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Linkage Formation by Small Firms: The Case of A Rural Cluster in Indonesia

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  • Yuri Sato

Abstract

This paper analyses forward linkages formed by small firms in Ceper, a rural metal-casting cluster in Central Java, and examines the effects of these linkages in promoting the firms' development. Firms in the cluster have developed subcontracting linkages with assemblers in the urban modern sector, and putting-out linkages with wholesalers located in the cities. The linkages provide benefits beyond product sales: some firms are stimulated to improve technological capabilities through subcontracting linkages with assemblers; others are supported by trade credits embedded in linkages with wholesalers. In comparing these effects with external assistance, the firms rate technological help from private institutions with a business orientation more highly than that from assemblers, and support from wholesalers more highly than any other source of financial assistance. Government assistance receives a relatively low rating. There is little evidence of effects of clustering, partly because firms consider linkages with the outer economy more strategic.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:bindes:v:36:y:2000:i:1:p:137-166
    DOI: 10.1080/00074910012331337813
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    References listed on IDEAS

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    1. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
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    3. Yujiro HAYAMI & Masao KIKUCHI & Esther B. MARCIANO, 1998. "Structure Of Rural-Based Industrialization: Metal Craft Manufacturing On The Outskirts Of Greater Manila, The Philippines," The Developing Economies, Institute of Developing Economies, vol. 36(2), pages 132-154, June.
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    Cited by:

    1. Theresia Gunawan & Jojo Jacob & Geert Duysters, 2016. "Network ties and entrepreneurial orientation: Innovative performance of SMEs in a developing country," International Entrepreneurship and Management Journal, Springer, vol. 12(2), pages 575-599, June.
    2. 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.
    3. Jianqing Ruan & Xiaobo Zhang, 2009. "Finance and Cluster-Based Industrial Development in China," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 143-164, October.
    4. 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).
    5. Andreas Rauch & Robert van Doorn & Willem Hulsink, 2014. "A Qualitative Approach to Evidence–Based Entrepreneurship: Theoretical Considerations and an Example Involving Business Clusters," Entrepreneurship Theory and Practice, , vol. 38(2), pages 333-368, March.
    6. Masoumeh Ghorbani & Thomas Brenner, 2021. "Prerequisites and initial developments for economic specialization in lagging regions—A study of specialized villages in Iran," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 41(2), pages 229-268, October.
    7. Hayashi, Mitsuhiro, 2002. "The role of subcontracting in SME development in Indonesia:: Micro-level evidence from the metalworking and machinery industry," Journal of Asian Economics, Elsevier, vol. 13(1), pages 1-26.
    8. 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.
    9. Tambunan, Tulus, . "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.
    10. Hill, Hal, 2001. "Technology and Innovation in Developing East Asia: An interpretive Survey," Departmental Working Papers 2001-11, The Australian National University, Arndt-Corden Department of Economics.
    11. Tulus Tambunnan, 2007. "Trade and Investment Liberalization Effects on SME Development: A Literature Review and a Case Study of Indonesia," Working Papers 4207, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..

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