Tulus Tambunan Indonesian Chamber of Commerce and Industry Center for Industry and SME Studies, University of Trisakti,
Jakarta-Indonesia Visiting Fellow
Center for Northeast Asian Economic Cooperation CNAEC, Korea Institute for International Economic Policy, Seoul, August 2007
I. Introduction
in the last few years, ASEAN, probably the most ‘living’ trade bloc within the developing world, has expanded their market by establishing bilateral or multilateral free trade areas FTAs with many strong
economies outside the bloc, including two in Asia, i.e. Japan and the Republic of Korea ROK. Since foreign direct investment FDI is strongly linked to external trade, it is then generally expected that
the economic integration between ASEAN and these two economies will improve not only trade between the two parties but it will also encourage FDI to increase from Japan and ROK into ASEAN, including Indonesia.
In Indonesia, it is generally assumed that the increase of FDI inflows from these two countries will bring net benefits, not only in the form of employment creation and export growth but also in the form of transfer of
technology,
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especially to small and medium enterprises SMEs, through subcontracting production linkages. In the literature on development of SMEs in developing countries it is often argued that a key to increasing
the competitiveness and productivity of these enterprises is to build their capacities through improved technology.
This technology development can take place internally inside the firm or can be fostered through access to outside sources, such as transfer of technology from multinational companies MNCs, technical
licensing agreements and imported capital goods. Technology here is defined broadly including product,
process, as well as management skills. The main aim of this study is to examine empirically the role of FDI from Japan and ROK in technology
transfer to local manufacturing SME in Indonesia. Specifically, it addresses the following simple question: how important are Indonesian based companies from ROK and Japan in technology transfer to SME in
manufacturing industry in Indonesia? Methodologically, this study is based on: 1 a review of key literature on FDI with respect to its role in
transfer of technology; 2 secondary data analysis on the development of FDI from ROK and Japan in Indonesia
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As generally realized, there is no universally accepted definition of technology. The most common approaches define technology as a collection of physical processes that transform inputs into outputs and the knowledge and skills that structure the activities involved
in carrying out these transformations Kim 1997, page 4, or as stated in Rosenberg Frischtak, 1985 that technology is a quantum
of knowledge resulting from the accumulated experience in design, production and investment activities that is retained by individual teams of specialized personnel. This knowledge is mostly tacit and often is not made explicit in blueprints or manuals. So,
technology and knowledge will be used interchangeably in this study.
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metalworking industry in Tegal. With respect to the survey, it used a multi-method approach, i.e. interviews and focus group discussions.
Since this study is exploratory, during the survey, the author remained open to less tangible factors that could have an impact on technology transfer from FDI-based companies to local SMEs. So, this study was conducted
according to the descriptive and hypothesis-generating approach Yin, 1989 rather than the hypothesis-testing model. In the clusters, the respondents were selected on the basis of pattern-matching, but on the basis of
logistics and willingness of them to participate in the interviewing process. Since factors that may influence the process of technology transfer are possibly numerous, and the data that might help in hypothesizing regarding
these factors are rare, not only semi-structured but also in-depth interviews were adopted to get many evidence as much as possible in order not only to have a deeper understanding of the process of technology transfer and
their determinant factors, but also to increase the validity of the study Kirk and Miller, 1986.
II. The Importance of SMEs in Asia
