نقش قرارداد فرعی(دست دوم) در توسعه شرکت های کوچک و متوسط اندونزی :: مدارک و شواهد در سطح خرد از صنعت ماشین آلات و فلزکاری

This study investigates whether subcontracting linkages are an important support mechanism for the development of Indonesian small- and medium-scale enterprises (SMEs). It estimates production functions and calculates indices of total factor productivity (TFP) based on micro-level data from 60 metalworking and machinery firms that supply their products to automobile, motorcycle, agricultural machinery and bicycle manufacturers. The estimation results confirm our main hypothesis that inter-firm cooperation through subcontracting ties increases productivity of Indonesian SMEs. This study implies that the situation where subcontracting ties in Indonesia did not function well in supporting SMEs has been changing recently. Better financial access and business continuity are important in facilitating subcontracting transactions, which can provide SMEs with support necessary for improving productivity. A comparison of TFP indices indicates differences in productivity between firm groups. Larger SMEs, non-pribumi SMEs and SMEs producing automotive/motorcycle parts have, in general, higher TFP than their counterparts.

The role of small- and medium-scale enterprises (SMEs) in the process of industrialization and economic development varies according to the type of economy, stage of economic development and sector of industry. Berry and Mazumdar (1991, p. 35–39) list common reasons for the importance of SMEs in developing countries, such as (1) the high share of SMEs in economies in terms of the number of establishments, the number of employees, the value of output, etc.; (2) the contribution of SMEs to the favorable combination and utilization of production factors (i.e., labor and capital) through the adoption of technologies appropriate to resource endowments and through this participation in an inter-firm division of labor;1 (3) the contribution of SMEs to the establishment of foundations for industrialization; and (4) the contribution of SMEs to a more equal income distribution as a consequence of their larger share in labor earnings. SMEs in Indonesia are regarded as an important issue in the economy.2Hill (2001, p. 248–250) lists reasons why SMEs are spotlighted in Indonesia: (1) the significant contribution of SMEs to the economy (e.g., workforce and output);3 (2) high priorities given by the government to SMEs; (3) the potential role of SMEs in promoting pribumi (indigenous Indonesian) enterprises that have lagged behind the business race with non-pribumi (ethnic chinese) counterparts; (4) the necessity to formulate economic policies different from those for large-scale enterprises (LEs), because of SME-specific characteristics such as higher concentration on particular industrial activities, less foreign ownerships and less export orientation; (5) the expected role of SMEs in promoting industrialization; and (6) the better response of SMEs to the 1997–1998 crisis, relative to LEs. SMEs have these potential roles in economic and industrial development. At the same time, however, as Berry and Mazumdar (1991, p. 54–58) stated, many SMEs in Asian developing economies have suffered from their insufficient capabilities in technology, management, marketing and financing and from a lack of access to effective support systems. Similarly, Urata (2000, pages, 22–27, 87–96) found that the main problems SMEs in Indonesia face are (1) lack of technological knowledge; (2) lack of marketing knowledge; (3) lack of managerial knowledge; and (4) poor access to formal financial sources. Insufficient entrepreneurial and managerial skills are typical internal constraints to SME growth, while limited access to technologies, markets and credit and government policies in favor of LEs are common external constraints (Schmitz, 1982, p. 430–441).4 It is difficult for SMEs with limited human and financial resources to acquire technology, develop markets and arrange financing by themselves. SMEs cannot rely on their internal resources to the same extent as LEs. Given such internal constraints, how can developing economies foster SMEs? According to Berry (1997, p. 7), the above limitations for SMEs make the assistance from and collaboration with LEs imperative. The typical economic logic for inter-firm cooperation between LEs and SMEs is found in the fact that LEs can do some things better than SMEs. Berry (1997, p. 6) pointed out that apart from the fostering of entrepreneurial capabilities, one of the main determinants for the success of SME development is the establishment of useful linkages between LEs and SMEs through subcontracting arrangements. He emphasized that this kind of “linkage-inducing” policy is, mostly and in most places, a new and experimental issue with considerable potential. Hondai (1992, p. 176–178) specified the following main benefits which SMEs can obtain from subcontracting transactions with large-scale parent (assembler or higher-tier supplier) firms: (1) the reduction of information and transaction costs through subcontracting ties, which includes easy and cheap acquisition from large-scale parent firms of new technologies, product designs, production processes, management methods, marketing and input materials; (2) the reduction of risks and uncertainty and an increase in expected rate of profit as a consequence of stable orders and better payment conditions; and (3) the improvement of creditworthiness (e.g., debt guarantee by parent firms).5 Our previous study clarified channels and usefulness of external support for SMEs, based on an interview survey of 61 local companies in Indonesia (Hayashi, 2000). This qualitative study of metalworking and machinery enterprises in the Indonesian automobile and motorcycle industries found that vertical inter-firm cooperation through commercial transactions was perceived as one of the most effective sources of technical and marketing support to SMEs. The finding indicated the positive role of subcontracting ties in improving technological and marketing capabilities of SMEs. By implication, it is possible to hypothesize that subcontracting transactions contribute to the improvement of productivity of SMEs.6 The present study seeks to prove that subcontracting linkages are an important support mechanism for the development of SMEs in Indonesia. More specifically, the study seeks to answer the following questions. (1) Do subcontracting linkages have a positive impact on labor productivity and total factor productivity of SMEs? (2) What major factors facilitate subcontracting businesses with large-scale parent firms? (3) Are there any differences in labor productivity, total factor productivity and subcontracting between different firm groups within each firm category in terms of firm size, ethnic affiliation of ownership and subsector? To answer these questions, the study estimates production functions and calculates indices of total factor productivity (TFP) based on micro-level data. According to Kalirajan, Obwona and Zhao (1996, p. 331–335), the TFP growth, the growth in output not explained by input growth, can be decomposed into technical progress and technical efficiency improvement. The former, technological progress, is either capital- or labor-intensive. For economies like Indonesia, it is better to be labor-intensive because it is a low income and labor-abundant country. The latter, technical efficiency change, concerns the efficient allocation of all inputs, and labor is very crucial. Labor productivity is, therefore, a very important component of TFP. This is the reason why this study employs labor productivity as a scale of the contribution of subcontracting to the efficiency improvement of SMEs. There are several studies which focused on subcontracting linkages in Indonesia in the context of SME development.7Thee (1985, p. 219–288) and his colleagues, pioneers in this field, analyzed vertical inter-firm networks between large assembler firms and small–medium metalworking supplier firms mainly in the diesel machine industry. Based on their findings in the early 1980s, relations between LEs and SMEs in Indonesia were sparse and types of their linkages were limited. They concluded that subcontracting ties in Indonesia were still weak and did not function well in extending assistance to SMEs. However, recent research tends to document the positive role of subcontracting linkages in the development of SMEs in Indonesia. Berry and Levy (1999, p. 50) pointed out that subcontracting relationships provided SMEs in Indonesia with an important opportunity to learn technology, referring to the results of their case studies in rattan furniture, wooden furniture and garment sectors. In an analysis of parent firms in bicycle and engineering sectors, Harianto (1996, p. 52–66) found benefits of SMEs from intensive technical linkages in subcontracting ties. Sato (1998, p. 134–137) illustrated a case in which a higher-layer supplier firm in the Indonesian motorcycle industry fostered its subcontractors through the provision of production facilities and training programs on technology and management. These previous literature on the Indonesian SMEs dealt with subcontracting issues in a qualitative way. This study attempts to provide a new type of evidence based on a quantitative analysis and to statistically examine the current roles of subcontracting linkages in the development of SMEs in Indonesia. For our analytical purpose, subcontracting in this study is defined as a type of business transaction in which one party (subcontractors or supplier firms) is commissioned by another party (parent firms, assembler firms or higher-tier supplier firms) to provide intermediate products or processing services necessary for products manufactured by the latter. Subcontracting differs from mere market transactions of ready-made parts/components or standardized services in that such products or services supplied by subcontractors are based on specifications (quality, function, shape, design, etc.) issued by parent firms.8 The rest of the paper is organized as follows. Section 2 gives a brief explanation of the sampling procedures and an overview of the characteristics of sample SMEs. Section 3 sets forth our analytical framework and Section 4 analyzes the role of subcontracting transactions in the improvement of labor productivity of SMEs based on the results of estimating production functions. Section 5 compares TFP indices among different types of sample firms and also discusses the relationships between TFP and subcontracting. The conclusion answers the three questions raised above.

As illustrated in the above, due to measurement errors in capital stock, the production elasticity of capital may be underestimated in this study, and this results in biases in the estimated production functions. Besides, the sample size was relatively small and some of the data obtained from our field survey were affected by the crisis.25 Despite these shortcomings, our micro-level evidence from the metalworking and machinery industry yields the following findings, which answer the three questions set forth in the introduction. With regard to the first question, this study found that the role of subcontracting linkages in improving labor productivity of SMEs is pivotal. According to the estimated production functions, the subcontracting ratio is the dominant variable in explaining variation in labor productivity. Also, indices of TFP vary in line with contribution of subcontracting to TFP. These findings confirm our hypothesis that inter-firm cooperation through subcontracting ties can increase productivity in small–medium metalworking and machinery firms in Indonesia. Earlier research represented by Thee (1985) and his colleagues argued that subcontracting networks in the Indonesian machinery industry were weak and did not provide SMEs with opportunities to sufficiently improve technical and other capabilities. However, our findings point to a different conclusion, indicating that subcontracting linkages are strengthening and are beneficial to SMEs in improving their productivity. This quantitatively supports recent studies by, for instance, Berry and Levy (1999), Harianto (1996), Hayashi (2000) and Sato (1998), which observed the development of subcontracting networks and the provision of support to SMEs through such linkages in the process of industrialization in Indonesia. The difference between Thee’s findings in the 1980s and ours in the 1990s would be attributed to the progress of industrialization in Indonesia and changes in industrial organizations during the last 10–20 years. Also, there is a possibility that such different pictures appeared because the two parties analyzed different SME groups. Thee and his colleagues focused on smaller SMEs in the diesel machinery subsector, while this study covered not only smaller SMEs in the agricultural machinery subsector but also larger SMEs in the automobile and motorcycle subsectors. This point is what we discuss in our third question and answer described below. The estimated production functions provided additional findings in relation to factors for increasing labor productivity. Higher levels of formal education and better financial access are positively related with labor productivity of SMEs. Concerning our second question, the estimation of subcontracting ratio functions reveals that better financial access and business continuity are important in facilitating subcontracting transactions, which can provide SMEs with support necessary for improving productivity. These findings imply that financial capabilities and creditworthiness are required to expand subcontracting transactions. Parent firms are likely to prefer supplier firms that are reliable, are able to maintain production stable and have reasonably modern production facilities. On the last question, the estimated subcontracting ratio functions illustrate that non-pribumi owners expand subcontracting businesses more easily than their counterparts. While different firm groups in other firm categories (i.e., firm size and subsector) did not significantly affect the levels of labor productivity and subcontracting transactions, most of the signs of the coefficients related to such firm categories were consistent with the initial expectations. Based on the comparison of TFP indices, larger SMEs, non-pribumi SMEs and SMEs supplying automotive and motorcycle parts have, in general, higher TFP than smaller SMEs, pribumi SMEs and SMEs producing agricultural machinery and bicycle parts. The results indicate that there are differences in the level of total factor productivity between the former and the latter SME group in each firm category of firm size, ethnic affiliation of entrepreneurs and subsector. These differences are consistent with the conclusions of previous studies by Berry and Levy (1999, p. 70) and Hayashi (2000, p. 282). They pointed out that, compared with their counterparts, larger SMEs and non-pribumi SMEs have better access to support mechanisms, in particular subcontracting linkages, in the private sector, which provide SMEs with low transaction costs. Different SME groups have uneven access to subcontracting networks and this may be one of the key factors that explain differences in the efficiency of production.