The role of local institutions in industrial cluster development in Indonesia

For decades cluster approach has been an insightful notion of development which has drawn much attention across disciplines. Its theoretical developments and empirical practices never end with satisfying results and consensus (Cumbers & MacKinnon, 2004). No matter how clusters emerge, either in developed or developing countries, urban or rural regions, high technology or labour intensive industries, large or small firms, global or local scales, it has always existed over time and is highly associated with localities, just as what is happening in Indonesia. The cluster approach has re-emerged in recent Indonesian public policy making and sparked the interest of various government agencies. Despite government recognition, it has in fact been implemented ubiquitously and cluster phenomena can be found in many local regions of Indonesia. Regarding such particularities, the common grounds to understand the cluster phenomena are supposed to be placed on localities. The prolonged government ignorance over the role of local institutions is the central issue in this research. Repetitive action with less understanding of the local institutional setting has been the source of problems in recent cluster policy making. Instead of learning from policy failures in the past and finding alternative ways, the government seems to continue with its one-size-fits-all paradigm in promoting cluster policies. With regard to such policy inadequacy, this research was designed to explore the needs for cluster enhancement stemming from the conditions of prevailing local institutions. This research aims to figure out the influences of the prevailing local institutions on cluster performance. I used a multiple-case study approach to examine three Javanese batik clusters in two different regions, i.e. Kampung Laweyan, Kampung Kauman (Surakarta Municipality), and Lasem Area (Rembang Regency). It was chosen rather than a single case study approach primarily because the cluster phenomena demonstrate enormous variance and inconsistencies across localities. Regarding such locational divergence, the batik industry cluster is suitable to present how the local institutional framework overcomes the diversity. The unit of analysis in this research is batik cluster organisation. It consists of a core batik cluster organisation involving a community-based organisation and the likes of which is acting as a cluster management unit, individual batik firms, and the adjacent neighbourhood society. The batik industry clusters examined in the Kampung Laweyan, Kampung Kauman, and Lasem Area definitely support the Marshallian industrial district theory rather than the Porterian cluster theory. All cases benefit from the external economies of co-location emanating from a specialised batik labour market pooling and specific batik products. This passive engagement of clustering has brought the typical technical skills, evolutionary production processes, and distinguishable final products of each batik cluster to become the prominent features of the industry resulting from the local adaptation to an inherited batik tradition and external change over time. In addition, co-location does not automatically stimulate collectivism. In spite of promoting intensified inter-firm cooperation, each batik cluster has strengthened the renewed individual business networks. When joint marketing and batik promotion have appeared recently in the forms of exhibition events, cross-selling, and communal showrooms, these efforts were organised by the local batik cluster organisations to provide incentives for the local batik entrepreneurs and workers to support the so-called cluster programs. More importantly, the lack of inter-firm business linkages has falsified the presence of the clustering practice. The batik firm’s individual business networks tend to maintain exclusive connections to suppliers, subcontractors, and consumers. Instead of fostering broader participation from various actors, the batik firms are retaining their preferences to collaborate with trusted partners. Such circumstances have therefore led to the formation of peculiar local institutional frameworks to support the respective batik industry development. This individualistic behaviour has encouraged the local batik firms to compete freely without many interventions from the local batik cluster organisations as well as government agencies. Combined with an uncontrolled imitation process, it has unleashed greater creativity and innovation from the local batik firms to produce additional batik motifs and designs. On the other hand, this has also led to the separation of the local batik industry from the active engagement of neighbourhood society. Thus, the fusion between economic activity and society as suggested in the general cluster theory has not been proved yet in this research