regional innovation policies in indonesia - tatang taufik

Indonesia’s Sub-national Innovation System Policy and Programmes1

Tatang A. Taufik2

ABSTRACT

Innovation system approach has received growing interests among academic communities and practitioners as well at least in the last two decades. This paper gives a very brief overview of some current issues relevant to the national and regional innovation system development in Indonesia. In this paper, the author argued that although the Government set its science and technology (S&T) policy direction in the National Mid-term Development Plan 2005-2009, up to now there has not been a consensus systematic and systemic policy framework to develop

innovation system in Indonesia. The paper highlights some generic important innovation policy issues and agenda to address in order to enhance the performance of the regional innovation

system as the basis of the regional competitiveness and the pillar of the national innovation system as well.

1. INTRODUCTION

Responding the dynamics and increasingly complex international and national changes in the Indonesian context, the author identified five universal, fundamental, and interrelated trends affecting the economy performance recently (Taufik, 2005). These are:

� the accelerating rate of innovation and change, driven by development in particular fields of science and technology and intensified competition in many product and service markets,

� tendency towards knowledge economy,

� globalization,

� pervasive development of the network economy, and

� “local specificities” that have been increasingly considered as the determining factors of global competitiveness.

At the core of these fenomena, it has been widely recognized that knowledge (in a broad sense) plays as the driving force. Looking at the interrelated and a “more pragmatic“ angle/dimension (and the “other side” of the same coin) of knowledge creation and diffusion, accordingly, innovation, diffusion of innovation, and learning capability have received increasing attention from academic communities and practitioners, including policy makers.

It has been acknowledged widely [see. e.g., OECD (1999), Edquist (2001), Dodgson and Bessant. (1996), Kline and Rosenberg (1986), and Lundvall and Borras (1997)] that there have been some paradigm shifts of the perspective on innovation in the last two decades. To say it very briefly, these are as the followings:

� The views have changed from “linear-sequential” perspectives (of “technology push” and “demand pull” models) to a system perspective/approach of a dynamic and interactive-recursive model.

1 Presented at the National Workshop on Subnational Innovation Systems and Technology Capacity Building

Policies to Enhance Competitiveness of SMEs,” 3 - 4 April 2007, Kartika Chandra Hotel, Jakarta, Indonesia. 2 Researcher at BPPT (Agency for the Assessment and Application of Technology – Indonesia).

Indonesia’s Sub-national Innovation System Policies and Programmes �

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� Among some recent important trends, more attentions have been given on interactions and roles of actors, and local/regional dimensions, where social learning and social capital, and other local specificities play as more and more determining factors (e.g., regional/local innovation systems and industrial clusters).

� Among policy implications, a more balanced attention on national and regional contexts/dimensions of the innovation policy has been increasingly acknowledged.

The “new” paradigm of viewing innovation from system perspective has developed especially in the last two decades. In this view, “science and technology area” is no longer considered as an exclusive area and isolated from the other interrelated elements (subsystems) and influencing factors, but as an integral part of the innovation system instead. Consequently, from the policy perpective, interventions need to be developed in the innovation system framework to meet good policy criteria and have significant levereging effects in progressing the innovation system and enhancing competitiveness, and supporting other developmental objectives as well.

This paper gives a very brief overview of some current issues relevant to the national and regional innovation system development in Indonesia. The author highlights some generic important innovation policy issues and agenda to address in order to enhance the performance of the regional innovation system as the basis of the regional competitiveness and the pillar of the national innovation system as well.

2. NATIONAL AND SUB-NATIONAL INNOVATION SYSTEM: A BRIEF REVIEW

Perspectives on “innovation” as (both the “process” and the “product” of) the new creation of processes and/or products and/or systems have developed from “sequential-linear model/ perspectives” to a holistic and dynamic “interactive-recursive process” recently. In the system approach, actors and factors, interactions and process directly and indirectly influencing the innovation dynamics are considered as an integral wholeness.

It has been acknowledged widely [see. e.g., OECD (1999), Edquist (2001), Dodgson and Bessant. (1996), Kline and Rosenberg (1986), and Lundvall and Borras (1997)] that there have been some paradigm shifts of the perspective on innovation in the last two decades. The works of Kline and Rosenberg (1986), Dodgson and Bessant (1996a,b), Freeman (1987), Lundval (1992), Nelson and Rosenberg (1993), are among pinoneering efforts elaborating on innovation system (and innovation policy) perspectives. Some discussions give more attention on a more sectoral discussion (such as Malerba, 2002, and Porter), and some on regional dimensions (e.g., Cooke, Heidenreich, Shapira, and Wolfe, among others). Recently, such work by Leydesdorff and Etzkowitz discussed further on the institutional setting, governence, and dynamic interactions amoing actors in the innovation system in the so-called triple helix model.

To say it very briefly, some paradigm shifts in viewing innovation (and S&T-related context as well) are as the followings:

� The views have changed from “linear-sequential” perspectives (of “technology push” and “demand pull” models) to a system perspective/approach of a dynamic and interactive-recursive model.

� Among some recent important trends, more attentions have been given on:

� Interactions and roles of actors (e.g., the triple helix model);

� Local/regional dimensions, where social learning and social capital, and other local specificities play as more and more determining factors (e.g., regional/local innovation systems and industrial clusters).

Tatang A. Taufik �

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� Among policy implications, a more balanced attention on national and regional contexts/dimensions of the innovation policy has been increasingly acknowledged.

Innovation system may be defined briefly as a system consists of a set of actors, institutions (including organizations), networks, interactions dan productive process that influence the direction and rate of innovation and diffusion, and the learning process. In this perspective, a National innovation system (NIS) may be viewed as an integration of some sub-national innovation system. Some may argue that this can raise classical problems of system and sub-system decomposition and integration, such as the boundary, linkages/interrelationships, the environment, and even the “true meaning” and effectiveness of sub-systems in the system itself. Nevertheles, conceptual views needs to be relevant to the pragmatic dimensions if the policy intervention will be designed and implemented as solutions to the real problems. In this consideration, decomposition of an NIS may be considered as analysing of an integration of sector-wise innovation system, and/or an integration of region-wise innovation system (RIS). Taking relevant views discussed in the literature, a perspective on innovations system may be simplified relevant to the subject discussed in this paper then may be described as illustrated by Figure 1. 3

Industrial Cluster 1-A

Industrial Cluster 2-C

Industrial Cluster 3-B

Industrial Cluster 1-Z

Industrial Clusters :

Industrial Cluster 3

Industrial Cluster 1

Sector I

Sector II

Sector III

Region

C

Region

A

RIS RIS

The National Innovation System

RIS : Regional Innovation System.

“Region-wise” Sub-national

Innovation System

“Sector-wise” Sub-national

Innovation System

Figure 1. National and Sub-national Innovation Systems: A Perspective on Regional/Local Uniqueness, Competence, and Cross-sectoral Linkages.

3 In general, science and technology (S&T) system is usually considered as an integral part of innovation system,

and S&T policy is a necessary but not sufficient element of innovation policy.


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Growing from different fields of works, systemic views of innovation system and industrial cluster at sub-national levels may describe a same coin with two different sides. The two concepts may provide two complementing perspectives for comprehending the system and suggest some important policy implications for a more pragmatic purposes.

Policies to influence the progress of innovation system development (usually called as innovation policies) and/or the progress of iindustrial cluster development (usually called as industrial cluster policies), may consist of interrelated policies determined at the national and regional levels as well, and related to sectoral and cross-sectoral dimensions (illustrated by Figure 2). Thus, sub-national innovation policies may be discussed as regional innovation policies and/or industrial cluster policies.

Drawing from some previous related works, a very brief summary of the development in innovation system and policy is shown by Table 1.4

Education Policy

� Knowledge and Skills� Creativity� Professionalism� Entrepreneurship

Macroeconomic Policy� Monetary� Fiscal

� Trade

Industrial Policy� Investment� Taxation - Subsidy � Incentives� Sectoral regulations

R&D Policy Regional Policy

Industrial Progress and Development: Competitiveness, Innovative Capacity, Rate of

Diffusion, Learning, Entrepreneurial Performance

Industrial Progress and Development: Competitiveness, Innovative Capacity, Rate of

Diffusion, Learning, Entrepreneurial Performance

Innovation Policy

Improvement of Existing

Businesses

Investment Development

Development of New Firms (NTBFs)

Science Policy Technology Policy

Example of main focus of the policies

Figure 2. An Innovation Policy Framework.

Learning from others in implementing innovation system and innovation policy perspective, some important aspects need to be considered:

� A systemic view needs to be developed as a common perspective on innovation system development which is the basis for knowledge economy and knowledge society enhancement (not only for S&T development);

4 See for examples: Kline and Rosenberg (1986), Dodgson and Bessant (1996a,b), Lundvall (ed.) (1992), Lundvall

and Borras. (1997), OECD. (1999), and Edquist (2001).


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� Innovation policy framework needs to be developed as the consensus reference for all stakeholders and as integral part of the country’s development policies;

� Adaptive policy framework needs to be developed suitable for the country’s context as the nation-wide agenda (not only as an agenda for the national/central level) and improve continually according to the progress and change in a long-term perspective;

� Coherent innovation policies are required to support conducive climate and culture to innovation.

Table 1. Some Paradigm Shifts on Innovation and Policy Implications.

The View The Era Main Policy Implications

Innovation (i.e., “technological change”) as residual factors of economic growth (neoclassical models).

Innovation has not received special attentions (prior to 1960s).

No adequate attention and efforts for special intervention (as policy issues).

Technology push era (1960s – 1970s).

� Policies emphasized on the supply side of technology were dominant (supply driven).

� Science/research policy were the central theme in the government interventions.

� Technology policy began to develop.

Inovation as a ”linear-sequential process” (pineline linear model).

Demand pull era(1970s – 1980s).

� Policies emphasized on the demand side of technology were increasingly dominating the government attention to intervene the market (demand driven).

� Technology policy and/or science and technology (S&T) policies developed, but most attentions were in a one-way perspective (one-side policy).

Inovation viewed in a system approach as a system of an“interactive-recursive process” (feedback loop/chain link model) of a complex and dynamic elements of creation (actors, activities such as discovery, invention, etc., and other elements), utilization, diffusion, and learning process holistically.

Innovation system era (1980s – now).

Note: New Growth Theory developed.

� Innovation policy (based on system approach) began to develop.

� Innovation policy are more two-side policy considered also as a learning process developed towards the developemnt/strenthening a more adaptable innovation system.

� Innovation policy was no longer the “monopoly” of the “Central” government, but “Regional” government as well.

3. THE INDONESIAN CONTEXT

3.1 The Country Profile

Indonesia is the largest archipelago country, of 17,508 islands (6,000 inhabited), the country with the area of 1,919,440 sq km, populated with about 245,452,739 people (July 2006 est.).

With GDP (purchasing power parity) of $935 billion, GDP per capita of $3,800, and GDP real growth rate of 5.4% (2006 est.) the country still struggles to overcome the Asian financial crisis, and still grapples with persistent poverty and unemployment, inadequate infrastructure, endemic corruption, a fragile banking sector, a poor investment climate, and unequal resource distribution among regions. It was estimated that the country’s unemployment rate was 12.5% with population below poverty line of 17.8% (2006 est.). Declining oil production and lack of new exploration investment turned Indonesia into a net oil importer in 2004.


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Following the implementation of decentralization era, there are 30 provinces, 2 special regions, and 1 special capital city district, and about 448 districts or regencies (as of 2005) which have become the key administrative units responsible for providing most government services.

As the country is still coping with problematical resurrection from its severe crisis, facing the “classical” regional disparity issues of a developing country, and increasingly lagging behind in innovative capabilities even compared with some other ASEAN countries, it is argued that some key reforms are vital as the country is entering the new development era and dealing with the recent global challenges. It is important than for Indonesia to formulate suitable policy framework to develop its nation-wide innovation system, as the consensus reference for the national/central and regional levels as well.

3.2 Science and Technology Policy and Programs

The policy direction of S&T capability enhancement set in the National Mid-term Development Plan (NMDP) 2004 – 2009 is:

1. To sharpen R,D,& E priorities (in S&T) to be oriented to private sector and society’s demand and needs with clear roadmaps.

2. To enhance S&T capacity and capability by strengthening S&T institutions, resources and networks at the central and regional level as well.

3. To create innovation climate in terms of the right incentive schemes to foster industrial structure strengthening.

4. To implant and foster S&T culture to enhance the nation civilization.

Policy direction of S&T capability enhancement is focused on six priorities, i.e.,: (i) development of food security, (ii) generation and utilization of new and renewable energy resources, (iii) development of transportation technology and management, (iv) development of information and communication technology (ICT), (v) development of defence technology, and (vi) development of health and medicine technology.

Development programs in S&T capability enhancement are briefly as follow:

1. S&T Research and Development Program. The objective of the program is to enhance the focus and quality R&D activities in basic and applied research and technology as well in accordance with users’ core competence and needs.

2. S&T Diffusion and Utilization Program. The objective is to foster dissemination process of R&D results and their utilization by private sectors, industries, and societies.

3. S&T Institutional Strengthening Program. The objective is to enhance S&T organizational capacity and capability in the national economic growth.

4. Production System S&T Capacity Enhancement Program. The objective of the program is to foster the enhancement of technological capacity of production systems in private sectors and industries, and synergetic enhancement among various components of innovation system.

These are then elaborated further in white papers (on six priorities) and in the National Research Agenda (NRA) 2006 – 2009 prepared by the Indonesia’s National Research Council (NRC). As described in the NRA 2006 – 2009, the referenced legal-formal framework and strategic environnments in the NRA Formulation is as illustrated in Figure 3.


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Indonesia-National

Constitution (UUD45)

National System of

Science & Technology

Constitution (UU 18/2002)

S&T Vision 2025

National S&T Strategic

Policy 2005-2009(Direction, Priority,Policy

Framework)

Precidential

Instruction No.4/2003

(Impl Coord. of NSTSP)

Gov. Regulation (PP 20/2005) for Technology

Transfer

National Research

Agenda

Presidential

Decree on NMDP /

RPJM-Perpres

No.7/2005 (6 technology fields of reasearch priority)

Previous S&T Strat Policy

White Papers on 6 Priorities

Strategic Environments

Source : NRA 2006 – 2009.

Monitoring & EvaluationProgram

ProgramProgram

Program

Nat. Long-term Dev. Plan

Figure 3. Referenced Legal Framework and Strategic Environnments in the NRA Formulation.

As stated in the S&T law, National Research Council (NRC) is required to be established to advise the government mainly in formulating S&T development strategic policies. Similarly, regions are required to establish regional research councils (RRCs) to assist regional governments in formulating regional S&T development strategic policies. Figure 4 may described a simplified organizational setting of Indonesia’s innovation system. As shown in Figure 5 below some regions develop regional research councils (or similar organizations). So far, about sixteen provinces and three regencies have established regional research councils (RRCs), while four provinces have RRC-like organizations in Indonesia. There are still on-going debate/discussions on the subjects. Among issues raised, are related to the clarity of functions of RRCs and regional R&D organizations along with their strategic and working relationships, governance, and policy coherence.

Although innovation is realized as one of the most of determining success factors in development, up to now there has not been a consensus systematic and systemic policy framework to develop innovation system in Indonesia. Government set S&T polcy direction as stated in its National Mid-term Development Plan (NMDP) and research programs in the NRA. Nevertheless, no clear innovation policy framework formulated as integrated policy reference for all key stakeholders (sector-wise and region-wise) to developing nation-wide coherent efforts in strengthening innovation system in Indonesia.

Other sectoral/departemental policies, such as desrcibed in the NMDP, the National Industrial Development Policy (NIDP), and small and medium enterprise (SME) development policy for examples, and innovation-related regional policies as well determined separately, may be considered as elements of the innovation policies but in reality usually develop as fragmented policies. The missing link of more visible and coherent innovation policy framework of existing national policy setting may be illustrated as shown in Figure 6.


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Coord. Min of

Economy

House of Reps.

Dept. Just

& HR

NRC

10 Previous State-owned Co’s (Strategic Industries) :

1. PT. DI2. PT. PAL3. PT. PINDAD4. PT. K. STEEL5. PT. INKA6. Perum Dahana7. PT. INTI8. PT. BHARATA9. PT. BBI10.PT. LEN

Financial SOCs

Other SOCs

Other Depts/

Ministries

Departmental R&D Organizations

Industrial R&D

Agency

Agr. R&D Agency

ND Organizations

BPPT

LAPAN

BSN

BAKOSURTANAL

LIPI

BATAN

BAPETEN

Extention Services

Extention

Services

Extention Services

Dept. of

Finance

Acad. of Indo.

Private Univs.

Private R&D Insts.

DepT. Of

Educ.

Ed. R&D

Org.

State Univs.

Other R&D

Organizations

Extention Services

PRESIDENT

S&T Park

Other Coord. Min. & Depts

Nat. Dev.

Planning

Kementerian

BUMN

Other

Depts/

Ministries

MRT

Figure 4. Simplified Organizational Setting in Indonesia’s Innovation System (the Central Government Level).

Tegal

Regency

Sumedang

Regency

North

Sumatera

South

Sumatera

Lampung

Banten

31

Barru Regency(in progress)

Jakarta

West Java

CentralJava

North Sulawesi

GorontaloCentral Sulawesi

North Maluku

Klaten

RegencySouthSulawesi

WestKalimantan

SouthKalimantan

EastKalimantan

East

NusaTenggaraYogya

West

Sumatera

EastJava

South-East Sulawesi

Figure 5. Some Regional Research Councils Established in Indonesia.


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Other Chapters in NMDP

Other Chapters in NMDP

Chapter 22 in NMDP 2004-2009

S&T Research and

Development Program

S&T Diffusion and Utilization Program

S&T Institutional Strengthening

Program

Production System S&T Capacity

Enhancement Program

The “Missing Links” :A more visible and coherent

national-regional and cross-sectoral

dimensions of innovation system

development

Innovation Policy Framework

NMDP 2004-2009

Figure 6. Simplification of a Rather-Vague Policy Framework in Indonesia’s Innovation System.

PERISKOP Study (MRT-BMBF, 2001) is perhaps one of the most comprehensive study on Indonesia’s innovation system so far. The assessment of regional innovation system was drawn upon Meyer-Stamer model (1998) focussing the attention on technological capability in innovation system. In the context, technological capability is defined as the capacity to gain an overview of the technological components on the market, assess their value, select which specific technology is needed, use it, adapt and improve it and finally develop technologies oneself. There are four pillars on which technological capability is based, i.e.,:

1. The skill of the producers to imitate and innovate;

2. The economic, political, administrative and legal framework conditions, which determine whether incentives to develop technological capability exist. In the past, it was often not recognised that these incentives do not exist in many developing countries, especially if an import substitution policy relieved companies of all pressure to be competitive or to innovate;

3. Direct support by technology-oriented state institutions or specific types of service companies - depending on the given development level, the competition situation and the characteristics of a technology branch in the given country;

4. Indirect support by the educational system; in addition to a sound basic education it is important that technical training of a suitable quantity and quality is available at the secondary-school level and also in the universities.

The close interaction between these four pillars creates technological capability: If framework conditions are not conducive to innovations, learning processes are very arbitrary and take place with a time lag. Successful innovation systems are characterised by close networking between producers, technology institutions and training institutions.


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Taking a sampling assessment in 10 regional locations (Figure 7), the study concluded some interesting-but not surprising-findings (Figure 8 and 9).

Own brand

Global Product

(international)

Sub contracting(high volume)

Small industry(low management

/workshop)

Sub contracting(low volume)

Household

industry

(family....)

Medan

Padang

Bandung

Manado

Semarang Jogjakarta Surabaya Mataram Makassar

Agro

metal

food

Samarinda

Agro

metal

food

Metal

Electronics

Textile

Herbal

Wood

Textile

Metal

Food

Handicraft

Material

Leather

Metal

Wood

Textile

Handicraft

Agro

Wood

food

Wood

metal

food

Agro

Wood

Food

3 1 2

2 2 1

4 1 21 1 11 3 21 2 12 3 22 4 2

1 5 2

3 2 1

• Selected Assessment : 10 Regions & 8 Sectors • Most “comprehensive” study so far :

• Contacted companies/institutions : 451• Interviews : 649• Workshops : 401• Contacted persons : 1,501

Source : PERISKOP Study (2001)

Figure 7. Location of Regional Assessment in PERISKOP Study.

Framework

Conditions

Technology

institutions

Education

institutions

FirmsStrength of elements of Innovation Systems

Above

Average

Around

Average

Below

Average


Figure 8. Relative Strength of Elements of Regional Innovation Systems (PERISKOP Study).


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Medan

Padang

Manado

Bandung Jogjakarta SurabayaSemarang Mataram Makassar

Strength of Regional Innovation Systems

Above

Average

Around

Average

Below

Average

Samarinda


Figure 9. Relative Strength of Regional Innovation Systems (PERISKOP Study).

Main findings of the study may be summarized as follows:

� Hardly any local/regional innovation system;

� Little interaction between firms and training/research institutions:

o Inward-orientation of training- and research-institutions

o Incentive structure so far against networking with firms

o Enormous distrust of firms vis-à-vis government institutions;

� Suppliers and customers = main sources of technology;

� Decentralisation may create potential to strengthen local/regional innovation systems;

� Little contribution of MRT and BPPT;

� Indonesia's Technological Capability to absorb and improve upon complex imported technologies is rather narrow;

� Exact quantitative information on the actual magnitude of cross-border technology flows to Indonesia is not available;

� Pre-assumption: The bulk of Indonesia's technology imports takes place through FDI, imports of capital goods and technology licensing agreements;

� The bulk of international technology transfer to Indonesia takes place in the private sector;

� Another channel for international technology transfer takes place in the public sector through official development assistance (ODA) programs.


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4. INNOVATION POLICIES FOR INDONESIA

As discussed in some other releated seminars/workshops, the author identified some main challenging issues and proposed a grand strategy and main policy framework for NIS development as well as nation-wide RIS agenda in Indonesia, briefly discussed as follows.5

4.1 Challenging Issues

Learning from other successful countries and recognizing specific Indonesian problems, there are four strategic interrelated elements to be coped with in NIS development in Indonesia, i.e.:

� Unsolved basic conditions as prerequisites for effective NIS development initiatives;

� Main policy issues to deal with to accelerate NIS development;

� Low pioneering/leadership for long-term development efforts; and

� Fragmented policies in most of development agenda.

Main unsolved basic conditions as prerequisites for effective NIS development initiatives are those such as:

1. Limited policy maker and the stakeholders’ comprehension on the innovation system subject itself.

2. Narrow expertise and limited practices (success stories) or experiences to support the movement that can be significant influence factors in the nation-wide innovation system development.

3. No agreed integrated efforts in the nation-wide innovation system development as a part of the the national development agenda. A national consensus is needed as the paltform for effective innovation policy coherence strengthening.

4. Poor innovation system database (and indicators) as the basis for all stakeholders effort in monitoring, assessing, evaluating, and policy improvement and learning as well.

5. Some contextual innovation system weaknesses that required better policy solutions.

The second strategic aspects are thoses related to the main policy issues to deal with to accelerate NIS development. In an effort of evaluating comparative position of Indonesian innovation system, and analyzing problematic areas and factors affecting the performance, the author summarized six generic policy issues need to be addressed by the governments (at the national and regional levels as well) in improving the progress of the innovation system both at the national and regional levels (Taufik, 2005). The identification was focused based on some dimensions, such as:

1. Common problems (utilizing some comparative indicators);

2. Innovation policy issues (e.g., market and government failures and systemic failures as well).

5 Taufik (2006): the NIS Concept Paper (a working paper) proposed by the author as involved in the NIS Team, a

discussion team in the National S&T Vision Team – 2006 at the MRT.


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3. Cross-cuting issues relevant to national and regional dimensions/contexts.

4. Key enabling factors for innovation system development initiatives relevant to Indonesia’s current situation and future challenges;

5. Critical to policy coherence dimensions at the national and regional levels as well.

In very brief elaborations, these issues are as the following:

1. Weaknesses in general framework. These are related to some issues such as: � Fundamental framework issues related to the innovation system, e.g.:

� Regulatory impediment to development of business and innovation;

� Weaknesses in legal and regulatory development needed to foster innovation progress;

� Weaknesses in specific infrastructural supports important to innovation;

� Costly bureaucracy administration process;

� Very limited investment (financial supports) for innovative activities;

� Uncompetitive fiscal supports (taxation structures/schemes) for innovation;

� Weaknesses related to intellectual assets (including IPR awareness, protection, and law enforcement).

2. Weaknesses in institutions and S&T supports, and low knowledge (technological)

absorption of SMEs. These are related to “not yet properly” developed (and/or missing) important functions in the innovation system, weaknesses in science and technological supports relevant to the development of the best local resources and specificities. On the other hand, small and medium enterprises (SMEs) as the majority of the business actors (±99% of business actors in Indonesia), in general, have limited capability and opportunity in accessing, utilizing, and developing knowledge (technology) important to their business competitiveness enhancement.

3. Weaknesses in mutual linkages and interactions, and collaboration in diffusion of

innovation (including best practices and/or R&D outputs). “Mismatch” in relevance and complementing functions amongst knowledge pool development (knowledge supply side) and technological needs and utilization (demand side), especially by private sectors in many technological areas are widely acknowledged. Limited development and supports related to both business (commercial) and non-business (non-commercial) technology-based transactions amongst actors, asymmetric information and limitations in capability and opportunity for interactions important to innovation, diffusion and learning process especially in “traditional sectors in the economy” are among policy issues identified that impede mutually beneficial linkages, productive interaction,and synergetic collaboration amongst actors in both the national and regional innovation systems.

4. Weaknesses in innovation culture. Various issues mentioned above and indicated by

some comparative innovativeness and competitiveness indicators also show and are affected by weaknesses in innovation culture. In general, as reflected by daily activities, understanding and attitude of people (and most of business actors, policy makers, R&D and academic communities as well) towards innovation and entrepreneurship development are still very limited. Among other factors, these are related to � Low appreciation to creativity/innovativess spirits and entrepreneurial business

profession; � Slow development in entrepreneurship knowledge and skills, and weak education

system in supporting entrepreneurial culture development;


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� Limited talents (high quality human resources) in many regions (regional brain drains), low high talent mobility and interactions important to innovation and entrepreneurship in the society;

� Public authorities in general (at the national and regional levels) are also among the weakness points for both the development of innovation and entrepreneurhsip in their environments and the significant progress in the society.

5. Weaknesses in development focus, value chains, competence development and

improvement of the sources of economic progress. Weaknesses in interrelated business and non-business activities (and actors) important to the economic dynamism and the strong foundations for unique competitive advantages are caused by some underlying factors such as: � Varieties of business activities and the supporting non-business activities and regional

unique competences developed in general are not geared towards the more focused regional competitive advantage development;

� Business/industrial structures and linkages are weak; � Limited leadership and pioneering in progressing innovation and diffusion of innovation; � Low deleopment of start-up/new innovative companies (someteimes called as the new

technology based firms/NTBFs); � Most SMEs are lagging behind in creating and capitalzing the opportunities from

technological and non technological progress/change. 6. Global (Globalization) challenge. Various weaknesses (eventually) influence the

”readiness” of Indonesia (at the national and regional levels) to play the better and strategic role in the global arena and responding some important changes to maximize the benefits for and minimize the negative impacts to the society.

These challenging issues call for policy responses designed and implemented by policy makers and the key stakeholders framed at the national and regional contexts as well.

Realizing Indonesian natural conditions and learning from previous experience, capacity and capability to cope with catastrophic events (such as recent tsunamy and earthquakes) need to be developed by Indonesia. It is among the critical challenges in innovation system development.

In addition, the country’s deteriorating capability in defence and security system which is influenced by excessive dependence on foreign powers, low indigenous technological capability and limited role of domestic industries, is among the concerns need to be more supported in this context. The classical vicious cycle related to defence technology of ”What is wanted is not available, what is available is not affordable, and what is affordable is perhaps not wanted” needs to be changed. This type of technology denials will usually be used as instruments of government policy by foreign powers.

The third challenge is that creativity and innovation can only be fostering in conducive climate and culture developed/improved from time to time. The change requires pioneering and leadership (formal and informal as well) with high commitment to conduct long-term policy reforms.

The fourth strategic element is the country’s success in developing a more coherent policies to direct and influence the development/progress in the society and to adapt to dynamic challenges.

4.2 Proposed Strategies and Policy Framework

Innovation policies are essentially have horizontal, vertical, and temporal aspects, and closely related to learning process in fostering inovative capacity development. Innovation policy


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reforms in Indonesia are needed to be laid down on fostering dynamism and flexibility to promote nation-wide innovation system development that can be suitable to some critical specific regional contexts and more adaptive to the change in generating, utilizing, and diffusing knowledge (in a broader sense) need by the society.

Considering situations/conditions as discussed, to develop/strengthen a more adaptive and anticipative innovation system in Indonesia, four grand strategies are proposed as the following:

a. Improving basic conditions as prerequisites to NIS development initiatives.

b. Reforming innovation policies in each and cross-sectoral development and at different governmental levels as well in a more systemic and long-term perspective.

c. Developing pioneering spirits and leadership, and strengthening nation-wide commitment to national and regional innovation development efforts.

d. Enhancing innovation policy coherence at the national and regional levels as well.

Setting a visible common agenda and, at the same time, providing more “flexible rooms” for those at national and regional levels is crtical in building political consensus and synergetic collaborative initiatives in this context.

Thematic/Specific Initiatives

Framework Conditions

Regional/Local DimensionsNational Dimensions

N

A

T

I

O

N

A

L

R

E

G

I

O

N

A

L

Innovation Policy Framework

Figure 10. Coordination Model in Innovation Policy.

Main agenda to basic conditions as prerequisites to NIS development initiatives are initiatives such as:

1. Enhancing capacity building activities related to innovation system (and policies) subject for policy makers and the stakeholders as well.


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2. Building community of practice in innovation system/policies, and intensifying the collecting and dissemination of best practices, the policy assessment and innovation policy learning.

3. Mainstreaming innovation system/policies in the national and regional development agenda. Including in this are efforts such as providing supports, advisory and advocacy to political consensus building, development policy allignment, and institutional strengthening.

4. Accelerating nation-wide innovation system database development/improvement.

5. Continuing innovation policy reform initiatives relevant to Indonesian context. Policy makers need to be awared of the importance of the “one size doesn’t fit all” lesson in designing and implementing innovation policies. Indonesia can certainly learn from other country’s success and avoid reinventing the wheel. But continual policy improvement requires adjustment to Indonesia’s specific contexts.

Addressing the generic challenging issues mentioned before, the author proposed six common themes to develop as the priorities in the innovation policy agenda (called as the Hexagon Innovation Policy Framework), especially to initiate the development of the regional innovation system. The agenda is developed as the generic innovation policy framework mainly as:

� Broad and fundamental policy themes;

� Universal to the national and regional contexts of Indonesia;

� Interrelated and cross-cutting issues/areas;

� Keys to the initiatives based on current situations and may be relevant to 10-20 year future challenges; and

� Challenging but very important areas for initiating a more open policy coordination of the national-regional collaborative agenda.

In brief, the Hexagon of the initiatives are as the following:

1. Developing general framework conducive to innovation and business development. The main objective of the agenda is to promote general framework conducive to innovation and diffusion progression. The main priority of this agenda are initiatives such as:

� Developing regional innovation strategies;

� Regulatory reforms: evaluating and eradicating impeding regulations;

� Improving legal supports and environment important to innovation and businesses;

� Developing specific infrastructures important (and “unique”) to the development of regional innovation system;

� Improving bureaucracy administration processes;

� Enhancing the capacity (and capability) to improve investment in innovation (the financing for innovation);

� Developing synergetic efforts to create/improve effective incentive schemes for innovation;

� Increasing awareness and implementation of the IPR protection in the regions.

2. Strengthening the S&T institutions and supports, and developing absorptive technological

capacity and capability of SMEs. The main priority of this agenda are:

� Improving regional innovation governance through regional institutional development;

� National and regional S&T institutional reforms;

� Better rewards/appreciation for S&T human resources;


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� Financial and legal supports to, especially, collective R&D programs benefiting regional economies;

� Practical tools for SME upgrading;

� Better access for SMEs to knowledge databases and expertise;

� Enhancing financial supports to strategic SME technological upgrading.

3. Fostering collaboration for innovation and enhancing diffusion of innovation, best practices

and/or R&D outputs. The programs important to this are such as:

� Financial and non financial supports to collaborative innovation activities;

� Fostering techno-business based intermediaries development (e.g., business development service providers, regional technology clearing house);

� Fostering business technological-based linkages;

� Special technology diffusion/dissemination projects benefiting to regional economies;

� Developing an open coordination method/mechanism for enhancing exchanges of best practices, benchmarking activotoes, public domain of R&D outputs, and policy coordination.

4. Developing innovation culture. Such initiatives important to this policy are:

� Increasing public awareness;

� Education and R&D institutional reforms towards more entrepreneurial organizations;

� Entrepreneurship education and trainings;

� Fostering new/start-up innovative companies (new technology based firms/NTBFs ~ “technopreneurial” firms);

� Regional “reverse brain drain” (talents scouting), and enhancing human resource mobilization;

� Capacity building in regional public authority institutions;

� Regional innovation awards;

� Umbrella and set aside programs for particular regional innovation projects.

5. Fostering and strengthening integrated efforts of regional innovation system and industrial

cluster development initiatives. These are such as:

� Strategic regional-specific R&D programs;

� Competitive regional innovation development initiative projects (grant and/or resource sharing schemes);

� Regional-specific industrial cluster development programs;

� Business (SMEs) technological upgrading programs;

� Regional strategic alliance programs.

6. Developing strategic responses to the global changes. Including in the programs are:

� Public awareness and law enforcement of IPR;

� Developing local/indigenous knowledge/technological assets (including the legal aspects of the related IPR);

� Enhancing regional capacity in the MSTQ system;

� Fostering international collaboration in the regions.


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Advancement in the innovation system has been widely recognized as the increasingly differentiating basis for competitiveness amongst countries, regions and industries. Although some different insights and/or different aspects have been discussed in various related conceptual and empirical literature, emphasis on interaction, collaboration, and learning process aspects, and regional/local dimensions have been among the key features of the recent trends.

As mentioned earlier, the third strategy is developing pioneering spirits and leadership, and strengthening nation-wide commitment to national and regional innovation development efforts. It is central to innovation policy reforms, that visibility of policies and strong commitment of leaders and other stakeholders are determining factors for effective efforts/initiatives. Pioneering and leadership quality is also critical to guard that innovation system/policy reforms are integrated and directed to intertwine knowledge-economy and knowledge society development efforts, in which economic competitiveness enhancement and social cohession strengthening are unseparated in a two-in-one development agenda.

The fourth strategy is enhancing innovation policy coherence at the national and regional levels as well. Among important initiatives are initiating consensus building to formulate some starting points for sectoral policy coherence and policy coherence between the central and regional (and inter-regional) government levels as well.

5. CLOSING REMARKS

Although innovation is realized as one of the most of determining success factors in development, up to now there has not been a consensus systematic and systemic policy framework to develop innovation system in Indonesia. Government set S&T polcy direction as stated in its National Mid-term Development Plan. However, no clear innovation policy framework formulated as integrated policy reference for all key stakeholders (sector-wise and region-wise) to developing nation-wide coherent efforts in strengthening innovation system in Indonesia.

Among sub-national innovation system discussions, “local/regional” dimension has been considred as among the most received attentions in the the innovation system development area (in the literature and the empirical efforts as well). In Indonesia, very few regions started to consider pragmatic approaches into actions yet. Designing and implementing sub-national innovation system in Indonesia may be considered as designing and reforming innovation policy within poor environments.

It is realized that innovation is a key factor in the development of more successful and competitive regional economies. But for Indonesia in general, less-favored regions often lack the capacity to innovate and hence are constrained in their ability to improve their position. It is the capacity to innovate which helps regions to achieve an advantageous position in key industrial sectors or clusters. Local/regional governments, who are close to economic actors and often have competencies in fields relevant to supporting innovation, are important facilitators in developing this capacity. Therefore, the Central Government needs to enhance their commitment and, along with regional governments to strengthen collaborative efforts to supporting actions which give a new impetus to Indonesia’s nation-wide capacity for innovation, not just in research and technological development but also in economic, social and cultural domains. Enhancing local and regional innovation capacity is crucial to the Indonesia’s national and regional policy objective to reduce economic disparities between regions and to deal with knowledge divide problems in the country.


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