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Small and medium-sized enterprises (SMEs) continue to receive significant attention from both Indonesian policy-makers and researchers. One explanation can be found in the important role SMEs play in poverty alleviation. The sector accounts for a considerable amount of employment for workers. It has been able to adjust to the financial crisis and maintain employment levels while other sectors of the economy have contracted. However, SMEs are not only associated with poverty alleviation and job creation, they can also create productive jobs, adopt innovations and export successfully. This chapter concentrates on SME exports from Indonesia since the 1997–98 crisis. Ter Wengel and Sandee (2004) show that SME exports have increased significantly during that time. From 1996 to 2000, SME exports increased by 83 per cent while the exports of the largest enterprises decreased by 10 per cent. Ter Wengel and Rodriguez (2004) have analysed the factors that explain SME export performance in Indonesia. Both existing and new SMEs have generally participated in the growth of exports that is concentrated in so-called clusters or agglomerations of firms in the same subsector. Ter Wengel and Rodriguez note the importance of foreign buyers and investors in promoting SME exports. Small firms that have a relatively large share of exports in total sales tend to have better developed links with foreign counterparts than do other firms. This chapter attempts to show the importance of strategic alliances between foreign buyers and Indonesian small firms in promoting exports. Buyers are involved in a much wider range of supporting activities than is generally assumed. We show that strategic alliances are an essential part of upgrading technological and marketing capabilities of small firms and provide examples based mainly on our own fieldwork in Indonesia. The chapter is arranged as follows. First, we present an overview of SME exports in Indonesia since the crisis. Next we look at explanations for this rapid 108 7 EXPORTS BY SMALL AND MEDIUM-SIZED ENTERPRISES IN INDONESIA Henry Sandee and Peter van Diermen growth. Then we review some of our own experiences in examining collaboration and competition among foreign buyers and Indonesian exporters. The furniture industry in Jepara, a region of central Java, will be one of the cases discussed. Other case studies are based on recent interviews with SME exporters in Jakarta and the surrounding area. Finally, we discuss policy issues. One of the challenging questions concerns how foreign buyers can be involved in policy formulation for SME exports. SME EXPORTS FROM INDONESIA SINCE THE CRISIS Shortly after the 1997–98 crisis, people gained the impression that SMEs were weathering the crisis better than larger companies. Longitudinal data sets from the Central Statistics Agency (BPS) allow further analysis of trends in the SME sector. Table 7.1 presents data from the annual manufacturing surveys for the period 1996–2000. The data refer only to firms with more than 20 workers and therefore do not allow an exhaustive analysis of the small-scale sector. Table 7.1 suggests that the total number of manufacturing enterprises in Indonesia decreased slightly during the period. It shows that firms employing 20–49 workers were most affected by the crisis. Interestingly, the SME sector recorded EXPORTS BY SMALL AND MEDIUM-SIZED ENTERPRISES IN INDONESIA 109 Table 7.1 Firms in the Manufacturing Sector, 1996–2000 Firm 1996 Closures, Remaining New 2000 Sizea 1996–2000 Firms Firms (no.) (%) (no.) (%) 20–49 12,519 4,468 35.6 8,051 3,232 40.1 11,283 50–99 3,798 772 20.3 3,026 878 29.0 3,904 100–199 2,607 400 15.3 2,207 559 25.3 2,766 200–499 2,261 304 13.4 1,957 400 20.4 2,357 500–999 1,007 102 10.1 905 133 14.7 1,038 1,0001,000 –118,745 –74,705 144,956 –48,494 1,807,626 –2.6 Total –509,487 77,050 883,781 151,849 7,214,967 2.1 a Number of workers. Source: Ter Wengel and Rodriguez (2004). smallest firms increased by 83 per cent. Export growth was also substantial for firms with 50–99 and 100–199 workers. The boost came from both expansion by existing exporters and new entries in the export market. However, the share of the SME sector in total manufacturing exports continues to be limited. EXPLAINING SME EXPORT PERFORMANCE Berry and Levy (1999) discuss SME exports from Indonesia prior to the crisis. They conducted fieldwork in Java among...

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