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
2

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
3

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 3

The National Innovation System

“Region-wise” Sub-national
Industrial Cluster 1

Innovation System

“Sector-wise” Sub-national
RIS RIS Innovation System
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.

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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
4

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

Macroeconomic Policy
 Monetary
Education Policy Industrial Policy
 Fiscal
 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
IndustrialProgress
Progressand
andDevelopment:
Development:
Competitiveness,
Competitiveness,Innovative
InnovativeCapacity,
Capacity,Rate
Rateof
of
Diffusion,
Diffusion,Learning,
Learning,Entrepreneurial
EntrepreneurialPerformance
Performance

Improvement of
Existing Example of
Businesses
main focus of
Investment
Development of the policies
New Firms
Development
(NTBFs)

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).
 Tatang A. Taufik
5

 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
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.
The Era
Innovation has not received
special attentions (prior to
1960s).
Technology push era (1960s
– 1970s).
Demand pull era(1970s –
1980s).
Innovation system era (1980s
– now).
Note: New Growth Theory
developed.
Main Policy Implications
No adequate attention and efforts for special
intervention (as policy issues).
 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.
 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).
 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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
6

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.
 Tatang A. Taufik
7

Indonesia-National Nat. Long-term

S&T Vision 2025 Dev. Plan
Constitution (UUD45)

Presidential
National System of Decree on NMDP /
National S&T Strategic
Science & Technology RPJM-Perpres
Constitution (UU Policy 2005-2009 No.7/2005 (6
18/2002) (Direction, Priority,Policy technology fields of
Framework) reasearch priority)
Precidential
Instruction No.4/2003 Previous S&T
(Impl Coord. of NSTSP) National Research Strat Policy
Agenda White Papers on 6
Gov. Regulation (PP Priorities
20/2005) for
Technology Strategic
Environments
Transfer
Monitoring &
Program Evaluation
Program
Program
Program
Source : NRA 2006 – 2009.

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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
8

House of PRESIDENT
Reps.

Coord. Min of Other Coord. Min.

Acad. of
Indo. Economy & Depts

MRT Nat. Dev. Dept. of DepT. Of Dept. Just

Other Depts/ & HR
Planning Finance Educ.
Ministries
NRC
Ed. R&D

Ministries
Depts/
Kementerian

Other
Departmental R&D Org.
BUMN
Organizations
ND Organizations
Private State Univs.
Univs. BPPT Industrial R&D
Agency
LIPI
Agr. R&D
Private LAPAN Agency
R&D Insts. Financial 10 Previous State- Other
BATAN Other R&D SOCs owned Co’s SOCs
(Strategic
BAKOSURTANAL
Organizations Industries) :
1. PT. DI
2. PT. PAL
BSN Extention 3. PT. PINDAD
4. PT. K. STEEL
Services
BAPETEN 5. PT. INKA
6. Perum Dahana
7. PT. INTI
Extention Services 8. PT. BHARATA
9. PT. BBI
S&T Park Extention Services 10. PT. LEN

Extention Services

Figure 4. Simplified Organizational Setting in Indonesia’s Innovation System

(the Central Government Level).

East North Sulawesi

West Central Sulawesi
Kalimantan Kalimantan Gorontalo
Barru Regency
South (in progress)
Kalimantan North Maluku
North
Sumatera

South
1
Sumatera 3

West
Sumatera
Lampung

Banten
South-East
Jakarta
Sulawesi
Tegal
West Java Klaten
Regency South
Regency Sulawesi
Sumedang
East
Regency
Central NusaTenggara
Java Yogya East
Java

Figure 5. Some Regional Research Councils Established in Indonesia.

 Tatang A. Taufik
9

NMDP 2004-2009

Chapter 22 in NMDP 2004-2009

S&T Research Production

S&T Diffusion System S&T
and
and Utilization Capacity
Development Enhancement
Other Program Other
Program Program
Chapters Chapters
in NMDP in NMDP
S&T Institutional
Strengthening
Program

The “Missing Links” :

A more visible and coherent
national-regional and cross-sectoral
dimensions of innovation system
development

Innovation Policy Framework

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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
10

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

Global Product Medan Manado

l
(international)

ro

od
ta

d
od
ro
Ag

me

oo
fo

Ag

Fo
W
Own brand
3 2 1 3 1 2
Sub contracting Padang Samarinda
(high volume)
ta l

d
ro

l
od

od
eta
oo
Ag

me

fo

fo
W

m
Sub contracting
(low volume) 1 5 2 2 2 1
Small industry Bandung Semarang Jogjakarta Surabaya Mataram Makassar
(low management
Te ics

t
t

af
Le l
af

er
ile

ile

ria

Ha ile
al

d
n

d
E l al

l
Ha o d

icr

ro

od
eta

eta
icr

ath
oo

oo
tro

oo
rb

/workshop)
et

xt

xt

at e

xt

Ag
Fo

nd

fo
nd
He

W
M

W
Te

Te
ec

M
Household
industry
(family....) 2 4 2 2 3 2 1 2 1 1 3 2 1 1 1 4 1 2

• 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.

Strength of elements of
Innovation Systems Firms

Above
Average

Technology Education
Around institutions institutions
Average

Below
Average
Framework
Conditions

Source : PERISKOP Study (2001)

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

 Tatang A. Taufik
11

Strength of Regional
Innovation Systems

Above Manado
Average Medan

Around
Average Padang

Samarinda
Below
Average Bandung Jogjakarta Semarang Surabaya Mataram Makassar

Source : PERISKOP Study (2001)

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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
12

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.
 Tatang A. Taufik
13

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;
 Indonesia’s Sub-national Innovation System Policies and Programmes
14

 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
 Tatang A. Taufik
15

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

N R
A E
T Regional/Local
National Dimensions Dimensions G
I I
O O
N N
A Innovation Policy Framework
A
L Framework Conditions L

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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
16

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;
 Tatang A. Taufik
17

 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.
 Indonesia’s Sub-national Innovation System Policies and Programmes
18

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.
 Tatang A. Taufik
19

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