Industrial Technology

Enhancing Indonesian Industrial Competitiveness through Industrial Technological Development

International experience, particularly in East Asia, has indicated that raising industrial competitiveness requires investments in various kinds of technological capabilities, including procurement, production, design, engineering, marketing, and other kinds of capabilities (Lall, et.al., 2000: 20). Developing these technological capabilities is particularly important for raising Indonesia's export competitiveness, as its manufactured exports has mainly consisted of resource- and low skill labour-intensive products, which generally involve less effort, risk, and externalities. However, rapid and sustained manufactured export growth requires moving from easy to complex products and processes within activities, and across activities from easy to complex technologies (Lall, et.al., 2000: 20).

Following Lall, (1996a) and a World Bank study on the conditions affecting Indonesia's industrial technology development (World Bank, 1996), we identify the basic and enabling conditions influencing a developing country's industrial technological development.

The basic conditions for industrial technology development in Indonesia are:

1. The pursuit of sound macroeconomic policies, as low inflation encourages firms to make long-term investments in technology development;
2. The pursuit of pro-competition economic policies, as a competitive environment is conducive to drive firms to rapidly adopt and diffuse new technologies, and make an efficient use of new technologies;
3. The upgrading of human resources, as the technical human resource base is a key input into the process of acquiring, using, improving, and developing technologies. In addition to these basic conditions, a number of enabling conditions should be met or created through policies that:;
4. Improve manufacturing firms’ access to foreign technologies through various channels;
5. Improve the availability of finance for industrial technology development;
6. Improve the effectiveness and performance of technology support services.

Governments have to create the policy environment for 1) and 2). The pursuit of sound macroeconomic policies and pro-competition policies constitute the incentive system, which stimulates a firm's demand for improved technological capability. Points 4), 5) and 6) help to improve the supply-side capabilities of a firm. Governments clearly have a role in investing to upgrade human resources, and in ensuring an adequately functioning financial system. They may also need to invest directly in technology support services and in some R and D. On the critical issue of access to foreign technology their role will largely to ensure there are no serious administrative barriers for national firms, who seek this technology.