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Clustering Of Small Agro-Processing Firms In Indonesia


  • Burger, Kees
  • Kameo, Daniel
  • Sandee, Henry


Small-scale industries in Indonesia provide more than 65% of total manufacturing employment. Sixty-three percent of small-scale firm employment is in firms that are clustered. A cluster is defined statistically in Indonesia as at least 20 firms in a village. For some agro-processing industries, such as bamboo plaiting, clustering does not involve interaction among firms; for others, notably the furniture industry, clustering firms make joint marketing efforts, subcontract each other, and share large orders. This article uses two recent case studies in the agro-processing sector – the furniture and the palm sugar industries – in Central Java. We argue that the target market of the industry (local or international) influences the nature of the contracts and other forms of interaction in the clusters. Targeting an international market requires formal contracts, more focus on marketing, and separate roles for finishing firms and subcontracting firms. Policy should be directed at enabling clusters to shift to the international market by improving contract enforcement regulations, vocational training, and providing opportunities for group lending.

Suggested Citation

  • Burger, Kees & Kameo, Daniel & Sandee, Henry, 1999. "Clustering Of Small Agro-Processing Firms In Indonesia," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IFAMA), vol. 2(03/04).
  • Handle: RePEc:ags:ifaamr:34229

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    References listed on IDEAS

    1. Schmitz, Hubert & Nadvi, Khalid, 1999. "Clustering and Industrialization: Introduction," World Development, Elsevier, vol. 27(9), pages 1503-1514, September.
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    Cited by:

    1. Stamoulis, Kostas G. & Pingali, Prabhu L. & Reardon, Thomas, 2006. "Impacts of Agrifood Market Transformation during Globalization on the Poor's Rural Nonfarm Employment: Lessons for Rural Business Development Programs," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25556, International Association of Agricultural Economists.
    2. Stein Kristiansen, 2003. "Linkages and Rural Non-Farm Employment Creation: Changing Challenges and Policies in Indonesia," Working Papers 03-22, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).

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    Agribusiness; Industrial Organization;


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