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Development of Rural Manufacturing SME Clusters in a Developing Country: The Indonesian Case

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  • Tambunan, Tulus

Abstract

Development of manufacturing small and medium enterprises (SMEs) is a key engine to promote development of rural economy in developing countries. A common industrial organization among manufacturing SMEs, especially in rural areas, in Indonesia as in many other developing countries is clustering, where firms producing similar products concentrate in a certain area. This has led the Indonesian government to adopt a clustering approach as an important element in its rural development strategy to promote the development of rural industry, which consists mainly of SMEs. The main aim of this study is to identify critical success factors of development of rural manufacturing SME clusters in Indonesia. From a number of cases, it reveals that direct government supports are not the main successful factor, or the role is minimal. Instead, the most critical ones are strong inter-firms linkages in clusters and external networks between the clusters and institutions outside the clusters, especially large enterprises (LEs), through subcontracting and traders/trading companies in urban areas. Through such external linkages, firms in clusters secure their access to a wider market.

Suggested Citation

  • Tambunan, Tulus, 2008. "Development of Rural Manufacturing SME Clusters in a Developing Country: The Indonesian Case," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 31(2), pages 1-24, May.
    • Handle: RePEc:ags:jordng:45678
    DOI: 10.22004/ag.econ.45678
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    References listed on IDEAS

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    1. Albert Berry & Edgard Rodriguez & Henry Sandee, 2001. "Small And Medium Enterprise Dynamics In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 363-384.
    2. Yuri Sato, 2000. "Linkage Formation by Small Firms: The Case of A Rural Cluster in Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(1), pages 137-166.
    3. Schmitz, Hubert & Musyck, Bernard, 1994. "Industrial districts in Europe: Policy lessons for developing countries?," World Development, Elsevier, vol. 22(6), pages 889-910, June.
    4. 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. Sara Foghani & Batiah Mahadi & Rosmini Omar, 2017. "Promoting Clusters and Networks for Small and Medium Enterprises to Economic Development in the Globalization Era," SAGE Open, , vol. 7(1), pages 21582440176, March.
    2. Tambunan, Tulus, 2015. "Financial Inclusion, Financial Education, and Financial Regulation: A Story from Indonesia," ADBI Working Papers 535, Asian Development Bank Institute.

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