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Automotive and Aerospace Industry Cluster Development

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Chapter I


Indonesia is a huge country in terms of population and size, the policy for developing a nation with characteristic of Indonesia is challenging. As this thesis going to be presented, Indonesia is facing its fifth democratic election. In which this election will choose new president for Indonesia. The Indonesia policy is known with the word “ New leader new policy “, which mean that there will be a new approach of policy from the new government. This “new policy” also affect the economy. Although the current President has set up a long term policy framework, that can be used for the new government as its policy basis, there will be a slight or extreme modification to the policy.

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Nevertheless, analyzing the situation that Indonesia will face in the future and realizing the fact that Indonesia is started growing as to be in the list of the world top ten biggest economy in brings me the curiosity to explore more about Indonesia current economic condition.

The reason above become the major motivation for me to write this thesis, besides an encouragement that is coming from a short a discussion with my superior in the office, whom told me that the ministry is currently doing an evaluation for the Indonesia manufacturing policy, he mentioned that currently Indonesia manufacturing sectors are facing a heavy challenge since the world entering the free market area. Indonesia need to strengthen its policy in manufacturing sectors for building a stronger foundation for the economy.

Indonesia manufacturing sectors has been growing post the ASEAN Crisis, however the number of growth does not exceed the number before the crisis as we can see in the figure below.

The figure above show that before the ASEAN crisis, the growth of manufacturing industry, exceed 10% in 1996, then a sharp drop at 1998 with -11%. The year after the crisis show that the manufacturing has not reach the same level of growth before the ASEAN crisis. According to the Ministry of Industry, the slow growth is an excess which the policy post the ASEAN crisis in the year 1999-2004 are focusing in stabilizing the currency and the inflation rate.

After SBY selected as the President in 2004, the direction of for industry development are becoming clear, in which SBY acknowledge the need of a higher investment in manufacturing sectors for boost the economy as imply in the Indonesia Midterm Development framework. However the development of the manufacturing sectors are actually started to decrease interms of sectors proportion from Indonesia growth.

The figure below shows that the contribution of manufacturing sector are decreasing. 

Refer to the table above the gradual decrease of the manufacture sector show that Indonesia economy started to shift with other sectors, especially the constructin, agriculture and mining sectors. In order to enhance the industrial development, The Ministry of Industry started to implement the Industrial cluster policy, through the implementation of President Regulation No, 28/2008 about National Industry Policy. The goals of the regulation is implement policy and regulation measures to strengthen the manufacturing sectors for building a strong basis for Indonesia to achieve is status as a developed country.

The president regulation emphasize that Indonesia manufacturing should be build through combination of implementing the industry cluster and local industry competence (the local industry competence is similar with OVOP (one village one product). The regulation targeted that Indonesia will join the developed economy in 2025.

Problem Statement

This thesis will discuss and try to evaluate the policy based on two industrial clusters, which are automotive industry cluster and aerospace industry clusters. The reason to choose the two clusters are based on these condition, First, according to contribution for industry growth. The transportation and machinery contribute 28% of the manufacturing industry growth, Second the transportation and machinery according to the table below

] shows a on average above 10% leading other sectors. The high growth may be cause be the result of successful industrial policy. However according to the data obtain from the Ministry of Industry, the two cluster that include in this sectors have different stories, the automotive sectors consist of 420 companies, while the aerospace industry only consist of 2 existing companies.

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The differences in the number of companies are not going to be the subject of the research, However the figure may shows that automotive industry are more successful than the aerospace industry, this conclusion need to be challenge further. Since the nature of the industry is different, it is possible that the government may have different policy approach for each industry, and this policy lead to different outcome.By focusing on this two sectors this thesis try to research further about the cluster condition by evaluate it current state. Through evaluating the two clusters, this thesis trying to find answers of these questions.

I. 2 Research Questions

1.What is the current state of cluster development for the Automotive Industry and Aerospace Industry?

2. Does the current state of cluster development of these industries, can be categorized as a successfull cluster?If not why?

3. Does the cluster assessment framework used are adequate for assessing the Indonesia cluster development?

4. What are the policy recommendation for Indonesia government for these two sectors?

I. 3 Methodology

As imply in the research questions, the thesis will used case study approach. The detail explanation on why I choose the two clusters is already mention above. By using the case study the thesis can limit its scope of research. Furthermore the thesis try to explain the current condition of each clustes, which among the two are more successful, does the framework of this thesis can be for assessing the cluster development in Indonesia and what are the option for future Indonesia industry development. Describing the cluster development is indeed a huge task even for one cluster. In order to limit the scope of the study the cluster analysis is done in the meso level. Cluster analysis can be done in three level (den Hertog et.al 1999 and Roeland et. Al. 2000 in Onoparatvibool 2010). First the national/macro level, second the industry/branch or meso level, third the Firm/micro level. Since I focus on the meso level, I try to describe both cluster with a brief history on how the industry develop in Indonesia start through summarizing previous research as well as using several data that is obtain from Indonesia Statistics Furthermore, I’m trying to limit the timeframe that I will evaluate for the industrial cluster development is the year 2004-2012. The timeframe is choosen because the policy that specify using industrial cluster approach implemented during the years. In related to that the timeframe shows a stable industrial growth for Indonesia, as imply in the previous graph. The tools that will be used to assess the cluster policy are Michael Porter Diamond Model and NISTEP Cluster Assessment. The background for using both models, is that I want to compare different approach in assessing the cluster policy. Michael Porter Diamond Model use a static model to evaluate, in which the cluster is evaluate based on the current state. While the NISTEP Cluster assessment used a dynamic approach, that shows a gradual condition of cluster development. More details about the two cluster policy will be detailed in the next chapter.



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