Program,
• Start Up Capital Program (SUCP),
• ST Fund for Region (Iptekda)
• Incentive system for strengthening management and
  technology of MSMEs (Siptekman
• Optimalization of Regional ST (PRIDA), and
• Establishment of Intellectual Property Offices
  (Sentra HaKI) in RD institutes and universities
• Some of these program had been in existence for
  more than ten years.
• The existence of these program indicate a strong
  commitment from the government to build
  innovation capacity.

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Incentive Program and Promotion of Innovation
2005

• In 2006, the Ministry of Science and Technology
  (MOST) launched five incentive programs to
  implement the policy direction.
• Objectives
• to accelerate technology and innovation growth
• to stimulate research to produce innovation with
  high commercial value
• to encourage acceleration and widespread
  utilization of innovative products, and/or
• to strengthen local industry competitiveness
  level.

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Incentive Program and Promotion of Innovation
2005Cont.

• Incentive for basic research
• Incentive for applied research,
• incentive for enhancement of ST capacity
  production system,
• Incentive for acceleration of diffusion and
  utilization of ST, and
• Incentive for National Strategic Priority
  Researches (RUSNAS).

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SMEs and Innovation Promotion Mechanism A case
of Iptekda Program

• In Indonesia, a tiny number of large firms tend
  to dominate the private sector at one extreme,
  with an abundance of informal micro- and small-
  businesses (99.9) at the other (IFC PENSA, 2006
  and Djamhari, 2005).
• On the other hand, in terms of the number of
  establishment, the Micro and Small segment are
  the largest in the structure as can be seen in
  Table 3.
• The private sector has few businesses in the
  middlethe formal, stable enterprises averaging
  20-100 employees (ADB study The middle missing)

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Innovation mechanism promotion through Iptekda
Program

• Since there seems to be difficult to make
  generalization of innovation mechanism from many
  SMEs policies and programs in Indonesia, the
  following case on promotion mechanism of
  innovation through Iptekda Program (ST support
  to SMEs in regions) might provide some useful
  lessons

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Iptekda In Brief

• Iptekda (ST for Region) is a program conducted
  by three RD Institutes in Indonesia, launched in
  1998
• Initial mission Social Safety Network to
  mitigate the impact of monetary crisis in
  1998/Krismon (then become economic crisis) for
  the poorbusiness feasibility not yet highly
  considered
• Since 200, technical and economic feasibility
  main criteria for those who want to participate
• Revolving fund scheme Iptekda assistance
  recipients obliged to repay the loan
• Transfer of Technology from RD Centers (later
  since 2000) and faculty (Universities) to SMEs
  (recipient) one of the key criteria of the
  program

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Iptekda Progress

• Average survival rate of the business assisted
  through this program is quite high, that is,
  60.3) (excluded data 2004).
• One of the factors contributes to this condition
  is close technical supervision by
  researchers/experts from RD institutes and
  faculties.
• At the first three to five to six years, the type
  of activities as mainly in the resources-based
  sector such as agriculture, aquaculture, food and
  feed, and handicraft. Later on, the programs
  include other more advanced sector such as
  electric car (transportation), magnetic-based
  instruments, defense, and ITC.
• )This only applies to selected respondents, not
  representing all MSMEs involved in the program.

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Example of Technology Transfer through Iptekda
Program

• ELECTRIC FUEL TREATMENT (EFT)
• Energy saver and power booster
• Commercial scale
• Patent filed and trade mark certified
• Electric Car (Gold Car)
• Pilot scale
• Patent files, Industry design granted, Trade Mark
  certified

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Iptekda Program and Promotion of Innovation

• The above review suggests that Iptekda program
  has become on of an effective mechanism to
  promote innovation and technology result to MSMEs
  in many provinces in Indonesia. Some key success
  factors for this results
• availability of technology/technical
  solution/experts related to local
  condition/problems (introduction of appropriate
  technology)
• to some extent, proximity of the executing unit
  (universities) to MSMEsthis create close
  interaction with the SMEs. Technology transfer
  very often take place on a tacit-to-tacit
  process-based/people to people.
• Consistent fund allocation over timelearning
  curve, provide accumulation of capacity so there
  is a chance to make improvement.

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CONCLUSION-1

• Indonesia has launched many policies and programs
  in attempts to enhance national innovation
  capacity of the industry
• There has been many programs on empowering SMEs
  in Indonesia since 1980s coordinated by different
  department and institutions. Many of the SMEs
  policies and programs still need to be more
  connected to overall private sector economic
  policies
• LIPIs Iptekda program (Revolving Fund
  Management-RFM managed by LIPI) deliver an impact
  to quite a number of Micro and Small Enterprises
  (MSEs) in Indonesia. Some key success factors of
  the program reconfirm the importance of close
  interaction amongst the elements of the system.

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Conclusion-Cont.

• There is a need to review the management of the
  RFM to allow the investment to be managed in a
  more businesslike manner so as to enable
  accumulation resources and make possible a self
  funding scheme of the program in the future.
• The proposed simplified model of the RFM would
  allow to better manage the fund and treat it as
  integrated part of the corporate business.
• Policy Implication the government need to
  consider and introduction of Innovation Fund to
  ensure promotion of innovation to industry
  (including SMEs sector).

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Thank YouXiexieTerima Kasih