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Innovation and Small Enterprises in the Third World

Innovation and Small Enterprises in the Third World

New Horizons in the Economics of Innovation series

Edited by Meine Pieter van Dijk and Henry Sandee

Innovation is crucial for small enterprises to become and remain competitive in the global economy. In this book, the authors have combined theoretical insights with comprehensive case studies on innovation among small-scale enterprises in developing countries, paying particular attention to technological change in clusters of small firms.

Chapter 9: The Impact of the Crisis on Small-scale Enterprises in Java, Findings from Selected Case Studies

Henry Sandee

Subjects: development studies, development economics, economics and finance, development economics


Chapter 9 15/3/02 9:09 am Page 1 9. The impact of the crisis on small-scale enterprises in Java, findings from selected case studies Henry Sandee The importance for poverty alleviation of the small-scale sector in Indonesia was proven after the 1997-98 economic crisis. Since much of the modern sector contracted sharply during the crisis, the capacity of the small-scale enterprise to adjust to the crisis and maintain jobs or even expand employment has been critical for averting widespread unemployment and poverty. This chapter concentrates on small-scale industries, and, in particular, we concentrate on so-called small-scale industry clusters, defined as a geographical concentration of similar enterprises. In rural Java we can observe a large number of villages which are specialized in the manufacturing of specific products such as palm sugar, tahu and tempe, tile and bricks, and furniture. This chapter presents evidence from three small-scale enterprise clusters in Central Java that concentrate respectively on roof tile, brass handicrafts, and furniture production. All clusters were already subject to study many years prior to the crisis. In 2000 we have returned to these clusters to do new field work. The aim of this chapter is to assess the impact of the crisis on selected clusters. Our new study was inspired by the impression that small-scale enterprises have been weathering the crisis better than larger companies because they are less reliant on formal markets, and less reliant on now far more costly borrowed funds. We wanted to understand whether this is also true...

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