The aim of this study was to identify the internal factors that limit the growth and the success of Batik Cluster SMEs in South District of Central Java and to suggest recommendations for addressing such factors. This study uses qualitative research method. In-depth interviews have been performed, which included participant from six batik SMEs and from six officials representing six organizations in the six districts of south part of Central Java. Focus Group Discussion (FGD) was conducted in Banyumas and it explored the depth and nuances of opinions regarding factors affecting the development of batik SMEs clusters (i.e. education, raw material, marketing, partnerships, technology, capital, cooperative, and coordination among instititutions). The result from this study was to address some similar problems confronting batik cluster SMEs (e.g. inadequate education and training, materials, insufficient capital, lack of coordination among institution, etc.) Based on findings, it is recommended to strengthen the batik cluster SMEs by facilitating the development of PERBAIN as the batik cooperative that can serve the needs of funds and raw materials, improving the institution’s assistance of batik craftsman skills, increasing coordination among government agencies, develop a South – Central Java batik association (i.e Yayasan Batik Indonesia) to promote batik in both national and global businesses.
1. Background of Study
In line with the Strategic Plan of the Ministry of Cooperatives and Small and Medium Enterprises Year 2010 – 2014, as well as the Strategic Plan of the Ministry of Industry and Commerce 2010-2014, and also Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development Coordinated by the Ministry of Economic Affairs in 2011-2025, the SMEs (Small and Medium-sized Enterprises) is a strategic objective for the three ministries in facing global economic challenges. Based on the Ministry of Cooperatives and Small and Medium Enterprises’ mapping in 2008, the SMEs growth was reached 51.3 million units. This number tells that SMEs constitute dominant economic players and they become the national economic actors. As most of SMEs are located in remote areas, it is expected that within the year of 2011-2014 SMEs can play a significant role in national economy and can support Gross Domestic Product (GDP) by 6%, increase productivity by 5%, absorb labor workforce by 5%, increase the value of the investment by 10%, and increase export value by 15% per annum (KUKM, 2010).
Batik cluster is one area that highly contributed to strengthening SMEs. The rising demand of batik product is enhanced by the declaration of Indonesian batik as the world cultural heritage by UNESCO on October 2, 2009. According to Firmansyah, Indonesia is a country that has chance to increase its exports after ACFTA implementation, which deals with products that cannot be rivaled by China as the creative industries based fabrics, such like batik (Media Indonesia, 2012).
This study focuses on Batik Industry Cluster in the South part of Central Java. Selection of Cluster South – Central Java Batik is very interesting to investigate because of the its unique characteristics, so it can penetrate international market. The uniqueness and design can be adopted for different types of clothing. In example Mrs. Euis Rohaini as the owner of Rajamas Batik in Cilacap district explained that her products have penetrated the UK market, the Netherlands, Korea, Singapore, Japan and most recently Australia. In respect to that, she was able to create jobs for 15 employees in the household and 80 workers employed by the plasma system (Kompas, 2009). From the success of the Batik Rajamas, it infects the growth of other batik craftmen around Cilacap region. Thus batik cluster SMEs in South Central Java is in line with the vision of the Ministry of Economic Affairs that batik industry cluster in South – Central Java is locally integrated and globally connected.
2. Purpose and Research Question
The aim of this study was to identify the internal aspects of Batik Cluster in South -Central Java. In line with the objective, this study desired to mapping the internal factors of batik cluster such as educational level, raw materials, marketing, partnerships, technology, capital, cooperation and coordination among government agencies. Thus, this study will identify opportunities and strategies to utilize existing resources in developing the potentials of batik cluster in supporting the acceleration of development in South – Central Java. In order to reach the mentioned purpose, the following research question was developed.
RQ: What are the internal factors that influence the growth of batik cluster SMEs in South-Central Java?
To answer this question, interviews will be conducted with the owners of batik cluster SMEs and six government institutions in the six districts of South – Central Java. The primary data as well as secondary data will be analyzed and contrasted to depict conclusions.
3. Theoretical Framework
SMEs have previously been the main player in domestic economic activities in Indonesia, in particular as a large contributor of employment opportunities. They become a generator of primary or secondary sources of income for many households. For low income or poor farm households in rural areas, SE units of fewer than 20 workers in non-farm activities are especially important. These enterprises have also been an essential engine for the growth of local economies and communities (Tambunan, 2006). The National Agency for Statistics (BPS) which uses the amount of workers as a foundation for determining the size of an enterprise, defines that small enterprises (SEs) and medium enterprises (MEs) are business units with, respectively, 1–19, and 20–99 workers, and large enterprises are of no less than 100 workers.
Based on the Indonesian’s Law No. 20/2008 concerning Micro, Small, and Medium Enterprises, micro enterprises/businesses are defined as: a. Enterprises with net assets less than Rp 50 millions (land and building excluded) or; b. Enterprises which have less than Rp 300 millions total annual sales. While small enterprises/businesses are defined as: a. Enterprises with net assets from Rp 50 millions – Rp 500 millions (land and building excluded) or; b. Enterprises with total annual sales from Rp 300 millions – Rp 2.5 billions. Medium enterprises/businesses are defined as: a. Enterprises with net assets from Rp 500 millions – Rp 10 billions (land and building excluded) or; b. Enterprises with total annual sales from Rp 2.5 billions – Rp 50 billions. This study adopts the SMEs definition from The Ministry of Cooperatives and SMEs.
4. Measuring Growth
A variety of indicators are commonly used to assess SMEs growth and there does not seem to be a general measurement. Gross value added, in comparison with the first two, is an indicator of results, representing the amount of salaries and other elements related to labour factors cost, profit, exploitation subsidies, fixed capital amortization, after subtracting production taxes. Profitability rate is calculated as the ratio between the gross result of exercise and the gross value added at factors cost, and represents pretty well the performances of the enterprise.
In other words, this measure reveals the SMEs capacity to accomplish its primary reason of existence, being one of the variables that illustrates enterprise’s efficiency. SMEs in developing countries usually have lesser productivity than in developed countries and because country’s productivity level is a major indicator of improved living standard, added value should be seen as one of the important indicators of growth (Lind, 2005, 42-50).
5. Constraints among SMEs
Storey (1994) argued that the growth of small firm considering the combination of three components namely the starting resources of the entrepreneur(s), the firm, and the strategy. Storey (1994) also defined key influences on SMEs growth, internal factors that reveal how decisions and features affect the growth of a firm. The growth of feasible and efficient SMEs has been limited by several constraints. The constraints may vary among regions. However, there are certain constraints that are common to all SMEs. Lack of capital, lack of skills, and problems in business development are of problems faced by Indonesian SMEs (Kementerian KUKM & BPS 2004). According to Tambunan (2008), majority of SMEs, specifically in rural areas, do not certainly receive loan from financial institution or from existing government sponsored SMEs loan schemes. They depend fully on their own savings, money from relatives and loan from informal lenders for financing their daily business operations. Lack of adequate skills is also a major constraint to SMEs. Nevertheless, this may be due to the fact that a lot of SMEs’ owners were not aware that their productivity is low and the quality of their products inferior compared to the products of the large enterprises or imported products, especially since many of these enterprises produce only for low-income consumers in local markets that benefiting natural protection from competition from similar goods produced by larger enterprises or from imported goods. This study identifies the internal factors that create obstacles to the growth of batik cluster SMEs in South-Central Java (internal factors focused on by this study include education, capital, raw materials, marketing, partnerships, technology, cooperative, and coordination among government agency).