1 1

A CONTRIBUTION TO THE STUDY OF ENTREPRENEURSHIP

DEVELOPMENT IN INDONESIA

Philippe LASSERRE Associate Professor

April 1979

I

II

INTRODUCTION

PURPOSE OF

TABLE OF CONTENTS

Page

1

3 THE STUDY, DEFINITION AND LIMITS

II.1 PURPOSE 3

11.2 DEFINITION 3

11.3 LIMITS 4

III METHODOLOGY 6

III.1 DEFINITION OF A FRAMEWORK 6

111.2 DATA COLLECTION 10

IV FACTORS PERTAINING TO THE SOCIO-CULTURAL ENVIRONNENT 14

IV.1 COLONIAL DOMINATION 16

IV.2 THE JAVANESE SOCIAL AND CULTURAL SYSTEM 17

2.1 THE SOCIAL IMAGE OF BUSINESS ACTIVITIES 17

2.2 CONFORMITY OF BEHAVIOUR, DEPENDENCY AND LACK OF AMBITION 19

2.3 THE EXTENDED FAMILY 20

2.4 RISK TAKING, QUICK RETURNS AND THE PROPENSITY TO SAVE 21

IV.3 RELIGION 22

IV.4 CONCLUSIONS 23

V FACTORS PERTAINING TO THE ADMINISTRATIVE AND INSTITUTIONAL ENVIRONNENT 25

V.1 THE INSTITUTIONAL ENVIRONNENT: PUBLIC ORGANISATIONS 27

1.1 BRIEF HISTORICAL SETTING 27

1.2 THE MINISTRY OF INDUSTRY 28

1.3 THE MINISTRY OF TRADE 30

1.4 THE COOPERATIVE SYSTEM 31

(1)

Page

V.2 THE INSTITUTIONAL ENVIRONNENT: FINANCE 32

2.1 SMALL BUSINESS FINANCE 32

2.2 NEW PROJECT FINANCE 33

2.3 EVALUATION OF THE FINANCIAL SYSTEM 33

V.3 THE INSTITUTIONAL ENVIRONNENT: THE BUSINESS COMMUNITY 34

3.1 DIRECT EFFECTS 34

3.2 INDIRECT EFFECTS 34

V.4 A PARTICULAR PROBLEM: THE PRIBUMI/NON—PRIBUMI ISSUE 35

V.5 OTHER SOCIO—ADMINISTRATIVE ISSUES 38

V.6 CONCLUSIONS 40

VI FACTORS PERTAINING TO THE EDUCATIONAL ENVIRONNENT 42

VI.1 VARIOUS FORMS OF TRAINING IN "ENTREPRENEURSHIP" IN INDONESIA 42

1.1 THE SECONDARY LEVEL 44

1.2 THE UNIVERSITY LEVEL 44

1.3 THE PUBLIC SERVICE LEVEL 49

1.4 PRIVATE INSTITUTIONS 50

1.5 THE INSTITUTE FOR ENTREPRENEURSHIP 50

VI.2 COMMENTS AND SUGGESTIONS CONCERNING THE EDUCATIONAL ENVIRONNENT 51

VII CONCLUSIONS AND RECOMMENDATIONS 53

VII.1 STRATEGY FOR ENTREPRENEURSHIPS DEVELOPMENT IN INDONESIA 55

VII.2

VII.3

I. OBJECTIVES

2. DOMAINS

3. POLICIES & ACTIONS

ROLE OF KADIN

SPECIFIC ACTIONS

56

56

56

63

66

VIII GENERAL CONCLUSION 69

Bibliography 70

Appendix : Questionnaire 11--A during the survey 72

LIST OF FIGURES AND TABLES

FIGURES Page

FIGURE 1 A FRAMEWORK FOR ANALYSIS OF ENTREPRENEURSHIP 9

FIGURE 2 A SIMPLIFIED ORGANISATION CHART OF THE INDONESIAN ADMINISTRATION 41

FIGURE 3 A SIMPLIFIED CHART OF THE EDUCATIONAL SYSTEM AND ITS RELATIONSHIP TO ENTREPRENEURSHIP 45

TABLES

TABLE I A CROSS TABULATION OF THE INVERVIEWS BY LOCATION, OCCUPATION OF THE RESPONDENTS, AND TYPE OF INTERVIEWS. 13

TABLE II A CROSS TABULATION OF ENTREPRENEURS VERSUS NON- ENTREPRENEURS BY RELIGION 24

TABLE III

TABLE IV

A DISTRIBUTION OF ANSWERS CONCERNING THE CONDUCIVE - NESS OF THE SOCIO -ADMINISTRATIVE ENVIRONNENT TO THE DEVELOPMENT OF ENTREPRENEURSHIP

A SUMMARY OF REASONS GIVEN TO EXPLAIN THE FAVOUR - ABLE POSITION OF THE NON PRIBUMI COMMUNITY IN INDONESIA

26

37

TABLE V A DISTRIBUTION OF ANSWERS CONCERNING EDUCATION AND ENTREPRENEURSHIP 43

TABLE VI DIFFERENCES IN OPINIONS BETWEEN SMEA_TEACHERS AND OTHER RESPONDENTS 46

TABLE VII SUGGESTIONS MADE IN THE QUESTIONNAIRE FOR INCREAS - ING THE NUMBER OF ENTREPRENEURS 54

INTRODUCTION

Each country in S.E. Asia is exploring ways of enhancing its entrepreneurial

capacity. Governments stress the importance of entrepreneurship, conferences

on the subject take place in the region, studies are carried out, organi-

sations propose courses to "create" or "develop" entrepreneurs. The

relationship between entrepreneurial capacity and national development is

well understood but an operational definition of "entrepreneurship develop-

ment" remains difficult, while a proposal for effective action is now overdue.

It is in this context that the Indonesian Chamber of Commerce and Industry

(KADIN), keenly avare of the issue - both of its particular significance in

the largest ASEAN country and of the need to identify systematically

(beyond mere symptoms) the root causes of the problems (before taking

action) decided to undertake a study of "entrepreneurship development" in

the country, solliciting a contribution from the French Government to facil-

itate its realisation. KADIN asked the European Institute of Business Admin-

istration (INSEAD) to carry out the study, thus giving expression to the

fruitful relationship developed between KADIN and INSEAD over the last

three years.

This report presents to KADIN the first results of the work undertaken in

the Spring of 1978. This study - supported by KADIN - has also been

greatly helped by the contribution of the French Ministry of Foreign Affairs,

through the French Embassy in Indonesia. We should like to thank

M. Jacques Migozzi, Scientific and Cultural Counsellor at the French Embassy,

for his assistance. M. Philippe AGID, General Secretary of the French

Foundation for Management Education (FNEGE) has constantly encouraged us to

develop our understanding of the Indonesian environnent in order to enrich

the quality of Franco-Indonesian cooperation in the management field, to

which (through the FNEGE) he has himself so significantly contributed over

the past 3 years.

Dr. Suparman SUMAHAMIJAYA, Chairman of the Institute for Entrepreneurship

Development and also Chairman of the KADIN Education Committee, must also be

mentioned here for the very fruitful intellectual exchanges he offered us

in the initial phase of our work. He made possible a good number of the

many contacts we have had with Indonesian entrepreneurs, chief executives,

and government officiais who kindly gave us their time and shared their

experiences with us.

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To ail those who directly or indirectly helped us in this study, I would

like to address my heartfelt thanks, in particular to Max Boisot who

helped me to finalize the report.

Finally, I wish to express my indebtedness to my colleague and friand,

Henri-claude de BETTIGNIES, Prof essor at INSEAD, and Director of the Euro-

Asia Centre. His commitment to the project and his experience of the

region have proved an invaluable guide on the long and difficult road that

one must travel to understanding the Indonesian entrepreneurship problem.

I hope our work, Ilthough modest in scope, avili prove to be a useful stimulus

both to reflexion and, subsequently, to action within Indonesia.

Philippe LASSERRE

Associate Prof essor

INSEAD

April 1979

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II

PURPOSE OF THE STUDY, DEFINITIONS AND LIMITS

II.1 PURPOSE

The purpose of the present study is to contribute to an identification and

analysis of various factors which have a bearing on the creation and devel-

opment of business enterprises in Indonesia. The focus of the study is on

"entrepreneurship" in that country.

11.2 DEFINITION

Many definitions of entrepreneurship have been proposed and discussed in

literature. Some of them put an emphasis on the innovative character of

entrepreneurial behaviour. Schumpeter (1) qualifies an Entrepreneur as

anyone who combines or transforms factors into products not inherited from

the past. In such an approach a study of entrepreneurship would ignore

the creation of new businesses which are imitations or adaptations of

activities carried out elsewhere. Yet it would include innovative activ-

ities carried out in large firms or administrations. Other studies have

stressed the creative character of the entrepreneur who develops an activ-

ity where none existed before (2). This second approach fits our purpose

better since it puts no contraints on the innovative character of the

"new" activity and focuses only on the imitation of this "new" activity.

But another criterion, concerned with the maintenance of a new activity

after it has been started - must be admitted into any definition of entre-

preneurship. This allows a distinction between an "adventurer", who starts

things regardless of the future, and an entrepreneur, who is concerned with

the survival of his venture. This distinction has been proposed by Cole (3)

and adopted by Derossi (4) in her studies of the Mexican Entrepreneur.

The present study will thus not consider entrepreneurship as the simple

creation of a new venture but also look to its viability.

(1) Joseph A. Schumpeter, "The Theory of Economic Development" Harvard University Press, Cambridge, Massachusetts. 1934.

(2) Norman R. Smith, "The Entrepreneur and his Firm: the Relationship between Type of Man and Type of Company. Graduate School of Business Administration, Michigan State University, Division of Research, East Lansing, Michigan. 1967. P.2.

(3) Arthur Cole, "Entrepreneurship and Entrepreneurial History" in Change and the Entrepreneur, Harvard University Press, Cambridge, Massa-chusetts. 1949.

(4) Flavia Derossi, "The Mexican Entrepreneur", OECD, Development Centre,

Paris. 1970.

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No time span or size is specified beyond which a new venture would no

longer be considered entrepreneurial (5); current measuring techniques

do not allow it. The study will focus on business enterprises in

industry, commerce or services and will ignore the creation of new activ-

ities in government, education, art or science. Finally the concept of

entrepreneur adopted here will encompass not only individuel entrepreneurs

but also groups of individuals who together create and maintain a business

activity. We propose the following definition for our study :

Entrepreneurship describes both those activities of an individuel

or a group which result in the creation of a new business and its

subsequent management.

11.3 LIMITS

This study pretends to be neither exhaustive nor definitive. Such a claim

would be extravagant when one looks at Indonesia, a large country with many

sub-cultures, which in the past forty years has experienced colonial domi-

nation, foreign occupation, a war of independence and two national political

leaders. Indeed the methodology itself, which could only address a modest

portion of the data pertaining to such a vast subject, precludes exhaustiv-

ity. This study should only be seen as a modest contribution to a better

understanding of a large issue.

Again, the study makes no judgement on the various advantages and disadvant-

ages of private as against public entrepreneurship. This was not its

purpose. The fact that the Republic of Indonesia has chosen as a national

policy to foster private entrepreneurship is accepted, and is not further

discussed in the study. It is with the implementation of such a policy,

and specifically with the factors which foster or hinder entrepreneurship,

that the study is concerned.

(5) In the US and Europe several models of development of business enterprise are proposed to differentiate the entrepreneurial stage from the business stage by which a firm launched and managed according to an entrepreneu-rial structure is led to shift to a more professionally (ie more struct-ured and formalised) organisation, due to increase of size, scope and product market diversification. See: E. Tilton Penrose, "The Theory of the Growth of the Firm", Oxford,

1959; A. Chandler, "Strategy and Structure", MIT Press, Cambridge, 1961; B. Scott, "Stages of Corporate Development" Case clearing House, Harvard Business School, 1971; L. Greiner, "Evolution and Revolution as Organisations Grow", Harvard Business Review, July-August 1972; T. Weinshall, "Study of Organisational Size and Man-agerial Structure" in the Organisation of Management Research, D. Graves (Ed.) 2vier, Amsterdam, 1973.

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Finally, no precise weight is assigned to the factors analysed. The

methodology used is non parametric, i.e., it did not develop measurements

which could feed into a quantifiable model of social behaviour. In the

author's view such an attempt would be too ambitious, given the limited

research available to help identify and define the relevant variables,

to let alone to dimension and scale them. This study pretends only to

be one of a number of necessary exploratory works in this field.

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III

METHODOLOGY

The study proceeds along the following steps :

1) A definition of a framework for analysis,

2) An identification through interviews and a review of the available

literature of the relevant factors influencing entrepreneurship in

Indonesia,

3) A comparison of the effects of those factors on entrepreneurship as

predicted in the literature with those suggested by the data collect-

ed through interviews and questionnaires,

4) Conclusions and recommendations.

DEFINITION OF A FRAMEWORK FOR ANALYSIS

The basic underlying assumption adopted in the present study is that entre-

preneurship (ie the fact that an individual or a group take actions which

result in the creation and management of a new business venture) is a com-

bination of various factors, some of them related to the willingness, drive,

or motivation of the actor(s) to act, some of them to their ability to do

so, and some to the environmental conditions in which they operate.

These factors can be analysed in different ways, but experience suggests

that one's understanding entrepreneurial behaviour will not be much advanc-

ed without postulating some model of motivation and achievement. Such a

model has been proposed by V. Vroom (1) and has been found very useful for

the purpose of studying entrepreneurship.

According to Vroom, motivation to do something is a function of two elements:

a) the valence, that is to say the preference that an individual has for the outcome of an action, and

b) the expectation, that is to say the perceived probabilities that such an outcome can be realised. In more mundane terms, an indi-vidual will be motivated to act if he attaches some values to the results of his action and also if he perceives he has some chance of obtaining those results.

In addition, achievement, an action's obtcome, will be a function of the

individual's motivation and of his ability to perform this actio

(1) Victor Vroom, Work and Motivation, Wiley, 1964

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other words, one can be highly motivated to do something because one puts

a value on the action's outcome and perceives a certain chance of succeed-

ing; but one must also be able to achieve a certain level of performance

in order to secure the outcome.

Applied to our study, achievement may or may not follow when an individual

or a group of individuals take actions to create and manage a new business

venture (ie. entrepreneurship); Valence will develop around ail the

factors which place a value on becoming an entrepreneur. Expectation will

be conditioned by ail the elements which contribute to success or failure

in the creation and management of a new venture; f inally, ability will be

a function of everything that contributes to an individual's skills in

creating and running a business.

To start with, these three elements can be considered separately as if they

were independent of each other. One can plausibly suggest that a high value

is attached to becoming an entrepreneur, because it produces favourable out-

comes (prestige, wealth, power, etc.) but that the economic climate is

not conducive to starting a new business (lack of capital practice, etc.)

or one does not have the necessary skills to run a business. It could be

said however that these factors are not really independent : for instance,

the perceived chance of success can be affected by the value placed on an

outcome as well as the confidence that an individual has in his own abi-

ities. This will be further discussed after our preliminary analysis.

Thus, the analytical framework that we propose to apply to the Indonesian

context sees entrepreneurship as a combination of three sets of elements.

The first set includes the factors which give a positive (or negative)

value to the creation and managing of a new business; this may be called

the Value Set, and addresses mainly socio-cultural traits.

A second set comprises the factors which give the entrepreneur a positive

(or negative) expectation of success - i.e. Government support, business

practices, market structure, etc. This may be called the Contextual set,

and is concerned mainly with Administrative and Institutional aspects.

A third set consists of the factors which allow the entrepreneur to develop

his skills. It may be called the Educational set.

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a. Theya[,c Set

The factors most frequently quoted (2) as being conducive to entrepreneurial

drive are :

- need for achievement,

- need for power,

- need for independence (self-controlled work)

- need for novel activity (innovation)

- risk taking attitude (not too high but moderate)

- social status and prestige attached to the business profession,

- individualism,

- sense of anticipation.

These factors can be studied either at the individual level, ie by trying

to identify personality characteristics which can be correlated with entre-

preneurial behaviour, or at the socio-cultural level by identifying ele-

ments which are favourable or unfavourable to the development of entre-

preneurial behaviour. We have had to choose between these approaches in

order to keep the study manageable; we have chosen the second.

Here we shall look at the cultural, social, religious, and historical

features of the Indonesian environment that affect the above mentioned fac-

tors. We shall ask to what extent is Indonesian culture, its history and

social structure, conducive to entrepreneurship ? How much does it encourage

it ? Are achievement and power motives, independence, innovation, risk-

taking, individualism, foresight, naturally fostered in this environment ?

What status does the businessman enjoy in consequence ?

b. The Contextual Set

The factors that interest us here can be grouped in two classes :

1. the Institutional factors: political, governmental, administrative,

financial, and legel mechanisms designed to promote entrepreneurship

throughout the country.

2. "the cules of the game": any specific practice which may raise or lower

an individual's expectation of success in relation to his peers.

(2) David C McClelland, The Achieving Society, Irvington Publishing Inc, New York, 1976.

Orvis Collins, David K. Moore, Dails B. Unwaller, The Enterprising Man, Bureau of Business and Economic Research, Graduate School of Business Administration, Michigan State University, East Lansing, 1964.

M F R Kets de Vries, The Entrepreneurial Personality: A person at the Crossroads, The Jo"rnal of Management Studies, February 1977, P.34-52.

VALENCE EXPECTANCY ABILITY

VALUE SET CONTEXTUAL SET EDUCATIONAL SET

HISTORY

CULTURE

SOCIETY

RELIGION

with respect

to :

Achievement

Power

Independence

Innovatinn

Risk-t ak ing

Status

Individualiste

Sense of anticipat

INSTITUTIONAL

Government support

Banking & Financing

Legal aspects

professional organisations

Primary Schools

Secondary Schools

University

- undergraduate

- postgraduate

Training Programmes

RULES OF THE GAME

Actual practices -formai. and

informai

ion

To what extend are the values conducive to entrepreneurship ?,

To what extent is the Politico/ administrative/Banking context conducive to entrepreneurship ?

ENTREPRENEURSHIP

To what extent is the educational system conducive to entrepreneurJhip ?

Set of Actions taken by an individual or a group of individuals whose results are the creation of a new business activity and the management of these activities.

Figure 1

A FRAMEWORK FOR THE ANALYSIS OF ENTREPRENEURSHIP

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This section will attempt to describe and analyse the formai and

informai mechanisms designed to support the growth and maintenance

of entrepreneurship in Indonesia.

c. The Educational set

These factors cover educational and training at different institutional

levels primary and secondary schooling, university education, post

graduate training, on the job training, etc. We shall ask how far

educational and training programmes contribute to the development of

entrepreneurial skills?

As stated earlier, our framework will allow us to analyse separately the

three sets of factors just described and summarised in figure 1. Later,

we shall look for possible interdependencies between selected factors.

111.2 DATA COLLECTION

In order to identify, analyse, and discuss the factors associated with

entrepreneurship in Indonesia, we collected data through interviews

with several categories of people in different parts of the country. We

also administered a questionnaire to various individuals and groups,

which gave us a secondary source of information.

a. The interviews (see TABLE 1)

Interviews have been conducted in six cities located in the islands of

Java, South Sulavesi and Sumatra. Two types of interviews were carried out:

- 65 individual interviews. These were of government officiais, busi-

nessmen and entrepreneurs, academics and staff drawn from professional

organisations. If they were government officiais, or staffs from other

organisations, the respondents were first asked to describe how their

activities related to the development of entrepreneurship. If they were

themselves entrepreneurs, respondents were asked to retrace the history

of their business and to discuss différence problems encountered. Then

ail were asked to describe what in their view were the main factors

relevant to entrepreneurship in Indonesia. Finally they were asked to give

their opinion on what should be done to foster the development of entre-

preneurship in Indonesia.

group interviews of 125 Time limitations did not allows us to

meet a large number of people on an individual basis ; consequently

group meetings were organized in several cities. These are listed below:

City

Jakarta

Bandung

Yogyakarta

Ujung Pandang

Palembang

Medan

Croups

26 businessmen participating in a management meeting.

20 faculty members, students and businessmen at the University UNPAD.

9 members of HIPMI (Young Businessmen Associations).

6 businessmen.

30 businessmen, Government officiais and academics invited by KADIN.

85 businessmen, Government officials and academics invited by KADIN 6 planters.

During these meetings, our analytical framework was presented (3) to the

participants who were invited to comment on each of the factors proposed

and to add their own suggestions.

b. The Questionnaire

In order to complement and add to the interview data a questionnaire was

given to ail those interviewed and to other groups which the author could

reach. 179 answers were collected and analysed. It must be stressed that

questionnaire data should be considered as supplementary and not as the

main focus of subsequent data analysis. There has been no sampling or

testing of the instruments and no general inference can be drawn from

respondent data. The questionnaire, available in the English and Indonesian

languages (See Appendix), is divided into three parts :

1) The first consists of a list of 18 statements concerning factors from

the three sets defined in our analytical framework and on which res-

pondents were asked to give their opinion on a five point scale (from

strongly disagreeing to strongly agreeing).

(3) Except to the group of 21 businessmen in Jakarta

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2) The second is reserved for entrepreneurs and asks for data concerning

their business and their experiences in starting the business.

3) The third asks for individual data and some recommendations for the

development of entrepreneurs in Indonesia through an open question.

TABLE I

CROSS TABULATION OF THE INTERVIEWS BY LOCATION, OCCUPATION OF THE RESPONDENTS AND TYPE OF INTERVIEW

LOCATION

JAVA

GOVERNMENT OFFICIALS

BUSINESSMEN BANKERS

ACADEMICS LEADERS OR STAFF OF

PROFESSIONAL ASSOCIATIONS

TOTAL

IND GR IND GR IND GR IND GR IND GR

JAKARTA 10 - 2 26 4 - 1 - 17 26

BANDUNG - - 5 6 3 14 3 - 11 20

YOGYAKARTA 3 - 2 8 4 - 1 - 10 8

SELAWESI

UJUNG PANDANG - - 2 5 1 - - - 3 5

SUMATRA

PALEMBANG - 13 13x

- 10x

1 2 4 5 5 30

MEDAN 1 8 3 18 3 5 2 5 9 36

14 21 14 63 16 21 11 10 65 125

(.IND = Individual interviews, GR = Group interviews)

(.x Approximation)

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IV

FACTORS RELATED TO THE SOCIO-CULTURAL ENVIRONMENT

In the early 50's the Sukarno government developed a programme known as

the "Benteng programme" which aimed to encourage Indonesian entrepreneurs

by providing them with capital, credit, and special priviledges. The results

of this programme were very disappointing and drew the attention of officials

and academics to the socio cultural aspects of entrepreneurship development.

Several explanations have been offered, drawing on history, culture, religion,

and social structure as to explain why Indonesian society, particularly in

Java was not conducive to entrepreneurial behaviour. To cite one example,

Panglaykim and Palmer (1) in their study of the development of a sugar concern

started by an entrepreneur of Chinese origin in Semarang, state that the

"poor response to Benteng programmes has proven that entrepreneurial

conditioning is not yet strong among indigenous entrepreneurs".

Although the importance of socio-cultural factors is no longer questioned,

the available literature linking entrepreneurial behaviour to specific

Indonesian socio-cultural characteristics remains scarce and patchy. Piece-

meal information can be collected from books or articles but it is often

incidental to the main focus of the present study. The only specific attempt

made to relate socio-cultural aspects to entrepreneurial behaviour, is the

one by Arifin Siregar (2) who observes that entrepreneurs of Javanese origin

are underrepresented vis-à-vis entrepreneurs coming from the outer islands

(Bataks, Minangkasau, Palembang and Atjehnese of Sumatra, Menadonese of

Sulawesi and Dajak of Kalimantan) and entrepreneurs of Chinese origin. He

explains these différences in terms of particular dispositions of Javanese

society concerning Vocation Related values (a government or official position

is more prestigious and safer than a business one), a high propensity to

consume, Jack of dynamism, limited time horizons and the absence of a strong

need for achievement in the economic field.

(1) J. Panglaykim and I. Palmer, "Entrepreneur and Commercial Risk: The Case of a Schumpeterian Business in Indonesia". Institute of Business Studies, Nayang University, Singapore. 1970. P. 3.

(2) Arifin M. Siregar, "Indonesian Entrepreneurs". American Association for the Advancement of Science, 1967, pp. 343-358. Advancement of Science, 1967, pp. 343-358.

- 15 -

Colonial domination has also been a negative factor for the creation of

an indigenous class of entrepreneurs. As Burhamzah puts it "Indonesia

in her colonial days was an oppressed socio-economic structure subordinated

to the metropolitan country... she was in no position to foster any sub-

stantial social change and f ailed to adapt herself to incoming influences

in the positive sense". (3)

Other observers of Indonesia have raised certain issues which could be

indirectly relevant to entrepreneurship. The work of Geertz (4) and Mulder

(5) gives useful insights on the influence of religion and mystical belief

on behaviour and the late Martyn-Johns (6) has analysed the relationship

of social behaviour to business practice, management style, as well as the

role of the family in the business.

The interviews extended the list of socio cultural factors identified in

the published literature, which may have a bearing on entrepreneurial

behaviour. In brief the most relevant socio-cultural factors to our subject

which we shall discuss are the following:

- Colonial domination : the discouraging of indigenous entre-

preneurs and the maintenance of a state of dependent behaviour

- The Javanese cultural and political system:

. the suppression of individualism (the concept of the extended

family)

. the preference for conformity rather than achievement

. the prestige that attaches to military and official government

posts

. limited time-horizons and the search for quick returns

. a low propensity to save

. a negative attitude to risk-taking.

- Religion

(3) Dr. Burhamzah, A Survey on Economic Development in the outer provinces of Indonesia: A case of South Sulawesi. Institute of Developing Economics, Tokyo. 1971. pp. 16-17.

(4) Clifford Geertz, The Religion of Java. The University of Chicago Press, Chicago. 1960.

(5) Niels, Mulder, Mysticism and Everyday Life in Contemporary Java. Singapore University Press, Singapore. 1978.

(6) Tom Martyn Johns, Indonesia's Cultural Mix. Asian Business and Industry. June 1978.

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IV.I COLONIAL DOMINATION

Many of the interviewees have stressed the negative influence of the

Dutch colonial domination upon the entrepreneurial spirit. (7)

For example the "cultivation system" based on forced labour, while not

a new phenomenon in the history of some countries, has had a particularly

nef arious effect in Indonesia. It encouraged the development of big estates

which found outlets for their products on the world market without promoting

the development of local industries, as it did in Japan for instance.

Because of Indonesia's total subordination to foreign interests, the

"dynamic interactive" process through which an agricultural development

based on a system of compulsion supports the emergence of small scale

industries failed to emerge.

Also the Dutch discouraged the rise of local entrepreneurs, and even

destroyed existing minority entrepreneurs by setting up a "Plural society"

in which they created an immigrant Chinese middle class of traders and

entrepreneurs to serve as a buffer between a Dutch ruling class and native

Indonesians at the bottom.

It is clearly very difficult to evaluate the effects of such historical

developments on today's entrepreneur since the Dutch colonial system evolved

considerably in the early part of the XX century. Finally the country's

independence put power in the bands of Indonesians. A large majority of those

interviewed agreed that while such causes have disappeared, their effects

are still perceptible; colonialism has fostered passive attitudes, sapped

initiative, and created resentment among the indigenous population against

non-pribumi economic power.

(7) Much of the historical reference is drawn from Wilfred and Neill Twentieth Century Indonesia, Columbia University Press, New York, 1973.

Burhamzah, A Survey on Economic Development, op cit.

- 17 -

IV.2 THE JAVANESE SOCIAL SYSTEM

Four features of the Javanese social system have a special bearing on

entrepreneurship development:

- the social perception of industrial and commercial activities

compared with governmental oves

- conformity of behaviour

- the extended family

- attitudes to risk, savings and the time value of money

2.1 The social perception of business activities

Interviewees generally agree that traditional Javanese society attaches the

highest prestige to official government position. In his study of religion

in Modjokuto, Geertz (8) presents the following triangle as descriptive

of the ranking of different occupations in this small east Javanese town.

Government officiels

High clerks and administration and high teachers

Petty clerks and lower teachers

Traders, store-owners, land-owning peasants

Small craftsmen, petty traders, plantation workers

Landless agricultural workers, handymen, unemployment, beggars

Siregar (9) also singles out the low status of industrialists and traders.

(8) Clifford Geertz, The Religion of Java, op cit, p. 361.

(9) Arifin Siregar, Indonesian Entrepreneurs, op cit, p. 349.

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"Prior to World War II, vocation-related values were such that the

professions of trader or industrialist were generally considered to

be socially inferior" (10)

when compared to that of civil servant or government official.

"Government work was regarded as the profession for educated indi-

viduals who wanted to serve the interests of the people". (11).

In addition it offered a number of advantages :

... the virtual life-time contract enjoyed by most civil servants,

coupled with such social insurance as retirement benefits gave rase

to an element of security, which was highly valued by most Indone-

sians". (12)

This particular attitude is more prevalent among the Javanese.

"The bias against a business profession was strongest among Indo-

nesians of Javanese origin; this could be attributed largely to the

comparatively hierarchical structure of Javanese society... In

many parts of the outer islands, however, the degree of bias against

the profession of merchant or industrialist was less marked than in

Java". (13)

People interviewed also emphasised the prestige attached to official

government positions; children if given a choice are more likely to choose

a government post than any other. The following comments will illustrate

the point :

In Java, business is not viewed as something productive. (Gadja Mada)

When a company starts to be successful, then you tell yourself that something is wrong. (Gadja Mada).

There is no bright story of business success (Bandung).

ibid, P. 349.

ib id

ib id

ib id

- 19 -

In the questionnaire the following assertion was made for respondants

to agree or disagree with:

"In Javanese culture soldiers have more prestige than merchants".

55% of Respondants were in agreement with this statement.

16% neither agreed nor disagreed.

29% disagreed.

However there are signs that this attitude is changing. Siregar concludes

that the "bics against a business profession has been substantially reduc-

ed, whereas the status of civil servants or even cabinet ministers is no

longer what it used to be" (14). This is due to the fact that official

posts have not been always filled by people of high social status or high

technical ability. Also the civil service no longer offers the same

employment opportunities that it did after independence. Finally the media

(Press, magazines) are building up an increasingly favourable image for

the businessmen. The interviews with deans of schools of economics indic-

ated that Accounting and Business Administration departments had more

candidates than General Economics department. This obviously does not

mean that students are more disposed to work in the private sector or to

start their own business since the state-owned enterprises also recruit

graduates having a management education. But it clearly suggests that

among young people a business career is no longer associated with low status.

2.2. Conformity of behaviour - dependency and lack of ambition

As Mulder points out:

"Predominant Javanese values are the conscious quest for harmony and

the avoidance of conflict conformity and obedience are high

virtues" (15).

Moreover dependency is cultivated from childhood:

"The value of dependency from and security in the group are

strongly supported by early socialisation experiences. During most

of its first year, and generally extending well into the second

(14) Siregar, op cit P. 348

(15) Niels Mulder, "Mysticism and Everyday Life in Contemporary Java". op cit, P. 58.

- 20 -

year and even lacer, the Javanese child is always close to

it's mother... the child is not encouraged to move around freely...

the child is breastfed whenever it desires... competition among

children is discouraged". (16)

Another point very often stresses is the low value attached to economic

achievement:

"people should content themselves with CUKUP (enough) and should

not have exaggerated ambitions" (17)

"while the wish to become rich is certainly prevalent among virtually

ail native Indonesian businessmen the absence of a strong need for

achievement in the economic field prevents many of them from engag-

ing in prolonged and intensive economic activities for the sake of

continuously amassing wealth or for any other purpose". (18)

Passiveness, lack of initiative and of ambition were différent traits of

Javanese culture which were often quoted during interviews. For instance,

in East Java, Ministry of Industry officials involved in the implementa-

tion of development programmes for small industries (PPIK) stressed that

it was very difficult to persuade small businessmen to enlarge their

factories since they were satisfied with their current scale of operations.

2.3 Extended family

One of the respondents interviewed, a university professor, explained the

lack of entrepreneurial behaviour by the fact that in Indonesia the accent

is placed on the community and not on the individual. Any successful

individual is expected to share his good fortune with relatives. Another

respondent, a banker, remarked that the interaction between business and

family makes it difficult to develop sound management practices.

Mulder points out that:

"If one enjoys a success, a stroke of luck, a good result from one's

own endeavours, or a winning ticket, one is expected to share and

to be hospitable". (19)

(16) ibid, PP. 60-61.

(17) ibid, P. 58.

(18) Siregar, "Indonesian Entrepreneur", op. cit., P. 355.

(19) Mulder, "Mysticism and Everyday Life in Contemporary Java", op cit, P.68.

- 21 -

While Martyn Johns notes:

This would imply that the successful entrepreneur would have the

burden to subsidise a large number of relatives and to give preference

of employment to family members rather than to outsiders even when

the latter are more qualified". (20)

However the extended family influence is not always seen as negative, when

the decision is taken to start a business. The sense of responsibility of

the father (BAPAK) towards his family may motivate him to engage in entre-

preneurial activities. (The local HIPMI chapter in Yogyakarta made this

observation).

2.4 Risk taking, quick returns and propensity to save

A majority of responlents to the questionnaire thought that starting a

business in Indonesia was very risky (58%) (21). On the other hand, a

large number of interviewees adknowledge the risk-averse character of Java-

nese culture, linking this to the dependency traits mentioned above.

"Even if the Government creates more opportunities there is reluctance

to take risk" (a respondent in Palembang).

This leads to a limited time-horizon and to a preference for quick returns.

57% of respondents agreed with the following statement :

"It is better to have for sure a small income now than a big but un-

certain income in one year from now". (22)

Siregar (23) stresses the "preference for quick and easy profits, the com-

placency and the unwillingness to make plans even for the near future".

Such an attitude is often explained by external factors such as the high

rate of inflation or the Jack of available capital. For others it is

linked to a high propensity to consume and a law rate of savings. As

Siregar puts it, "As the experience with the Benteng programme has shown,

(20) Martyn Johns, "Indonesia's cultural mix", op cit, P. 68.

(21) We may note in passing that the group which disagreed with this state-ment, and differed significantly from the sample consisted mainly (72%) of executives of Chinese origin and to a lesser extent (52%) of business executives from Jakarta.

(22) Again the people who disagreed to this statement (66%) were mainly executives of Chinese origin.

(23) Siregar, Op Cit, P. 355.

- 22 -

the tendency to use income for consumption rather than for investment

is a general feature even among Indonesian businessmen". (24)

IV.3 RELIGION

Although Indonesia is described as being 90 X Moslem, a large diversity

of rituals, beliefs and values prevails in the field of Indonesian Islam

and Mysticism. Geertz (25) identified three classes of religious groupe

in his study of religion in Java: the Abangan religious tradition integ-

rated in a balanced way Animist, Hinduistic and Islamic elements. Among

the peasantry we findSantri,a purer foret of the Islamic tradition

associated with Javanese trading elements as well as the Priyayi which

stresses the Hinduist aspects and is related to bureaucratic and adminis-

trative elements. Islamic groups display schismatic tendencies that

oppose tradition oriented conservatives (Kolot) and modernists (Moderen)

who emphasise hard work and self determination. There is however a revival

and steady growth of mysticism in independant Indonesia "which draws much

of its inspiration from the old pre-Islamic Javanese Hindu-Buddhist

animistic heritage in its attempt to find an indigenous meaning to life

in the modern situation". (26) The essence of Kebatinan mysticism is

unity, coordination, hierachical relations, tranquility and balance. (27)

"These notions pervade the practice of Kebatinan, enacting this

world view and projecting it on earth as a beneficial white

magical influence. The same notion colours Javanese ethics and

attitudes to life. In the musyawarah process of decision-making

the coordinated hierarchical owners of the group are expressed in

the ideal and practice of gotong royong, or the mutual assistance

between equals and hierarchically non-equals, and also in its

Rukun ideal. (28)

(24) ibid, p.355

(25) Geerts, The Religion of Java, op. cit.

(26) Mulder, Mysticism and everyday life in contemporary Java, op. cit. p. 104.

(27) Kebatinan is defined by Mulder as the practice of contemporary Javanese mysticism. The culture of the inner man; the essence of Javaneseness.

(28) Ibid, p.101 Gotong Royong is defined as the mutual help, the sharing of burdens; solidarity. Rukun harmony, unity, the ideology of community resulting in Coton& Royong. Musyawarah process of commun decision-making in which ail_ voices and opinions should be heard and deliberated until a unanimous decision can be reached.

- 23 -

In his study of contemporary mysticism Mulder wrote as a conclusion:

"The meaning of individual identity and autonomy and the relation-

ship to the world of matter are culturally not elaborated; if indi-

genous meaning is attributed at ail it tends to be negative. Whereas

modernity and development precisely seem to demand creative thinking

in these latter realms of existence, the Javanese, and by extension,

the Indonesian leadership - appear to be confused" (29)

It is thus very difficult to trace the effect of religion on entrepre-

neurial behaviour. During the interviews, opinion expressed on this

matter did not show any consistency.

Subsequent analysis showed that among respondents the number of Muslim

entrepreneurs was significantly higher than that from other religions

(see Table II). That is to say that there are more entrepreneurs of Muslim

origin in the sample than one would expect. The question of religious

influences on entrepreneurship would really need a deeper study of the

interacting and sometimes conflicting forces involved.

Conclusion

In this first part of the study we have tried to identify and discuss some

of the more salient socio-cultural factors which are likely to influence

entrepreneurship in Indonesia. The three sources of data, literature,

interviews, and questionnaires seem generally to indicate that these

factors have a more negative than positive influence on entrepreneurship.

49 % of the sample either agreed or strongly agreed with the statement

that "the cultural values here are not conducive to entrepreneurship"

while only 36 % disagreed or strongly disagreed. A considerable number

of those interviewed stressed the importance of changing basic attitudes

if progress is to be made in developing entrepreneurs in Indonesia. Yet

as Siregar conclude6 in his article; "These characteristics are not

inevitable". The majority of traits presented in this section are

inherited from the past and are undergoing considerable change. Several

of the people interviewed claimed that the young generations have started

reveal attitudes towards business that are clearly different from those

shown by the older generations. On the other hand there may be cultural

traits and values that are thought to have a negative impact on entre-

preneurship by western standards yet which could be exploited in a positive

way in a setting for which an Indonesian model of entrepreneurship is

developed.

TABLE II

CROSS TABULATION OF ENTREPRENEURS VERSUS NON ENTREPRENEURS BY RELIGION

Religion None Unspecified 1 Catholic

1

Protestant Christian i

1

Moslem Buddhist Others Total

Entrepreneur

Non Entrepreneur

Total

21 5 4 2 3 21 1 3 60

28 I 12 I 21 10 8 20 1 6 106

49 I 17

i

25 12 11 41

.,

2 9 166

(X2 = 12.26 . 7 df p = 0.09)

- 25 -

V

FACTORS RELATED TO

THE ADMINISTRATIVE AND INSTITUTIONAL ENVIRONNENT

When the 65 Entrepreneurs included into the sample were asked the question

"Why is it difficult to increase the number of Entrepreneurs in Indonesia?"

the answers given were as follows:

Lack of capital

Lack of Government support

Unf air competition

Lack of technical skills

Lack of motivation

Lack of legal and fiscal incentives

Lack of training in management

Lack of opportunities

40 answers

24 answers

24 answers

23 answers

21 answers

15 answers

15 answers

13 answers

The three most quoted reasons relate to the administrative environment.

The general feeling is that considerable improvement is needed in this area.

In the questionnaire several statements on the perceived conduciveness of

the administration, banking and legal environment towards entrepreneurship,

were presented to respondents. Table III gives the distribution of answers

given.

This suggests that although a majority of the respondents feel that the

government develops a policy favourable to the development of entrepreneurs,

there is also a general feeling that the institutional environment and the

cules of the game (equality of chance, contacts) are hampering the creation

of new businesses.

A description of some aspects of the administration, banking and institu-

tional environment will be presented and discussed in this chapter supple-

mented by an assessment of issues frequently mentioned in the interviews

such as the problem of the non- pribumi community and problems related to

administrative behaviour.

-26 -

TABLE III

DISTRIBUTION OF ANSWERS CONCERNING THE

CONDUCIVENESS OF THE SOCIO —ADMINISTRATIVE

ENVIRONMENT TOWARDS ENTREPRENEURSHIP

ANSWERS IN % (N = 177)

STATEMENT

Agree Neutra1 Disagree

In this country the Government actively encourages entrepreneurial development through policies and regulations which facilitate the creation of new business

In this country banks and financial institutions are very keen to help indigenous entrepreneurs

In this country there is little incen-tive to start one's own business

The legal system in this country is not conducive to entrepreneurship

Here, in order to succeed in business it is more important to have good contacts than good ideas

Here, everyone who wishes to become an entrepreneur has the same chances

55 18 27

40 20 40

64 6 30

55 22 23

70 7 23

38 10 51

- 27 -

V.1 INSTITUTIONAL ENVIRONMENT: PUBLIC DEPARTMENTS

1.1 Brief historical setting

After the fight for independance, the Sukarno government in 1950 launched

a programme specifically aiming at developing a class of Indonesian entre-

preneurs. Known as the Benteng programme (1) it consisted of providing

indigenous businessmen with exclusive rights to import certain categories

of goods by granting them import licenses. Capital and credit facilities

were also provided. This programme, as we have already observed, did not

achieve its objectives. A number of those who enjoyed these priviledges

ammassed wealth not by developing their own businessess but by acquiring

import licence and selling them to importers of foteign origin.

There were many cases of businesses which white belonging in law to indigenous

entrepreneurs were in fact managed and controlled by non-indigenous people.

Such associations were known as Ali-Baba partnerships and did not provide

Indonesians with the practical experience acquired through a process of trial

and error, on which entrepreneurial skills can be built. Profits generated by

these activities were more often than not reallocated to consumption.

In 1951 the government launched the Urgency Industrialisation Plan which

aimed to provide capital to small scale industries. Again the results were

disappointing; much of the government assistance went unused and small

businesses became saturated with capital.

In 1958 after the West Irian question the Dutch interests in Indonesia (in

banking, insurance, shipping, mining, plantation) were nationalised and put

under the control of state-owned enterprise. Although a certain number of

those enterprises were successful, a lot of them underwent considerable

financial difficulties.

The policy of the New Order implemented by General Suharto put an emphasis

on the performance of the Indonesian economy through the improvement and the

increasing effectiveness of state enterprises and the facilitation of foreign

investments. The first period of the New Order somewhat neglected the

development of small business. It is only recently (possibly nourished by

disillusions with Pertamina, the financially troubled state owned oit company)

that the government has corne to realise the crucial role played by small

(1) Benteng means fortress

- 28 -

businesses in the process of economic growth. Ail programmes to be discussed

in this chapter are recent -none go back more than three years- and care

must be taken in assessing them. Several departments have been involved

in this study; interviews were conducted in:

- the Ministry of Industry

- the Ministry of Trade

- the Cooperation Movement.

1.2. Ministry of Industry

The Administrations' work in this area is done through a specialised

department for the Development of Small Scale Industries (BIPIK)

established in 1974. It set up an organization in the provinces known as

the Centre for the Development of Small Industries (PPIK) (2) to provide

guidance, training, and financial assistance to small industries.

These services can be classified as software or hardware.

The software covers the following areas:

- Education and training

- Survey and research

- Guidance and information

- Technical and managerial counselling

- Design, quality improvement counselling

- Promotion, information and marketing.

The hardware covers raw materials, equipment, and machine samples.

Two local centres were visited during the interviews ; one in Jogyakarta and

one in Surabaya; these are briefly described below.

The Jogyakarta centre coordinates 8 subcentres in central Java which

specialise in différent industries; for example:

- Leatherwork in Manding, Yogyakarta

- Silverwork in Kotagede, Yogyakarta

- Bamboo housing in Wondsasi, Yogyakarta

- Woodwork in Serenan, Surakarta

- Metalwork in Purbolinggo, central Java

- Bricks and roof tales in Kebumen, central Java

- Shoes in Tegal, central Java

- Coconut fibres in Kroya, central Java

( 2) PPIK = Pusat Pengembanga Industri Kecil

- 29 -

Each of these centres, run by an Extension Officer, offers guidance to 20

or 30 small businesses. His role is to advise and inform on matters of

business organisation, product design, production, management, and marketing.

The centre in Jogyakarta also organises training sessions in these areas

through teachers from universities (GADJA MADA) technical centres (Batik,

Leather...) or from the departments of the cooperative. This centre was

started in 1977. Its problems as underlined by the interviewees are:

- the reluctance of small businessmen to accept guidance and especially to adopt new ways of doing things,

- the lack of specialised personnel,

- poor coordination between PPIK activities, and other development efforts led by the Ministry of Trade or the Department of Cooperatives.

In Surabaya the centre was started in 1974. It employs 18 technology

specialists having university degrees. Their competence covers several

industries (leather, textile, handicraft, ceramic design, food) and they

have 7 offices dotted around the province of East Java. Apart from these

specialists, the centre employs 30 officers at the regency level (3) who

coordinate the work of 100 field workers. The latter are in charge of 3

to 4 groups of villages (Kecamatan) (4)and generally have a high school

degree as well as one month official training; their task is to watch over

small industries, of fer advice and train village entrepreneurs. The main

centre in Surabaya has designed and developed one week programmes for small

and craft-based industries throughout the province. The centre is partic-

ipating in a joint experiment with the University of Airlangga in Surabaya

and the Cranfield School of Management in England which aims to develop an

educational package for entrepreneurs. The problems faced by this local

centre as identified in the interviews are as follows:

- motivating small scale industry to participate in, and accept change - how does one demonstrate that new ways of doing things can be successful.

For an example a group of small metalworking businesses were advised by the PPIK to form an association. At first, they refused the idea. It was only after they visited a successful cooperative that they decided to give the idea a try;.

- credit allocation is not tied to intervention by the PPIK;

(3) See Appendix to this chapteL for a simplified organisation chart of the Indonesian Administration

(4) Ibid

- 30 -

- Skilled people are difficult to recruit. This may be due to the uncompetitive salaries offered. A field-worker with a high school degree receives 19,000 Rp a month where he could earn 30,000 Rp in a private sector business.

The impression gained from interviews and other comments collected during

the trip is that the PPIK effort is well conceived because it tends to

operate in close touch with the field and hence offers competent guidance

and training. However, at present it may be too early to draw any

f irm conclusions.

1.3 The Ministry of Trade

One of the main responsibilities of the Ministry of Trade is the granting of

trading licences for importing and exporting goods. The Department of Trade

has therefore a vkqy important role to play in the creation of new trading

businesses and especially export oriented businesses. Usually the small

businessman has little knowledge of foreign markets, product standardisation,

shipping techniques, international paperwork; in addition he is handicapped

by his small capital base.

The Department of Trade has therefore set up a number of programmes to

develop the skills of the small traders. In Surabaya the programme offers

training by University professors or teachers from professional institutes,

and free consulting services in the field of marketing and trade régulations.

In Yogyakarta, starting in 1975, a training programme lasting one full month

a year has been offered to groups of 30/40 participants covering general

management and trading techniques. The programme is followed up six months

latex by a visit to the participants to monitor their progress. In Medan 2

week programmes for exporters are arranged by the Department of Trade.

Here again the problems encountered are motivational, (for instance, reluct-

ance to change locel practices in order to adapt to export standards. Inter-

ventions by the Trade Department are limited in scope; they are predictably

more marketing-oriented and, as one interviewee said, "they would benefit

from integration in a larger programme of entrepreneurial development in

which the Chamber of Commerce would play an important role".

- 31 -

1.4 The Cooperative System

The cooperative system in Indonesia is regulated by the "Law on the Basic

Regulations for Cooperatives in Indonesia" (Law n° 12 year 1967) ; it has

been assigned an important role in the economic development of the country.

According to article 7 of the legislation cooperatives have the following

mission :

1 "To unite, to encourage, to organise and to develop the potential, creative and auto-activity of the people for the achievement of the increase of production and equi-table income as well as the optimum welf are of the people"

2 "To increase the living standard and the intelligence of the people"

3 "To achieve in a direct sense the development of an economic democracy"

There are approximately 24,000 cooperatives in indonesia grouping 7.5 million

members - 60 % of them are in the agricultural sectors, the remainder

consisting of individuals associating for purchasing, financing and merchan-

dising operations. In the village they play a prominent role in supplying

fertilisers and other agricultural goods and in purchasing and marketing rice

output. Their role in the industrial sector is more limited but the government

would like to see them playing a more important part in the promotion of small

businesses through the Ministry of Cooperatives. This aim is shared by the

Council for Cooperatives which is an association of ail cooperatives operating

in Indonesia.

The Ministry of Cooperatives has an organisation which goes down to the level

of the Kecamatan at which all productive cooperatives are coordinated. This

is done through bodies known as BUUDSs ; their role is firstly to channel

credits for cooperatives by offering guarantees as collateral securities for

loans and secondl to monitor, guide and advise those who manage the

cooperatives (5).

To import the necessary skills to the management and staff of the cooperative

the Ministry devotes 30 % of its budget to training and has created 24

training centres. The main problems identified by interviewees in cooperative

management are:

(5) Normally the members of a cooperative elect a chief executive. Practically always the post is held by a retired civil servant or army officer. The staff for corporatives is recruited from local villages.

- 32 -

- the lack of expertise, motivation, creativity of cooperative managers and staff

- the passiveness of cooperative members with respect to the running of their business

While we find here the same set of problems as in the other programmes, it

is noteworthy that efforts have been made to stimulate business activity

through the cooperative system. In West Java for instance, the West Java

Chamber of Commerce, the Ministry of Cooperatives, the Ministry of Trade

have acted in concert to get different BUUD's to specialise along industry

lines. In the shoe industry, young, high-school-trained managers, already

receiving a good salary, have been recruited into the management of the

BUUD ; they are responsible for its financial performance and they allocate

funds to members, help coordinate production, offer advice in the creation

of new designs, and secure the supply of good quality new material. This

experiment is now one year old and is under the supervision of a KADIN

member. Results so far are quite positive and the experiment is being

extended to other industrial sectors. Such a coordinated programme may serve

as an example for other sectors.

V.2 THE INSTITUTIONAL ENVIRONMENT: FINANCE

Financing of new ventures and small businesses appears to take place in two

ways:

- small business finance

- project finance

2.1 Small business finance

Small business finance for indigenous entrepreneurs is made available by the

large government hank through:

- small investment credits (KIK) limited at the time of the study to 5.000,000 Rp for an investment in fixed assets at an interest rate of 10.5 % per annum over 5 years

- small working capital facilities (KMKP) again limited to a maximum of 5.000,000 Rp, at 10 % over 3 years.

Such rates of interest are particularly appealing given that the cost of

short-term money is usually 2 to 3 % per month. These facilities are

restricted to indigenous enterprises. They are secured either by personal

guarantees or through insurance taken out with the national insurance company

ASKRINDO.

- 33 -

The credit rating is based upon an assessment of the borrower's tax position,

his business, his ability to get Ministry of Trade registration as well as on

his recent business performance. A lending officer indicated that to obtain a

credit a business should have been in operation for at least 6 months so that

new ventures do not normally benefit. We feel this to be a serious limitation.

2.2 Proiect Finance

This is mainly offered by the Bank Penbangunan Indonesia (Bapindo) which

serves small businesses through regional banks (BPD). Advances can amount to

75 % of long term funding requirements and up to 20 % of the Equity may also

be acquired. The banks will finance up to 80 % of a project through a mix of

debt and equity. If projects are small they will be appraised by the bank

staff; larger projects require the appraisal of one of 18 registered consul-

tants in Indonesia who carry out feasibility studies.

The financial appraisal of small businesses must lo∎>k at the borrower's entre-

preneurial capacities; his past record; his education; his life style; his

connections; his credit position; and finally his skills.

2.3 An Evaluation of the financing system

Interviews showed that banking practices are seen as complicated and that

the small entrepreneur, because of his lack of familiarity with the financial

and procedural terminology, is not generally in a position to present a strong

case. A large number of respondents -especially businessmen- complain that

branch officers control only a limited amount of credit. The personal

guarantees required are also thought to be a burden for the new entrepreneur.

40 % of the sample disagreed with the statement that the banking system is

very keen to help indigenous entrepreneurs, and 40 % agreed. The proportion

of people who disagreed reached 50 % among the groups of business executives

who were participants in a management seminar, and 45 % among the subsample of

entrepreneurs. Bankers on the other hand advocate caution in granting credit

given the small businessman's lack of training and the fact that he may well

use the money for personal consumption or mismanage his funds. This problem

illustrates the interdependencies between the cultural and value system and

the socio-administrative system of the country, the one reinforcing the other.

The lack of an entrepreneurial culture pushes the banking system to develop

conservative and bureaucratie practices which in their turn discourage entre-

- 34 -

preneurship. This feedback loop can only be broken through special inter-

ventions: good connections, bribery, and so on.

V.3 THE INSTITUTIONAL ENVIRONNENT: THE BUSINESS COMMUNITY

The business community can influence the development of entrepreneurs directly

or indirectly. Direct effects are created by large firms who foster the

creation of new businesses when they use small businesses as subcontractors

or suppliers. Indirect effects are created through industrial associations

or Chambers of Commerce.

3.1 Direct Effects

A large segment of the Indonesian economy is in the hands of large state owned

enterprises which operate in basic industries (petroleum, cernent, electricity,

plantations, transformation industries). We might expect that such enterprises

occasion the creation of peripheral firms which benefit from their custom

and upon which they rely for part of their supplies. Such arrangements were

not systematically investigated in the present study but our few contacts

with state enterprises show that their role in the creation of small businesses

is at best a passive one. They have no specific programmes aiming at the

development of small businesses. Comments from entrepreneurs suggest that

large state owned firms frequently compete vigorously with small private firms.

Even if large firms wished to help they would have to face the problems of

uneven quality and unreliable delivery times that result from the managerial

weaknesses of small firms. Here again we find a vicions circle that large firms

cannot break without weakening their competitive posture nationally and inter-

nationally. As Kartadjoemena (6) puts it:

"Only after some signs of breaking this cycle have appeared can the state enterprises consider any large-scale effort to link the pribumi as suppliers to their production system"

3.2 Indirect Effects: Kadin

The only organisation which represents the private sector to any significant

extent in Indonesia is the Indonesian Chamber of Commerce and Industry. (7)

Kadin, established in 1973, operates in 27 provinces and acts as the official

respresentative of private business with local authorities.

(6) Hassan Kartadjoemena, State Enterprise in Indonesia, Present Issues and Future Prospects.

(7) about the role of Kadin, see: Suwoto Sukendar, Indonesia's Need for Entrepreneurs.Asian Business and Industry, July 1978. Pp. 76-78.

- 35 -

Kadin is financed through montLly voluntary donations by members. It offers

members of the business community an opportunity to meet on business matters,

it conducts training sessions, prints documents and also makes businessmen

heard in debates on local or national development projects.

The impact of Kadin's local offices through training and counselling acti-

vities is uneven and varies both with the province and the personalities and

skills of its local officers. In West Java for instance the Chamber of Commerce

is conducting a series of small seminars dealing with practical issues in the

management of small businesses. Those seminars are held at the Kabupaten level.

Yet in other provinces Kadin is not so actively involved.

Kadin remains a young organisation which may, in the near future, of fer a

useful frame for the development of entrepreneurial talents; we discuss this

later.

V.4 THE PRIBUMI/NON-PRIBUMI ISSUE

One cannot study social or economic issues in Indonesia without confronting

sooner or later problems posed by the relationship between the indigenous and

non-indigenous community. These problems quickly emerged through the interviews.

Several publications have described and analysed the historical, political,

sociological and economical role of the Chinese minority in Indonesia (8).

Briefly, there are about 3.5 million people of Chinese origin in Indonesia

who have traditionally been divided into two categories: the Peranakans, whose

presence in Indonesia goes further back and who have adopted the Indonesian

language; and the Totoks who arrived more recently and have preserved their

culture. The economic strength of the Chinese community, their role under the

Dutch and the fact that for a long time they were entitled to dual nationality

(8) See : Donald Earl. Willmott, The Chinese of Semarang, Cornell University Press, Ithaca, 1960

J. Panglaykim and I. Palmer, Entrepreneurship and Commercial Risks: the Case of a Schumpeterian Business in Indonesia, Institute of Business Studies, Nayang University, Singapore, 1970.

J.A.C. Mackie, The Chinese in Indonesia: Five Essays, Nelson (Mishalia), 1976.

Leo Suryadinata, Indonesian Policies towards the Chinese Minority under the New Order, Asian Survey, Vol 16, n° 8, August, 1976.

Leo Suryadinata, The Chinese Minority in Indonesia: 7 papers, Chopman Enterprises, Singapore, 1978.

- 36 -

made them deeply resented by the indigenous population. This led to anti-

Chinese outbreaks (9) in 1959, a subsequent ban on alien-owned stores in

rural areas and to 136,000 Chinese leaving the country. There were further

anti-Chinese riots in West Java in 1963 leading to the destruction of

Chinese property and both in 1965-67, the transition period between the

Sukarno and the Suharto governments, and more recently in 1974 during the

visit of the Japanese Prime Minister Tanaka. Government policy aims to

improve in three ways the economic situation which had deteriorated at the

end of the Sukarno regime. Firstly by harnessing Chinese capital and

entrepreneurial talents to the Indonesian economy. Secondly by reducing

racial tension and integrating the Chinese into the community (educationally,

and culturally). Thirdly by being more sensitive to the resentment created

among the indigeneous population and businessmen in particular by the pursuit

of discrimination policies. In some areas these policies conflict and need

clarification.

The study made no formai attempt to identify respondents' origins since this

was thought to be too delicate a subject to broach in the short time available.

Among those interviewed, however, there was general agreement that non-

pribumi were in a stronger economic position than pribumi. Various explana-

tions have been given for this as summarised in the following table :

(9) See: J.A.C. Mackie, "Anti-Chinese Outbreaks in Indonesia", in "The Chinese in Indonesia", op_cit, PP. 77-137.

- 37 -

TABLE IV

SUMMARY OF THE REASONS GIVEN TO EXPLAIN THE FAVOURABLE POSITION OF NON-PRIBUMI COMMUNITY IN INDONESIA

"Positive" reasons "Negative" or defensive reasons

. Hard working

. Work Ethic

. Uncontrollable movement of capital between Indonesia, Singapore and Hong Kong.

. Frugality . Chinese moere favoured by the Dutch

. Sense of Savings . Ability to use bribery

. Long business experience . Ability to serve as middle-

. Fast access to techno- men vis-à-vis those in power logical innovations through network of relatives and friends abroad

(Cukongism)

. Family backing

. Access to capital in Singapore, Taiwan, Hong- Kong.

- 38 -

The table could give rire to stereotypes; for example that of the hard

working Chinese, interested only in business success. This stereotype is

evidently supported by personal experiences: a story was told during an

interview of a Chinese trader whose property had been entirely destroy-

ed during the 1967 riots, the only thing he had left being a scooter. He

offered it as collateral security for a loan. A year later the loan was

repaid and his trade flourishing once more. Another stereotype is that of

the skillful Chinese gaining power and money through bribery and corruption

and driving the indigenous entrepreneur out of business by dumping practices

financially backed by capital from Taipei, Hong Kong and Singapore.

This dual image (Dr. Jekyll and Mr. Hyde) reveals ambivalent feelings: on

one band of insecurity in an indigenous business community with no business

tradition and a need for special protection. On the other a feeling that

the non-pribumi community is a national asset which can contribute effectiv-

ely to its economic development if it plays by the cules.

Such a delicate and complex problem leads to no clear conclusion. It is

apparent that organisations like Kadin could help establish a bridge between

non-pribumi and pribumi communities.

V.5 Other Socio-Administrative Issues

Among the socio-administrative factors which affect Indonesian entrepreneurs,

two should be mentioned which were identified in the interviews and the

literature but have not been pursued in depth in the study:

- the practice of bribery,

- nepotism

Each raises delicate issues, each merits an in-depth study on its own (10).

The following paragraphs are based solely upon impressions and comments

gathered during the survey, supplemented by some readings.

5.1 The practice of bribery

The practice of bribery in Indonesia has several origins (11). Historically,

bribery was a way of diverting taxes raised by the colonial adminis-

(10) See for instance: "Indonesia's Military elite", AMPO, Japan-Asia Ernst Utrecht Quarterly Review, Vol. 8, N°3, 1976.

(11) See: Theodore M. Smith, "Corruption, Tradition and Change", Indonesia, N° 11, April 1971.

- 39 -

tration in favour of native officiais and was therefore seen as a foret of resist-

ance to domination. This practice also has cultural roots -in the tradi-

tional Javanese village no distinction was made between public money and

private money for the village headman - and sociological (increased bureau-

cracy), and economic development also plan their part - i.e. official salaries

of civil servants are below that they perceive as normal. An overcentralised

administration is another cause. Corruption is encouraged by excessive

centralisation in five ways:

- In a centralised system there is more demand for decisions than the system can supply, therefore there is a need for a channel-ling process.

- Centralised government tends to issue preventive controls which are monitored by lower ranking officiais who therefore gain a power of opening or not opening the gate.

- Centralisation lessens the responsibilities of middle level officiais who therefore are not inclined to fight against compétition.

- Top ranking officials do not know exactly what is going on in the bureaucratie chain; they are so busy making the things work that they have no inclination to knows how it does work.

- The Jack of responsibility at lower levels makes the people less concerned with good use of public money.

Many interviews suggested that to do business properly one must be able to

"speed up" the administrative process. This practice was associated by

respondents with the weakness of the pribumi entrepreneur; a civil servant

would be more likely to accept a bribe from a non-pribumi because he would

be ashamed to do so from a pribumi. The issue is stiil being debated and

no solution will be found quickly. However, as far as entrepreneurship is

concerned, one way to approach the problem would be to have a higher parti-

cipation of businessmen themselves into the development of local entrepreneurs

with larger responsibilities into the decision process concerning the

allocation of resources and the promotion of small enterprises. By doing so

they would likely change the criteria used for selecting the candidate to

credits, licences and more generaily to their candidature to public support.

Here again Kadin may have a leading role to play.

- 40 -

Nepotism

Nepotism is a product of the extended family structure which has already

been discussed (12). Several successful indigenous entrepreneurs (pribumi)

claimed during the interview that their success was partly due to family

linkages with high ranking officiais. Here nepotism plays a positive role

in the development of indigenous entrepreneurs. The practice of giving

preference to family members over outsiders in filling executive positions

is also characteristic of the non-pribumi. Martyn Johns in one of his last

articles (13) remarked that "mort of the Chinese trading houses are organi-

sations of an exclusive nature. They belong to family members who, to feel

secure, run the business themselves... when there is a need to employ addi-

tional employees, preference is given to relations rather than to outsiders,

even when the latter are more qualified".

This practice has its merits as long as it discriminates between the able

and less able members of a family in matters of business, and also leaves

some opportunities to outsiders (i.e. gives them access to contacts,

credits) to start their own business.

V.6 Conclusions

Our conclusion is that, while some parts of the institutional edifice are

sound, the whole still needs improvement. The majority of the entrepreneurs

and businessmen interviewed stressed the Jack of coordination between govern-

ment policies and the activities of different public departments. Why set

up training and consulting services in a district, if the local bank cannot

give credit or if each step needed to create a business is a constant

battle against the various bureaucracies ? Moreover what chance does one

have without well placed relatives ? The government's good intentions are

not questioned in this matter but many are sceptical about the practical

effects of what is done. The government acts mainly through its adminis-

tration, and businessmen are only marginally involved at the present time.

Before discussing this further we now turn to an analysis of the educational

system.

(12) cf supra S.2.3, Section IV.

(13) Tom Martyn Johns, "Indonesia's Cultural Mix", Asian Business & Industry, 1978.

- 41 -

INDONESIA

10ENTRAL ODVERNMENT1

27 PROVINCES (GOVERNOR)

REGENCY (KABUPATEN) OR MUNICIPALITIES (for large cities)

KECAMATAN

rvillges

FIGURE 2

SIMPLIFIED ADMINISTRATION

ORGANISATION CHART IN

INDONESIA

- 42 -

VI

FACTORS RELATED TO THE EDUCATIONAL ENVIRONMENT

The survey identified three characteristics of the Educational System that

have a bearing on entrepreneurship:

- the great concern of public authorities, universities and businessmen for the education of the entrepreneurs,

- the existence of a large variety of programmes, courses and consulting activities but little research effort,

- widespread feeling that the educational system still fails to develop entrepreneurs.

As Table V indicates, a majority (75%) of respondents believe that

entrepreneurship can be taught, although 44% of the sample hold that

some entrepreneurial skills cannot be taught. Education is therefore

seen as one of the cornerstones of entrepreneurial development.

VI.1 "Entrepreneurial" Training Programmes in Indonesia

Several kinds of programmes dealing with entrepreneurs were identified:

- secondary level programmes,

- university level programmes,

- Ministry of Industry programmes,

- The Institute of Entrepreneurship (Lembaga Bina Wiraswasta) and private institute programmes.

Figure 3 gives a simplified chart of the educational system's contribution

to entrepreneurship.

- 43 -

TABLE V

DISTRIBUTION OF ANSWERS CONCERNING

EDUCATION AND ENTREPRENEURSHIP

STATEMENT

Answers (N = 177)

Agree Neutral Disagree

It is possible to teach "Entrepre-neurship" 75% 8% 17%

Entrepreneurship requires capacities which cannot be taught. One is born an "Entrepreneur" 44% 10% 46%

Our primary school system encourages the development of entrepreneurial qualities. 17%

...

24% 59%

University education contributes to the development of entrepreneurial attitude. 32% 21%

4

47%

- 44 -

1.1 Secondary Level Programmes

Within the secondary public school system (See Figure 3) only the voca-

tional and technical schools offer courses dealing specifically with entre-

preneurship. These schools are mainly Commercial and Economics High Schools

(SMEA) (which number approximately 250 throughout the country) and both

Home Economics (SMTK) and Home Industries and Crafts High Schools

(SMIK) (1). These institutions in 1976 launched a special course named

"Kewiraswastaan" which is offered in the third year to deal specifically

with problems related to the creation and management of new businesses. In

some SMEA, courses are supplemented with some practical expérience through

the creation of junior enterprises (Pambina). These are mini-shops managed

by teams of students under teacher supervision.

Interviews conducted at the Ministry of Education and Culture at both the

national and regional level revealed a deep commitment to teaching entre-

preneurship. Many problems remain however. For example:

Trainees must be trained; the problem is both technical and

attitudinal. In the course of the study the questionnaire

was given to a group of SMEA teachers. Their answers, present-

ed in Table VI differ significantly from those of other res-

pondents on questions of risk (they are more risk averse than

others and prefer a small and secure present income to a

large but uncertain future one).

- Textbooks and teaching materials must be developed. The

Ministry of Education is eager to collaborate with practi-

tioners and with Kadin on this. Several courses for SMEA

teachers have been conducted by the Institute for Entre-

preneurship (Limbaga Bina Wiraswasta) but their develop-

ment is currently limited by cost considerations.

1.2. University Level Programmes (2)

The large universities that we visited have a school of economics offering

both graduate and undergraduate courses in three departments: General

Economics, Business Administration and Accounting.

(1) Without taking into consideration the private and religious schools.

(2) For a more detailed report on higher education in business see "Manage-ment Education Systems for Indonesia". A report presented by the Eco-nomic Sub-Consortium to the Department of Education and Culture, Republic of Indonesia, 1976.

FIGURE 3

SIMPLIFIED CHART OF EDUCATIONAL SYSTEM

RELATED TO ENTREPRENEURSHIP

UPGRADING COURSES

KADIN

STMI

ITT

INSTITUTE FOR WIRASWASTA

- -

UNIVERSITY (SARJANA. MUDA) 4 - 5 YEARS

ACADEMY - 3 YEARS

GRADUATE STUDIES SARJANA

COMMERCIAL (SMEA)

HOME ECONOMICS (SMTK)

HOME INDUSTRY AND CRAFT (SMIK)

VOCATIONAL AND TECHNICAL SCHOOL - 3 YEARS HIGH SCHOOL - 3 YEARS

MINISTRY OF TRADE

MINISTRY OF INDUSTRY

UPGRADING COURSES

UPGRADING COURSES

ACADEMY

HIGH SCHOOL

PPIK

/1\

JUNIOR SECONDARY SCHOOL - 3 YEARS

1-s PRIMARY SCHOOL - 6 YEARS

INFORMAL EDUCATION

TABLE VI

DIFFERENCES IN OPINIONS BETWEEN SMEA TEACHERS AND OTHER RESPONDENTS

STATEMENTS SMEA TEACHERS (N = 22)

OTHERS (N = 155)

Agree Disagree Agree Disagree

To start one's own business here is very risky 7-/ ,o 5 % 57 % 43 %

20 1 84 64

In this country the government actively encourages entre-preneurial development through policies regulations which 90 % 10 % 63 % 37 % facilitate the creation of new business 18 2 80 46

It is better to have for sure a small income now than a 91 % 9 % 55 % 45 % big but uncertain income one year from now 20 2 81 65

Our Primary School system encourages the development of 80 % 20 Z 20 % 80 % entrepreneurial qualities 8 2 25 100

In this country banks and financial institutions are eager 100 % - 42 % 58 % to help indigenous entrepreneurs 19 0 52 72

Only extreme opinions "agree/strongly agree" or "disagree/strongly disagree" are reported in this table. Neutral positions have been eliminated, this explains why the total number of answers is not equal to the total number of persons.

.1c1)

- 48 -

ms of these schools were asked two questions :

Did student enrollment lean more towards business related

disciplines (Business Administration and Accounting) or towards

macro economics disciplines ?

Did students choose to work for small businesses or create their

own enterprises after graduation ?

swer to the first question that business-related discipline (especially

ting) attracted more students, mainly because job opportunities were

mnerous in those disciplines.

swer to the second question was that students worked mainly in public

stration, public enterprises or large private enterprises. Students

lg their own businesses were more likely to be professionals (i.e.

tants) or drop-outs. As is the case in the United States and in Europe,

ionesian educational effort focuses on managerial techniques and

ts related to large (or medium) organisations.

)es not constitute a surprise. Given the need for the Indonesian

to train professional managers it is normal to expect that the

Ite of Higher Education devotes it's efforts to this task. This is

ainforced by the fact that ail over the world management training has

aveloped primarily in this area.

iiversities, however, contribute to the training of small businessmen

ae ways:

- Course development

- Participation of faculty members to seminars and courses managed by public departments (Ministry of Industry, Ministry of Trade)

- Experimental studies

le should mention the joint study conducted at the Development

Logy Centre in Bandung by faculty members from the Institute of

Logy of Bandung (ITB) and from UNPAD under the direction of Professor

It consisted oftraining two groups of small businessmen, 43 in

- 49 -

1975, and 20 in 1976 using an Achievement Motivation Training (AMT), package

developed by McClelland, and supplemented by courses on managerial techniques.

After one month the performance of these groups was compared with the

performance of groups of small businessmen who did not undergo training.

Performance was measured by economic results (sales growth, increase in

number of employees, profit, investments) and by changes in attitude,

motivation and managerial practices (through questionnaires, visita...). The

report on this study was not available at the time of the interviews but

the preliminary results suggested that while the trained group performed no

better economically than the control group it showed greater drive and

greater willingness to act in new ways. Ten of the participants in one of

the training programmes established an ongoing collaboration in marketing

and investment matters. However the study showed that Indonesian businessmen

scored very highly in affiliation motives in comparison with American

businessmen who score higher in achievement and power motives and lover in

affiliation motive. Such findings suggest further and more extensive

investigations and contribute to a better understanding of the Indonesian

entrepreneur and the teaching material that can help him develop. This

type of experimental research would need to be multiplied and expanded

to other regions and settings, measuring other parameters. It needs in order

to be achieved a close collaboration between academlcs and professional

organisations. It needs also to be dispersed so that the results can be used

as catalysts for further thinking and for further research.

1.3 Ministry Programmes

As already mentioned the Ministries of Industry, of Trade and of Cooperation,

as well as some Chambers of Commerce are conducting short courses for small

scale industries. They are mainly concerned with presenting functional

management techniques (marketing, accounting, finance, production, sales

administration, personnel management). Difficulties encountered are:

- Uneven attendance. Several officials stressed the difficulty they encountered to have participants in their programmes.

- Teaching materials and methods are neither relevant nor practical.

- The lack of middle-level trainers, to act as a link between university professors and small businessmen

- The techniques taught are not adapted to the indigenous situation.

istry of Industry also runs five Academies of Industrial Technology

raduate School of Industrial Management. Their orientation as with

under the control of the Ministry of Education is towards the training

sers, not entrepreneurs.

LPrivate Institutes

ted two private institutes of higher education in management, the

embaga Pendidikan Dan Penbinaan Management) in Jakarta, and the LM

;a Management) in Surabaya. They are primarily concerned with the

Lg of experienced professional managers for whom there is a large

While their strong links with the business community and their devel-

faculty make them effective they are not oriented towards the training

epreneurs. Nevertheless they must be considered a future resource for

aining.

Institute for Entre,reneurshi. (Lemba:a Bina Wiraswasta

■arman Sumahamijaya started the Institute for Entrepreneurship in 1971

; to meet the specific training needs of potential entrepreneurs (3)and

le this in two ways. Firstly by training people not already in business,

• either show entrepreneurial potential or a capacity to influence

al entrepreneurs. Here the Institute's market consists of university

tts, army officers close to retirement, Government officials, high school

s and parents. Secondly by developing favourable attitudes towards

.eneurship (entrepreneurial spirit, self-motivation, creativity, risk-

in parallel with its concern for practical business issues (capital

on, salesmanship, identification of opportunities). Courses take place

'ening over a 50 to 70 day period. Approximately 1400 alumni of the

te now keep in touch through a magazine.

Arman has invested considerable effort and imagination in promoting

eneurial education. He has proposed the word "WIRASWASTA" as the

ian équivalent of "entrepreneur" and through conferences, interviews

irnal articles has sensitized public opinion to the need for entre-

lal development if national economic, social and political goals are

et. In his view, the changing of attitudes is a precondition for any

cant progress in promoting the indigenous entrepreneur and although

titute tries to translate his thoughts into actions, it has few

1LMUU aumuunmijnya, witaswaLa r,uLLepLcucuLuip auu uevel.upmeut. 1ndonesia. February 1978.

Les to carry out its pioneering work. Interviewees were asked

knew the Institute and what they thought of it. It turned out

Suparman was better known than his organisation. The general

was that he had succeeded in increasing the awareness of the

mt and of the academic and business communities concerning the

meurial issue.

)mments and suggestions

moues have to be made to improve the entrepreneurial environment:

repreneurial training and management training must be clearly

tinguished. Even where they overlap (i.e. finance, accounting,

ceting, production) they differ in approach. This may explain

so few training programmes appeal to smal entrepreneurs.

repreneurial Education should adapt itself to the peculiarities

Lndonesian culture. While management techniques can be transfer-

from one country to another this is not always true of entre-

ieurial skills. In the first and second chapters, we briefly

nined features of Indonesian culture of its social and institu-

lal environment. These constitute the raw materials out of which

mlucation system must be developed.

development of education in entrepreneurship should be based

both research and action "research". In-depth understanding of

tonal, familial, socio-economic and political elements which

Luence and shape entrepreneurial behaviour call for research pro-

nmes and in particular programmes which treat entrepreneurs as

:ners as well as subjects. (For example the programme conducted

the Development Technology Centre in Bandung described earlier).

irge investment in Educational Technology for Entrepreneurs must

made. This should be practical, problem-solving oriented, and

zed to actual administrative and business practices.

:Fiers must be trained in entrepreneurship at different

!ls and for different types of teacher i.e.:

- Faculty capable of conducting research and developing teaching aids,

- Teachers/Counsellors who will operate in the field in educational and consulting roles,

- Secondary school teachers.

-52-

6. Education should be better integrated with other administrative

services; in this way government resources and effort can be

made more productive and beneficial to entrepreneurs. (For example

it could be declared that no funds would be lent or given unless an

entrepreneur attended a specified number of training programmes).

7. The media should be more extensively used in the educational effort.

The image of the entrepreneur, his role in society, etc. must be sold

to the public through the media and through the Ministry of Informai

Education. For example films could be shown (TV and cinema) which

project a positive image of businessmen and specially small business-

men ("Business heroes" as suggested by one respondent).

In our concluding chapter, we make policy recommendations.

- 53 -

V I I

CONCLUSIONS AND RECOMMENDATIONS

The description and analysis of the three entrepreneurship development

components carried out in the three previous chapters have indicated a

need for modifications and change at the cultural, social, institutional,

administrative and educational levels.

The three components are interrelated: an improvement in one sector

alone is insufficient to achieve progress. What is needed is an inte-

grative mechanism by which ail three elements can be improved coherently,

in other words a change strategy.

Before outlining such a strategy it may be useful to look at suggestions

made by the respondents in the questionnaire. The question asked was

open'-ended: "What should be done to increase the number of entrepreneurs

in Indonesia?". 150 people answered the question and their suggestions

are summarised in Table VII. It is interesting to note that most suggestions

concerned the improvement of Education and Information services (104 answers),

with Government Policies and Actions, (101 answers), Financial Policies (41),

and cultural and personal values (29) coming a close second. Although

recommendations were framed in general terms they clearly confirm the im-

pression gained during the interviews that most improvements have to be

made in the soft areas (better business climate, social relationships,

education), rather than in the hard ones (financial incentives, direct

intervention...). This is not to say that the latter should be neglected,

but that more emphasis should be given to the process of entrepreneurship

development than to the extension of administrative, financial and juridical

mechanisms.

caLiy a6c

ling in management of apreneurs and government :Lais

tion of new business shools

t of teaching emphasis towards ?ractical and away from the retical

information about management agh the mass media - promotion ne entrepreneurial image

›r education of government as to the needs of entrepreneurs

ar contacts between universities business schools

aing and technical guidance for 1 companies

TOTAL

49

&nr. TN TN'

✓ ,..UGOl1M1l11311-C. .CVGLIM1 aLlewca.o .A.1wwcu,

39

ality between indigenous and non igenous - better relationship deen them 14

ification of the legal system nplification) 13

ation of new business opportunities Information centres to describe them 8

ification of the tax system ("No pay ore you lay your eggs") 8

rove Government planning 5

ist the creation of new companies or sidiaries of new companies 4

elop a fair and Competitive atmosphere 3

ate new distribution channels and sti- ate joint-ventures 3

the Army to help 2

crucial problem is to find a vehicule capable of navigating the change

ess. One key feature revealed by the analysis is the current weakness

he business community in ail the three areas studied. Yet it is the

ness community that should be the vehicule of change because of it's

ral position. By showing more responsibility and initiative the

ness community could infect realism into the different activities,

ranimes and policies. Also, it may project an image as being highly

erned with public welfare and thus attract more talent. It may also

ribute to the resolution, as has been suggested earlier, of social

lems such as the underlying antagonisme that oppose pribumi and non

umi communities, corruption, and other issues of concern to Indonesia

y. To bring this about the business community has to be organised;

N is the obvious a body to do so.

question is then to define:

1) The main feature of a strategy for entrepreneurial development

in Indonesia.

2) The role Kadin should play in the long term in this strategy

given its current resources.

3) The specific steps that Kadin should take in the short term

to fulfill its role.

I. Strategy for Entrepreneurship development in Indonesia

A strategy is made of three components:

- a set of objectives

- the definitions of the domains in which those objectives have

to be achieved.

- a set of coherent policies and actions.

- 56 -

1. OBJECTIVES

In Indonesia a large proportion of economic activity has to

take place through the creation and development of small businesses

which call for the promotion of entrepreneurship. The three main

aims of such promotion should be:

a) to influence cultural and social values in a sense favourable

to entrepreneurship

b) to improve the coordinated implementation of supportive pro-

grammes to promote entrepreneurship

c) to develop an educational system favourable to entrepre-

neurship.

d) to eliminate social antagonisms which hamper entrepreneurship.

2. DOMAINS

These objectives can be achieved through a greater involvement of the

business community in:

- Policy making

- Information and publicity

- Education and Research

- Counseling and Resources allocation

3. POLICIES AND ACTIONS

We propose tu elaborate policies and actions for entrepreneurship

around four main activities:

a) Policy-making and coordination

b) The diffusion of Information

c) Education and Research

d) Integrated entrepreneurial programs.

- 57 -

a) Policy—making and coordination

One of the Key features analyzed in the previous chapter

was the lack of activity coordination and the multiplicity

program managed by various organizations. Given the

scarcity of resources and the immensity of the problem to

be solved, we suggest that one institutional body should

be created to set priorities, initiate and orientate actions,

develop policies and allocate resources; this body would

not replace existing public or private organizations currently

active in the field of entrepreneurship development but would

play a role of policy—maker, coordinator and allocator of

resources. We propose that this body should not be a

government one but a mixed (both public and private) organization,

a FOUNDATION FOR ENTREPRENEURSHIP. This foundation, created

by the legislature, would have a Board made up of Government

officials representing the Ministries (INDUSTRY, TRADE,

COOPERATIVE, RESEARCH, EDUCATION, BAPPENAS, DEFENSE), and

of businessmen (representing the whole of the business community),

the chairmanship being given to a businessman.

The role of this Foundation would be to set the strategy and the

major policies for entrepreneurial development and to control its

implementation. It would not be an operational body but would

channel funding for specialised institutions or programms that

we describe later. It could be funded by KADIN, government,

banks and international organisations, also receiving direct

donations from businesses and individuels.

- 58 -

The permanent staff of the Foundation should be limited to

a small number of executives who would draw on consulting

services from Fbunders or from outside.

The first task of this Foundation would be to:

a) quantify and measure currently available national resources

in organisation, institutions, manpower researchers, etc...

b) elicit proposais from various partners so that alternative

programmes could be developed

c) evaluate the colt and time required of each alternative

d) to programme the alternatives

e) to structure the alternatives so as to make the best use

of incentives and funding and fiscal opportunities...

f) to monitor and control the progress of programs against

established budgets and dead fines.

b) Information and publicity

The image of the entrepreneur, to repeat, has to be enhanced

in the public eye. Also the effectiveness of the entrepreneur

must be enhanced by a better provision of practical information.

For these, we suggest the creation of an operationai *body.

It would have the double task of promoting the image of entre-

preneurs and businessmen among the public and organising and

disseminate development and effectiveness.

Its activities could include:

- The publication of booklets and pamphlets, and the creation

strip cartoons for the mass media in which the role of the

entrepreneurs would be presented in a positive way.

* this operational body could be set up in parallel with an education

and research body to be described later.

- 59 -

- The production of films and television series in which the

heroes will be successful entrepreneurs.

- The publication of a magazine where current business issues

are discussed and analyzed together with the economic climate

and trends. In this magazine information on current business

opportunities would also be presented. A business corres-

pondence column would be encouraged in which individual cases

and problems could be discussed.

- The setting up of a small business information center where

statistics gathered from other sources will be kept, edited

and updated in a simple format and through which information

on appropriate technologies will also be collected and diffused.

- The organisation of symposia, forums, and debates dealing with

issues related to entrepreneurial development.

- The organisation of missions and information gathering trips

abroad for groups of entrepreneurs.

- The organisation of prize winning competitions for students,

villages, and businesses to stimulate creative achievements.

- The organisation of tours and factory visits for students

and civil servants that focus on development issues.

- The dissemination of research findings that illuminate

entrepreneurial problems.

- The creation of a suggestions box for relevant issues and

problems, and the diffusion of its contents.

- The provision of specialized information services for the

whole business community: i.e., large enterprises as well as

small ones -

- 60 -

For example:

. A data bank on sub-contracting opportunities.

National or foreign enterprises, large and small

may have sub-contracting needs which cannot be

met by their usual sub-contractors. By communicating

these needs to a data bank which has a list of

sub-contractors, supply and demand can be matched.

. A list of joint-venture opportunities. Working on the

same principle the center may introduce foreign

firms to the right partner.

. A list of export opportunities. Here the provider

of information whould be the Ministry of Trade.

. A list of licensing opportunities. The center may

also act as project office for a consortium of small

businesses who may pool their resources in the

competitive tender situations where none of them

has the size or resources to act alone.

c) Research and Education

We stated in Chapter VI that various programmes already exist at

different levels for entrepreneurs and small businessmen, but

that these programms essentially derive from western management

methods. Tle specific needs of Indonesian entrepreneurs are

left out of account and instructors Jack both the teaching material

and the specialised training to cope with small business problems

and needs. We propose the creation of a Centre for Entrepreneurial

Education and Research operating at the National level (National

Centre for Entrepreneurship NCE) and at the Regional Level

(Regional Centre for entrepreneurship - RCE) to coordinate and

promote Training and Research in the field of entrepreneurship.

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This Centre would complement rather than replace existing

university and other facilities serving them as a teaching

and research centre. The center would have to generate,

evaluate, fund and sometimes carry out research programmes.

These would be mainly carried out by University or other

organisations but the center would provide the staff and

funding for most of the research: The facilities required

would be as follows:

- A library and documentation center dealing with entre-

preneurship offering researchers up to date national and

foreign publications.

- Computing Services

- Counselling and monitoring staff for researchers

- Workshops

Funding could be achieved through contract research and grants.

Some fruitful areas of research might be:

- The relationships between cultural traits and entrepreneurial

attitudes.

- The different types of management concepts and technology

appropriate to small businesses.

- The influence of family and religion on entrepreneurial attitudes.

- The process of technology transfer.

- The effect of large entreprises on the creation of small

businesses.

The training department would have to:

- organise teaching research

- develop teaching material

- train trainees

- implement programmes in the field

— 62 —

Both the forgoing and the previous chapter argue for a pressing

need to:

- create an educational development unit which could develop

teaching material (case studies, filing, audio-visual) and

packages based on the work of the research centre and other

organisations.

- organise a set of traîner programmes; at a higher level

this centre could organise workshops for doctoral students

wanting to specialise in Entrepreneurship. This would

be done in collaboration with universities and with the

research department.

At the secondary school level the centre could set up a six

months diploma course for teachers wbo wanted to specialise

in this field. It could also initiate a two year programme

for high school graduates who wanted to become teachers/advisors

in the region. Finally short refresher courses could be

offered to current practitioners in the field.

- disign regional programmes for entrepreneurs.

These would form part of the Integrated Entrepreneurial develop-

ment projects described below.

- organise introductory and retraining programmes for retired

military men, civil servants etc...

The Educational Development unit could evolve from the present

Institute for Wiraswasta.

d) Integrated Entrepreneurial Programms

Chapter V pointed to a Jack of coordination between the various

activities and programmes managed by different agencies or

institutional bodies. While the creation of a Foundation for

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Entrepreneurship would bring about coordination at the policy

level there is a need to complement it at the operational level

through Regional Entrepreneurship Development projects. These

would be planned and decided by the Foundation for Entrepreneurship

Development and would be under the responsibility of a project

board, appointed on an Ad Hoc basis and chaired by a business-

man; local government representatives from educational and banking

institutions would participate. The idea is to design a fully

integrated programme in a given region for a number of selected

industries.

The programme would fund, counsel, train and monitor the creation

of new businesses and the development of existing small businesses.

Trainers and advisers who graduated from the Educational develop-

ment unit would play a major role together with civil servants from

public sector bodies (PPIK, trade, cooperative). The coordination

of activities (financial support, technical assistance, plant

development, distribution, training) would be carried out by a

programme director under the supervision of the project board.

VII 2. Role of KADIN

In the previous section areas ripe for strategic intervention have

been identified in order to stimulate entrepreneurial development in

Indonesia. What role should Kadin play in such strategies?

It is always difficult for an outsider to tell an organisation what

to do. Yet, we feel strongly that the key to entrepreneurial

development in Indonesia is the role played by the business community.

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Kadin is the institution which in law represents the business

community hence the latter's involvement in entrepreneurial

development in Inklonesia will necessarily goes through KADIN.

What foret can it take? To answer this question one has to look

at the Kadin's strengths and weaknesses as an organization.

This is difficult to do comprehensively without a careful organ-

izational study but the impressions gathered during the study

and during various trips in Indonesia allow one to make some

general observations.

One of Kadin's strengths is that it is legally recognised as being

representative body of the business community in Indonesia; it

further benefits from the personal involvement of talented managers

and businessmen who make it function. Finally, its national network

extends to all the provinces. One should also add that, while not

exactly part of Kadin, the Institute for Wiraswasta is managed by

a prominent man involved with Kadin; it can therefore be con-

sidered as a resource upon which Kadin can draw on matters of

entrepreneurial development.

Kadin's weaknesses appear to be:

- A limited financial base - funding is organized on a voluntary

basis.

- Too few participating businessmen. While the businessmen

who are involved in Kadin are talented they are not numerous.

- Understaffing due to lack of funds.

- A lack of balance in the regional effort.

- A weak public image. Kadin is not granted the prestige that

it deserves.

-65-

-, A lack of coordination of its acitivties

- A lack of balance between short and long terni efforts.

Given its limited resources Kadin cannot at present carry out

all the activities proposed earlier but it should at least define

its role as a catalyst or change agent.

This suggests that Kadin should concentrate on specific actions

which offer a multiplier effect with respect to the strategies

discusses.

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VII. 3. SPECIFIC ACTIONS

In order to realize its role of catalyst Kadin should undertake actions

which on the one hand reinforce its internai capability to deal with entre-

preneurship development and enhance its visibility in the public opinion,

and opinion makers. On the other hand Kadin should initiate or support

actions in line with the proposed strategy.

1 - Enhancement of the internai organisation of Kadin

The first step would be to conduct an audit of Kadin organisations across

Indonesian provinces. The structure, the people in charge, the actions.

taken, the local image, the mode of functioning - the audit should be conducted

with the help of an outside "local" consultant.

His audit would generate a precise view of the resources available both

in ternis of financial and human resources.

From this audit the needed adjustment should be taken.

The second step would be to have for each Kadin a permanent staff in

charge of "entrepreneurship affairs". This staff could be developed and

trained, essentially through the learning and expérience of other countries.

A special training programme could be designed for that purpose.

2 - Develop visibility of Kadin

2.1 Organisation of a conference on entrepreneurship development

Kadin should take the initiative to organise for 1970 a conference on

entrepreneurship development. To this conference would be invited ail the

représentatives of the institutions (public and private) involved in entre-

preneurship development: ministry, banks, university and research staff,

consultants...

Government officiais members of national and regional assemblies would also

attend along with businessmen coming from various industrial sectors.

Papers on current experiences would be discussed. Different proposais

such as the creation of foundation for entrepreneurship would be discussed.

- 67 -

This conference could be the basis to motivate the participants to the

need of a coordinated action.

2.2 Involvement in Public Relation activities

The Chairman of Kadin should participate systematically to symposia,

conferences. TV conferences and publish articles in which he explains the

Kadin's position on entrepreneurship. His envolvement should be supported

by similar actions from the part of the chairman in the regional Kadin.

Such activity should benefit from the already existing programmes initiated

by Dr. Superman.

3. Develop the Institute of Wiraswasta

The Institute of Wiraswasta could be the nucleus of the Centre for

Entrepreneurship Education and Research described earlier. The Kadin could

make an agreement with this Institute in order to:

(a) Recognise officially its role as the Centre for Entrepreneurship

education and research

(b) help the Institute to collecte the financial resources necessary

for its development

(c) integrate the activities of the Institute within the overall actions

undertaken by Kadin.

The development of the Institute could be enhanced by outside support

from international public or private organisations.

4. Promote the creation of the Foundation for Entrepreneurship

The Kadin should play a leading role in the creation of the Foundation

for entrepreneurship, which was suggested earlier. Contacts at Government

and parliamentary levels should be organised to install the idea of such a

foundation among policy makers. These preparatory actions would culminate at

the conference described in paragraph 2.1, the objective being that the

conference would recommend the creation of such a foundation while the policy-

makers would be prepared to accept it. It seems to us that the chairman of

Kadin should also be the chairman of the foundation for entrepreneurship.

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5. Promote the concept of Integrated Entrepreneurship Programmes

As it was suggested earlier the realisation of Regional Integrated

Entrepreneurship Programmes (RIEP) is one of the Keystones of the strategy

proposed. In order to implement such programmes there is a need to obtain

the consensus of various ministries, to select one region where a pilot

project could be launched, to select a programme director and a project board,

to design the programme (feasibility study, plan of operations, choice of

interviewing and to organise the financing) the role of Kadin in this respect

should be to initiated the process by which such a programme could be organised.

In this respect the appointment of a project group within Kadin, chaired by

one dynamic member of a regional Kadin when the pilot project could be implemented-

could constitute a s:_art up of such an operation, along with the necessary

contacts at various government levels.

6. Undertake a survey of current practices in South East Asia

The Kadin should undertake within the framework of the ASEAN Chamber of

Commerce a survey of the varions experiences conducted in various countries

on entrepreneurship development. Their survey would be benefical for Kadin in

two respects : first it would increase the knowledge of what is done elsewhere

and which could be reflicated in Indonesia. Secondly it would reinforce the

visibility of the Indonesian Chamber of Commerce among its four other partners.

The six actions proposed would constitute the platform by which Kadin would

demonstrate to the Indonesian community its willingness to play a major role in

entrepreneurship development in Indonesia.

- 69 -

GENERAL CONCLUSION

This report is the result of a rapid investigation; it cannot pretent to have

gone very far into the identification and analysis of all the factors, especially

since the author did not speak the local language and was faced with the permanent

trade off between deepness comprehensiveness and time. He has tried to present

an overall picture looking at different facets at one point in time. However

in doing the study he has gained the deep conviction that the future of Indonesia

will be a function of her capability to generate more and more entrepreneurs and

especially in the part of the population who until now has been weak in this

respect. This does not mean that this goal should achieved at the expense of

another part of the same population ; we are not faced here with a zero sum game

where one side can gain only if the other looses. The immense potential of

indonesia in terni of human and natural resources is an asset which can be beneficial

to every indonesian citizen. The other general conviction gained during the study,

and we hope that the report has conveyed this impression is that a solution cannot

be reached without a definite, comprehensive, integrated and urgent action which

implies the mobilisation of numerous talents. Those talents surely exist in the

country, they need to be activated through a clear strategy and a thorough

implémentation: the author has attempt to outline the main components of such a

strategy which call for a deep involvment and leadership of the business community.

Surely those propositions need to be refined, augmented and discussed.

The author hopes that the suggestions made in the study will be useful as a

starting point, upon which a common distillation of voices and opinions which

characterize the Musyawarah process of decision-making, a final consensus can be

achieved.

- 70 -

A CONTRIBUTION TO THE STUDY OF ENTREPRENEURSHIP DEVELOPMENT IN INDONESIA

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