CHALLENGING ISSUES IN INITIATING

REGIONAL INNOVATION SYSTEM

DEVELOPMENT:
THE CASE OF INDONESIA

Tatang A. Taufik
Agency for the Assessment and Application of Technology
(Badan Pengkajian dan Penerapan Teknologi / BPPT)

Sub-Committee on S&T Infrastructure and Resources Development (SCIRD).

The 7th ASEAN Science and Technology Week (7th ASTW)
2nd Science Congress and Sub Committee Conferences
Jakarta, August 5 – 7, 2005
 OUTLINE

• INTRODUCTION/BACKGROUND
• FOCUS OF DISCUSSION
• BRIEF REVIEW
• IDENTIFIED GENERIC AND CHALLENGING
ISSUES : A Policy Perspective
• THE PROPOSED COMMON FUTURE AGENDA
• BRIEF REVIEWS : FROM SOME EARLY
INITIATIVES
• CONCLUDING REMARKS : SOME LESSONS
LEARNT

2005 t@t
 1. INTRODUCTION / BACKGORUND

 BRIEF REVIEW
 INDONESIAN CONTEXT

2005 t@t
 1. BRIEF REVIEW

 Knowledge/innovation are the increasingly determining and

differentiating factor of competitiveness (micro, messo, and
macro levels);
 Paradigm shifts of the perspective on innovation in the last two
decades :
 From “linear-sequential” perspectives (of “technology push”
and “demand pull” models) to a system perspective/
approach of a dynamic and interactive-recursive model
 Some recent trends : more attentions on
 Interactions and roles of actors ~ triple helix model
 Local/regional dimensions : social learning and social
capital, local specificities, ~ regional innovation system
and industrial clusters.
 Policy implication : national and regional
contexts/dimensions of the innovation policy.

2005 t@t
 2. THE INDONESIAN CONTEXT

 Eroding competitive position of Indonesia in the international

arena ~ widening gap even with some other ASEAN countries;
 Not yet fully recovered from the “devastating” 1997 crises ~
followed by political and other influential changes;
 Indonesian context ~ innovation system :
 a diverse cultural and regional uniqueness-rich country;
 a large country problem with a small country capacity/
capability;
 More attention to the regional contexts :
 Regional roles in development : the shift from centralized
economy to regional autonomy / decentralization;
 Underdeveloped local specificities potentials for regional
unique advantages;
 Regional innovation system development : the key to future
regional competitiveness.

2005 t@t
 2. FOCUS OF DISCUSSION IN THE PAPER:

 KEY AREAS IDENTIFIED IN INITIATING THE

REGIONAL INNOVATION SYSTEM
DEVELOPMENT
 A BRIEF REVIEW FROM SOME EARLY STAGE
OF THE INITIATIVES

2005 t@t
3. BRIEF REVIEW ON INNOVATION SYSTEM
AND INNOVATION POLICY

 INNOVATION, INNOVATION SYSTEM, AND

INNOVATION POLICY
 SOME RECENT TRENDS
(Appendices)

2005 t@t
4. IDENTIFIED GENERIC AND CHALLENGING
ISSUES :
A Policy Perspective
Attentions based on some dimensions :
2. Common problems ~ some comparative indicators;
3. Innovation policy issues :
– market and government failures;
– systemic failures.
4. Regional dimensions/contexts.

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT :

• Weaknesses in general framework. These are related to some

issues such as :
 Fundamental framework issues related to the innovation
system, e.g., :
• Regulatory impediments 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).

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)

• 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, and
 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.

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)

1. Weaknesses in mutually beneficial 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.

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)

• Weaknesses in innovation culture. 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;
– 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.

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)

• 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 development 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.

2005 t@t
 GENERIC AND CHALLENGING ISSUES
IN INNOVATION SYSTEM DEVELOPMENT : (Cont’d)

• 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.

2005 t@t
5. THE PROPOSED COMMON FUTURE AGENDA:
THE HEXAGONS OF THE INITIATIVES

Some considered aspects of the agenda :

2. Broad and fundamental policy themes
3. Universal to regional contexts of Indonesia
4. Interrelated areas
5. Keys to the initiatives based on current situations

2005 t@t
 1. DEVELOPING GENERAL FRAMEWORK
CONDUCIVE TO INNOVATION AND BUSINESS
DEVELOPMENT

 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.

2005 t@t
 2. STRENGTHENING THE S&T INSTITUTIONS AND
SUPPORTS, AND DEVELOPING ABSORPTIVE
TECHNOLOGICAL CAPACITY AND CAPABILITY OF
SMEs
 National and regional S&T institutional reforms;
 Better rewards/appreciation for S&T human resources;
 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.

2005 t@t
 3. FOSTERING COLLABORATION FOR INNOVATION
AND ENHANCING DIFFUSION OF INNOVATION,
BEST PRACTICES AND/OR R&D OUTPUTS
 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.

2005 t@t
 4. DEVELOPING INNOVATION CULTURE

 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.

2005 t@t
 5. FOSTERING AND STRENGTHENING INTEGRATED
EFFORTS OF REGIONAL INNOVATION SYSTEM AND
INDUSTRIAL CLUSTER DEVELOPMENT INITIATIVES
 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.

2005 t@t
 6. DEVELOPING STRATEGIC RESPONSES
TO THE GLOBAL CHANGES

 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.

2005 t@t
 6. BRIEF REVIEWS : FROM SOME EARLY
INITIATIVES

1. The regions :
• Tegal Regency (Central Java),
• Sumedang Regency (West Java), and
• Barru Regency (South Sulawesi).
2. General framework for collaboration and coordination
pattern
3. An example : Tegal Regency ~ The “starting/entry point”
activities

2005 t@t
 THE REGIONS

Barru Regency

1
3

Sumedang Regency
Tegal Regency

2005 t@t
 GENERAL FRAMEWORK
FOR COLLABORATION AND COORDINATION PATTERN

Thematic and/or Specific Initiatives

N R
A E
T National Dimensions Regional Dimensions G
I I
O O
N N
A A
L Framework Conditions L

2005 t@t
TEGAL REGENCY

Central Java

2005 t@t
 TEGAL REGENCY:
THE “STARTING/ENTRY POINT” ACTIVITIES ~ 2003
 Serial awareness and capacity building worskhops. Topics related to
competiveness and industrial cluster development;
 Consensus building on “the grand strategy” : regional industrial cluster
development as the platform of and approach to the regional economic
competitiveness development;
 Establishing the Regional Competitiveness Council (a quasi-public
collaborative institution with membership consists of : business actors,
association, NGOs, educational communities, ex-officio reps. from regional
government, legislative members, prominent persons);
 Starting some industrial cluster initiatives (based on agriculture,
manufacturing and tourism industries) and industrial cluster task groups;
 Revitalising an industrial district area as a center for services and
innovation of technology in the region;
 Development of a regional vocational education;
 Integrating the cluster projects into the annual regional government
program and with some other relevant projects (including some national
R&D projects).

2005 t@t
 TEGAL REGENCY: RECENT ACTIVITIES

 Serial awareness and capacity building worskhops. Topics related

to regional innovation system development;
 Consensus building on the priority activities;
 In the process of establishing the Regional Research Council;
 Planning the regional innovation strategy document;
 Continuing the previously agreed collaborative agenda.

2005 t@t
 INSTITUTION FOR COLLABORATION :
The Regional Competitiveness Council (RCC)
RCC

Members
Representatives
Cross-sectoral (and
(from particular
cluster) groups
industrial clusters)
Special
Committees

Office Functional Special task

Secretariate Groups force/teams

e.g., : e.g., :
• Promotional • Benchmarking
• Expertise • Specific industrial
cluster task groups

2005 t@t
 THE ROLE OF BPPT TEAMS

 Organizing national and some regional workshops related to regional

innovation system themes;
 Preparing guidelines (suggested steps and more practical tools/approach) ~
industrial cluster development and regional innovation strategy;
 Collecting and disseminating examples of relevant “best practices” ~
industrial cluster development and regional innovation strategy; Planning to
develop an internet based as a tool to develop an open coordination
mechanism (more simple model adopting from the EU Innovation
TrendChart Initiative);
 Providing technical assistance :
 facilitators (technical assistants/expertise) to accompany the regional
counterpart teams, particularly in the initial stage (process)
 initiating regional consensus building
 Some relevant initiatives at the “national level”, e.g.:
 Policy studies;
 Collaborations with other organizations;
 Academic draft on indigenous knowledge/technology protection.

2005 t@t
AN EXAMPLE OF PRACTICAL TOOLS (STAKEHOLDER-
FRIENDLY) TO BUILD CONSENSUS ON THE
COMMON/COLLABORATIVE AGENDA (AND POLICY
INTERVENTION)

Starting the Industrial Cluster Development Initiatives

(drawing some concepts and/or methodologies, e.g.,
from Porter’s Four Diamonds, for practical developing
practical approaches)

2005 t@t
 Results
Hierarchy
goal

purpose

outputs

activities

Goal/Objective Trees Alternative Strategies Program/Activity Matrix

Agenda Agenda Agenda Agenda

Analysing the Improvement of the Business Environmen

Prioritizing Goals/Objectives

+ ­ + ­ + ­ + ­

Stakeholder Mapping Analysing the Business Environment (The Porter’s Four Diam
2005 t@t
7. CONCLUDING REMARKS : SOME LESSONS
LEARNT
(FROM THE INTIAL STAGE)

2005 t@t
 CONCLUDING REMARKS : SOME LESSONS LEARNT
(FROM THE INITIAL STAGE)
• Biggest challenges :
– Adapting to the paradigm shift (from a very centralistic and fragmented-
sectoral development approach to a more decentralized, participatory
and collaborative effort). The learning process is costly yet a very crucial
element of development;
– Commitment/seriousness of the participating actors;
– Consistency in following up the agreed common agenda;
– Readiness to some paradoxical fenomena of changes.
• Common Operational but Significant Obstacles : government budget
structure and bureaucratic rigidity.
• Key Success Factors :
– “Unique/specific” local potentials;
– Strong motivation amongst regional business actors and program
counterparts towards improvement;
– Local champions ~ highly motivated and pioneering individuals;
– Common platform built upon agreed consensus and widely support to
develop synergetic and implementable activities of regional
competitiveness efforts;
– Regional financial supports, especially regional government, for regional-
specific starting activities.
2005 t@t
APPENDICES

2005 t@t
3. BRIEF REVIEW ON INNOVATION SYSTEM
AND INNOVATION POLICY

 INNOVATION, INNOVATION SYSTEM, AND

INNOVATION POLICY
 SOME RECENT TRENDS

2005 t@t
 INNOVATION

Innovation

Process Product System

Technological Organizational Goods Services

“Technocratic” definitions

2005 t@t
 SOME PERSPECTIVE DEVELOPMENTS ON INNOVATION

Technology Push:
“Linear-Sequencial” Chains of Capability-driven Forces

Basic Applied Manufacturing/ Sales/

Research Research R&D Production Distribution

1960s – 1970s

Demand Pull:
Basic
“Linear-Sequencial” Chains of Demand-driven Forces Research
Manufacturing/ Sales/
“Demand” R&D Production Distribution

Applied
Research
1970s – 1980s

Market Driven:
“Interactive-recursive (and Iterative)” Process and as a Learning Process
1980s – . . . .
2005 t@t
 THE CHAIN-LINK INNOVATION MODEL

Research – Knowledge Creation

Transfer Processes
(various)

Detailed
Invent Redesign Distribute
Design
and/or
Potential And and and
Analytical
Market Test
Design Produce Market

Source : Adapted from Kline and Rosenberg (1986). 2005 t@t

 NATIONAL RESEARCH AND INNOVATION SYSTEM

Demand Framework Conditions

Financial environment; taxation and
Consumers (final demand) incentives; propensity to innovation
Producers (intermediate demand) and entrepreneurship; mobility ...

Industrial System Education and Political

Research System System

Large companies Professional

Intermediaries education and Government
Research training
institutes
Mature SMEs Brokers Higher education
and research Governance

New, technology- The potential reach Public sector

based firms research RTD policies
of public policies ...

Infrastructure

Banking, IPR and Innovation and Standards and

venture capital information business support norms

Source: Erik Arnold & Stefan Kuhlmann, 2001

2005 t@t
 THE TRIPLE HELIX MODEL

Tri-literal network
and Hybrid
Organization

Linkages/interactions
Academia amongst institutions
in the “sphere” as
“dynamic and endless
transitional
processes”

Government Industry

Source : Etzkowitz and Leydesdorff (2000).

2005 t@t
 NATIONAL AND REGIONAL INNOVATION SYSTEMS :
A Perspective on Regional/Local Uniqueness, Competence,
and Cross-sectoral Linkages

Industrial Cluster 3
The national Innovation System

Industrial Cluster 1
RIS RIS
Sector I

Region Region
Industrial Clusters :
A C
Sector II Industrial Cluster 1-Z

Industrial Cluster 3-B

Industrial Cluster 2-C
Sector III Industrial Cluster 1-A

RIS : Regional Innovation System.

2005 t@t
 SOME PARADIGM SHIFTS ON INNOVATION AND POLICY
The View
Innovation (i.e., “technological
change”) as residual factors of
economic growth (neoclassical
models).
Inovation as a ”linear-sequential
process” (pineline linear model).
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.
IMPLICATIONS
The Era Main Policy Implications
Innovation has not received No adequate attention and efforts for special
special attentions (prior to intervention (as policy issues).
1960s).
Technology push era (1960s –  Policies emphasized on the supply side of
1970s). technology were dominant (supply driven).
 Science/research policy were the central
theme in the government interventions.
 Technology policy began to develop.
Demand pull era(1970s –  Policies emphasized on the demand side of
1980s). 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).
Innovation system era (1980s  Innovation policy (based on system approach)
– now). began to develop.
Note: New Growth Theory  Innovation policy are more two-side policy
developed. 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.
2005 t@t
 AN INNOVATION POLICY FRAMEWORK

Macroeconomic Policy
 Monetary
Education Policy  Fiscal Industrial Policy
 Knowledge and Skills  Investment
 Trade
 Creativity  Taxation - Subsidy
 Professionalism  Incentives
 Entrepreneurship  Sectoral regulations

R&D Policy Innovation Policy Regional Policy

Science Policy Technology Policy

Industrial Progress and Development:

Competitiveness, Innovative Capacity, Rate of
Diffusion, Learning, Entrepreneurial Performance

Improvement of
Existing
Businesses

Development of
Investment
New Firms
Development
(NTBFs)

2005 t@t