“Identifying the challenges to foster the innovation climate in Indonesia”
Name: D.D. Soepono
Student Number: S2919958
E-mail: dhanes.soepono@gmail.com
21st January 2019
Supervisor: Dr. Wilfred Schoenmakers
Co-assessor: Dr. Thijs Broekhuizen
Master Thesis
MSc BA Strategic Innovation Management
Faculty of Economics and Business
University of Groningen
Abstract
The nation’s ability to innovate enables a nation to overcome challenges arising from the globalization. As the globalization trend brought countries the global competition, innovation serves as a mode to transform the nation’s disadvantage into a competitive advantage. Hence, it is necessary to identify the factors that inhibit the national innovation climate. However, the extant literature is lacking the factors of developing countries innovation climate. Accordingly, this study is conducted to encapsulate the factors of national innovation climate in developing countries, especially Indonesia. This study chooses the theory development (qualitative) approach along with semi-structured interviews to enable further insights discussion. There are 25 participants involved in this study who represent the various perspectives include the educator, business actor, investor, IP lawyer, and government employee. This study found that the Supporting Infrastructure factor which is not included in developed countries determinants of innovation is deemed to be the most challenging factor in Indonesia innovation climate. Listed from the most to the least challenging factors to improve are: Supporting Infrastructure, Human Resource, Network & Entrepreneurship, Financial Resource, Institutional Efficiency, and National Culture. It is urgently demanded that the government should boost the nation physical & ICT construction faster, provide bigger access to education, increase the collaboration with the local community. Also, increase the R&D budget allocation, strengthen the education curriculum to focus upon the future skills, and reform the regulatory sandbox mechanisms to be more flexible in adapting rapid industrial changes. At last, this study concludes that Indonesia is still far from having a conducive innovation climate.
Keywords: National Innovativeness, Determinants of National Innovation, Innovation Challenges in
List of Content
Abstract 0
List of Content 2
1. Introduction 3
2. Literature Review 4
2.1 Factors of National Innovation Climate 4
2.1.1 Institutional Efficiency 5
2.1.2 National Culture 7
2.1.3 Human Resources 7
2.1.4 Financial Resources 8
2.1.5 Network & Entrepreneurship 9
2.1.6 Supporting Infrastructure 10 3. Methodology 14 3.1 Research Phase 14 3.1.1 Phase 1 14 3.1.2 Phase 2 15 3.2 Trustworthiness 16 4. Results 16 5. Discussions 22 5.1 Theoretical Contributions 25 5.2 Practical Implications 26 6. Conclusion 26
6.1 Limitations & Future Research 28
7. References 29
Appendix I. Interview Participants Database 38
Appendix II. Interview Questionnaires 39
Appendix III. Factor importance 50
Appendix IV. Indonesia innovation climate score 53
1. Introduction
In recent years, the innovation of a nation has become an interesting topic in strategic innovation management literature due to the process of globalization makes nation more globally competitive (Borras et al., 2007). Porter (1990) argues the nation’s ability to innovate enables the nation in overcoming challenges from the global competition (Freeman, 1982). For instance, in developing countries where the factor of production is underdeveloped, a nation can innovate their factor of production through transforming their specialized labor, process, and raw materials (Porter, 1990). In this sense, innovation serves as a mode to transform developing countries disadvantage into an advantage so countries can develop their idiosyncratic competitive advantage (Porter, 1990). Schmitz & Altenburg (2015) see the global competition as a reason that Europe and Asia innovation paths become blurred as the technological shift and rapid expansion of production were pushed by the nations determinants of innovation capacity.
Indonesia is classified as one of the largest economies in Southeast Asia (Statista, 2018), however, in regard to innovation, Indonesia ranked averagely below other Southeast Asia countries according to the Global Innovation Index (2018). While Singapore and Vietnam allocated around 2.5 percent of its national budget to the research and development (R&D) sector, Indonesia only allocates around 0.2 percent (Lakitan et al., 2012). The principal reason that Indonesia is still far from an innovation-oriented nation is due to the limited budget allocation to R&D, the lack of managing knowledge accumulation, and the inadequacy of stimulating favorable innovation climate (IndonesiaInvestment, 2017). It is specified further by Global Innovation Index report (2017), the most significant challenges to foster innovation for Indonesia are still revolving around government-business regulations, people’s low education level, political climate, and low development of research and development activities. Indonesia’s weak innovation system and unconducive innovation climate push this study to be conducted because Indonesia industry is supposed to reach innovation-driven development (IndonesiaInvestment, 2017), while in fact, it is still hampered with fundamental problems as mentioned before.
climate. In the end, after revealing the observation, this study contributes to provide recommendations that are needed for strengthening the innovation climate.
Aligned with the objective of the research, therefore, the research questions of the thesis are:
“What are the factors that hinder innovation in Indonesia?” and “How should these factors be molded to foster Indonesia’s innovation climate?”
The structure of this thesis is as follows: first, the literature review part will discuss the theoretical background of the concept and factors of national innovation climate. At the end of the literature review, the constructed factors will be provided to depict the developing countries innovation climate. Second, the methodology part explains the research approach and process that is conducted in this study. Third, this study presents the result of the semi-structured interview. Fourth, the discussion will incorporate the result in accordance with the theory along with theoretical contributions and practical implications. Last, the conclusion will consist of limitations and future research direction.
2. Literature Review
In this section, the theoretical background will be elaborated through a rigorous process of reviewing the relevant literature. The literature review consists of discussions regarding the importance of factors that influence the national innovation climate and additional factor to adapt to developing countries.
2.1 Factors of National Innovation Climate
The theoretical foundations which are used to design the correlated factors of national innovation climate are deriving from varieties of literature about innovation. It is conducted to fulfill the Kippenberger (1997) definition of national innovation climate that requires not only ensuring the process of turning the idea into product or services but also creating the favorable conditions or atmosphere to foster the innovation process within a nation.
between these two. Subsequently, these factors were developed and evaluated in Europe by Natario et al. (2011), which are:
1. Institutional Efficiency: stability, efficiency, regulatory, rule of law, corruption, and accountability.
2. National Culture: power, individualism, uncertainty avoidance, and masculinity. 3. Human Resources: S&E and SSH graduates, S&E and SSH doctorates, population
with tertiary education, participation in lifelong learning, and youth education attainment level.
4. Financial Resources: public R&D expenditures, venture capital, private credit, business R&D, and IT expenditures.
5. Network & Entrepreneurship: non-R&D innovation expenditures, SMEs innovating in-house, innovative SMEs collaborating with others, and public-private co-publications
Natario et al. (2011) factors of national innovation are to the best of my knowledge, the most recent and updated. Their study has also been peer-reviewed and applied to other innovation studies such as Hamidi & Berrado (2017), Wendiro et al. (2014), and Nguyen et al. (2016). Nevertheless, Pietrobelli & Rabellotti (2010) argue that the direct implementation of national innovativeness factor to developing countries is deemed to be irrelevant, due to the difference in the innovation process, inadequate Science & Technology organization, and knowledge adoption. Schmitz & Altenburg (2015) viewed the divergence is caused by the factor endowments, economies scale and scope, size and nature of the home market, and economic governance. Whereas, Aubert (2005) pointed out that the levels of educational attainment, business environment, and information infrastructure are the major hindering factors in developing countries. As the extant literature does not provide factors of innovation climate in developing countries and there are various differences in determining the factors, it pushes this thesis to adapt and check the accuracy of Natario et al. (2011) factors of innovation climate to match developing countries characteristics using past studies.
2.1.1 Institutional Efficiency
The first national innovation factor is Institutional Efficiency, Natario et al. (2011) included this factor to illustrate the quality of public service provision, bureaucracy quality, the competence of civil servants, and the government commitment to foster innovation-driven policies (Dahlman & Utz, 2005; WorldBank, 2010). An efficient institution fosters national innovativeness which reflected through the government effort in administering its instruments -fiscal policy, legal enforcement, corruption control, and public participation involvement- (Aubert, 2005; Schmitz & Altenburg, 2015).
A stable macroeconomic & political condition encourages the business actor to conduct FDI which leads to a higher degree of foreign knowledge adoption in domestic innovation (Bénassy-Quéré, 2001; Natario et al. 2007). For instance, the absence of terrorism or violence, a stable exchange rate, inflation, and interest rate stimulate a foreign investor to invest in domestic technology (Ghazal & Zulkhibri, 2015; Schmitz & Altenburg, 2015).
Regulatory / Policies
Past studies imply that the establishment of market-friendly regulations and innovation-driven policies positively influence the innovation activities within a nation (Aubert, 2005; Mercan & Goktas, 2011; Seaden & Manseau, 2001; WorldBank, 2007). For instance, a comprehensive S&T policy will foster the innovation-based companies to boost their R&D development locally and allow business model to be disruptive (Archibugi & Iammarino, 1999; Metcalfe & Ramlogan, 2007).
Efficiency & Rule of Law
The efficient legal enforcement eases inventor and innovator to develop indigenous technology (Teece, 1986). It reflected through the authority effort in the provision of patents, trademarks, and copyrights (Pisano & Teece, 2007; Sheng, et al., 2011).
Accountability & Corruption
Past studies confirmed an accountable government and a low corruption level increase the innovative efforts made by economic actors (Mungiu-Pippidi, 2015; Veracierto, 2008). It stated that if business actors trust the government ability in ethically enforcing the law and regulation, they will be more likely to conduct an arms-length trade and more complex innovation activity (Anokhin, & Schulze, 2009; Wintrobe, 1995).
Public Participation
2.1.2 National Culture
National Culture serves as the second national innovation factor which illustrates that the innovation growth within a nation depends on the national elements in accordance with society’s values and beliefs (Mercan & Goktas, 2001; Natario et al., 2011; Taylor & Wilson, 2012). This study focuses on uncertainty avoidance cultural dimension as it considered as one of the most essential characteristics to innovate through risk-taking behavior (Hofstede, 1987; Shane, 1995). Hence, this study follows Shane (1995) in which it focuses on one culture dimension in the purpose of examining the specific correlation between a particular culture to the national innovation process. Pervaiz & Ahmed (1998) added that to build a strong culture, national culture should fulfill O’Reilly (1989) norm dimensions which are Intensity and Crystallization. Therefore, the following culture factor proposition is established.
Uncertainty Avoidance
Several studies confirmed that uncertainty accepting cultures lead to a higher nation innovation adoption (Hofstede, 1987; Porter, 1990; Shane, 1995), as innovation is mainly developed in an unknown condition where the decision has to be made without knowing the outcome (Hayton et al., 2002; Venkataraman et al., 1992).
Intensity & Crystallization
This factor is not included in Natario et al. (2011), however, literature shows that a higher degree of mutual agreement (Intensity) to perceive innovation as positive values (Crystallization) leads to a stronger innovative culture which boosts the local effort to increase innovation activities (Buckler, 1997; Cabrera, & Bonache, 1999; O’ Reilly, 1989; Pervaiz & Ahmed, 1998).
2.1.3 Human Resources
The third factor is proposed by Natario et al. (2011) to depict the quality of people’s education and skills as a source of innovation (OECD, 2000). People who possess innovative knowledge such as scientists, business actors, and educators, are served as a vehicle of knowledge flows from one place to another (OECD, 1997). A higher quality of human resource leads to an increase in people innovative capability to develop advanced technology and generation of knowledge (Mowery, 2005; Vivarelli, 2014)
S&E and SSH Graduates & Doctorates
explore new innovation capabilities within a nation (Edquist, 2005; Godin, 2007; Laranja, 2001; Lundvall, 2012; OECD, 1999)
Population with tertiary education
Past studies show that the higher number of people who obtain third stage of education or postsecondary education leads to a higher national innovative capacity (Cohen-Vogel, & Ingle, 2007; Edquist, 1997; OECD, 1999; Santiago, 2008). For instance, vocational education domains can enhance workers’ specialization to conduct innovative activities (Lundvall, 2007; Maritz et al., 2014).
Youth education attainment level
Researchers confirmed that the increasing number of youth accomplishment in education represents a higher interest of a younger population to develop their skills before joining the workforce (Asheim & Coenen, 2006; Bullinger, 2004; Furman 2002; Suarez-Villa, 1990). Unlocking the youth creativity will cultivate their capacity to serve as innovators for the subsequent generation (Bastien & Holmarsdottir, 2017)
2.1.4 Financial Resources
Financial Resources as the fourth factor is constructed by Natario et al. (2011) to delineate that a significant amount of financial capital is essential such as securing “proximity capital” which facilitated by government to build trust, capability, and reliability between actors, it also serves to mobilize resources of innovative activities (Cooke, 2001; Fagerberg & Srholec, 2008; King & Levine,1998). In developing countries, it serves as a solution where entrepreneurs can use microfinance and peer-to-peer lending (Bruton et al., 2014).
Public R&D Expenditures
The higher total amount of government investment in the form of government-funded R&D labs or the R&D Expenditures proportion to GDP reflects the government supportive endeavor to foster innovation (Chesbrough, 2006; David et al., 2000; Furman et al., 2002; Nelson, 1993), because this factor acts as an endorsement to facilitate further development of innovation process within a nation (Almus & Czarnitski, 2003; Hu & Matthews, 2005, Maharajh & Kraemer-Mbula, 2010).
Venture Capital & Private Credit
innovation (Fagerberg & Srcholec, 2008; Filippetti & Archibugi, 2011; Lerner, 2002; Webb et al., 2014).
Business R&D
The higher total amount of business (private) investment in R&D to GDP increases innovative activities which are concerted throughout the economy (Furman et al., 2002; Hu and Matthews, 2008). It is due to fact that the diffusion of new technologies in a nation is not fully the responsibility of the public institutions but also comprises with the private institutions (Cooke, 1992; Mowery & Oxley, 2005).
IT Expenditures
The increasing amount of Information & Technology expenditures represents a higher degree of national commitment to innovation, as the innovation process results from the knowledge flows and implementation of process design activity, work strategy, and the application of complex human activities and technological dimensions (Davenport, 1993; Feldman & Florida, 1994; Krammer, 2009).
2.1.5 Network & Entrepreneurship
The fifth, Natario et al. (2011) portray this factor to illustrate linkage quality between stakeholders, its environment, and external players in an entrepreneurial effort to facilitate synergistic relationship in aiding the production and transmission of knowledge flows (Edquist, 1997). A favorable business environment creates a conducive situation where the actors are able to effectively produce, transform, and distribute their innovation in their networks such as risk-sharing or cost-sharing to the collaboration network (Lundvall, 2007).
Non R&D Expenditures
This factor is adopted from Natario et al. (2011) sub-factors of Non R&D Expenditures and SMEs innovating in-house. It is due to both sub-factors are closely related and intended to measure the same direction of depicting innovation investment other than R&D expenditures. As innovation can be invested in several forms of knowledge, such as patent, license, design, trial production, tooling up, manpower training, market research, and investment in fixed assets (Brouwer & Kleinknecht, 1997; Kleinknecht et al., 2002). A higher allocation of Non R&D expenditures positively influences the innovators’ absorptive capacity through their knowledge flows (Brouwer & Kleinknecht, 1997; Huang et al., 2010; Natario et al., 2011).
This factor is adapted by combining Natario et al. (2011) sub-factors of Innovative SMEs collaborating with others and Public-private co-publications. Because both sub-factors role fundamentally revolves around the innovative interaction between actors. It summarized in this sub-factor to measure the level of innovative cooperation between actors whether it is SMEs, public, or private. Extensive collaboration provides various benefits for innovation, such as the risk-sharing, cost-sharing, co-publication, and co-creation of new resource access (Edquist, 1997; Lundvall, 2007). It boosts the opportunity to create long-term cooperation among investors, entrepreneurs, researchers, firms, public authorities, and consumers (Godin, 2007; Schiuma & Lerro, 2008; Love & Roper, 2013). A higher collaboration among actors facilitates higher knowledge flows among network of institutions (OECD, 1999).
Ease of Doing Business
This sub-factor is added outside Natario et al. (2011), it is constructed to capture the location attractiveness in the entrepreneurs' lens (GlobalInnovationIndex, 2018; Jayasuriya, 2011). As a highly attractive location offers a simpler procedure, it appeals to a higher number of foreign subsidiaries which brings about more valuable information that can be localized into innovation in a society, thus it enables developing countries to chase the developed countries technologies (Ani, 2015; Jayasuriya, 2011). It is included in the Network & Entrepreneurship factor as literature shows that a higher degree of the ease of doing business gives a positive signaling effect to the foreign investors which lead to strengthening the linkage between innovation network (Fichman, 1999; World Bank, 2010).
Quality of Life
This sub-factor is not included in Natario et al. (2011) as well, it is added by adopting Bullinger (2004) study which indicates that the perceived entrepreneur benefits (social welfare, medical facility, sanitation) offered by a particular nation increase the level of locational attractiveness for an entrepreneur to conduct their business. Several studies are also in line, stating that a higher degree of life quality positively influences employment and productivity growth (Shapiro, 2006; Edward et al., 2012). Consequently, a higher quality of life extends a higher intensity of entrepreneurial activities and network, thus it is included in Network & Entrepreneurship.
2.1.6 Supporting Infrastructure
infrastructure, namely, Physical infrastructure and Information, Communication, and Technology infrastructure. Sridhar & Sridhar (2007) added the supply of supporting innovation infrastructure in terms of roads, transportation, electrical power, water supply (physical), and telecommunications (ICT) positively influences the level of production cost, which matters to individual firms, whole industries, and individual consumers.
Physical Infrastructure
The establishment of adequate physical transportation infrastructures (power, water, sanitation, road, airports, and public transportations) aid the process of mobilization of knowledge actors (Bullinger, 2004). It indicates that closer proximity to R&D Centers and Universities to the economic actors, the more likely business and innovation can be fostered through the cost reduction (Feder et al., 1985; Freeman, 1982; Siyanbola et al., 2012)
ICT Infrastructure
The advancement of Information & Communication Technology infrastructure boosts the exchange of knowledge flows between economic actors (Bullinger, 2004; Den Hertog, 2002; Lundvall, 2007). By increasing the quality of mechanical and acquiring rapid information communication technology, a nation is able to strengthen its citizen networking (Sridhar & Sridhar, 2007; Siyanbola et al., 2012).
The construction of new factors and sub-factors is formulated based on its definition and correlation compatibility to the research scope. The emerged factors and sub-factors during the literature review will be coded for distinctiveness. Consequently, the coded results will be included in the innovation climate factors by prioritizing the most prevalent and the most often appeared. For instance, in Supporting Infrastructure, the literature review uses the term such as “innovation infrastructure”, “infrastructure role to foster innovation climate”, “developing countries innovation infrastructure”, or similar. The most often emerged result with the highest relevance will be selected, for instance, Physical and ICT Infrastructure have emerged, then, both factors coded into a subcategory of Infrastructure which in turn affiliated to the Supporting Infrastructure factor. In result, this thesis provides a compiled list of factors that influence national innovation climate portrayed in
Table 1, in which it will be validated later whether it represents the factor of developing countries
innovation climate to the participants in this study.
3. Methodology
In this section, the method of this study process will be elaborated. It depicts the study steps along with the reason for the chosen research approach, the process of the data collection, and the chosen method to conduct the data analysis.
3.1 Research Phase
As the existing literature does not provide particular factors that are suitable for developing countries, theory development (qualitative) approach is applied in creating knowledge (Aachen, Berends & Van der Bij, 2012). This study aims to test whether the factors that are applied in the developed countries is applicable in Indonesia as it represents one of the developing countries. The study was conducted in two phases, first, the literature was reviewed and it followed with the semi-structured interviews. Both inductive and deductive approach was used to support a systematic set of procedure for analyzing the qualitative data that can be summarized into a reliable and valid finding (Wolfswinkel, 2013).
3.1.1 Phase 1
that were not contributing useful insights into the national context. In result, the selected literatures that were relevant to the topic of national innovation climate will be served as a theoretical foundation to review and integrate into the study. Keywords that were used are “National Innovativeness”,
“Determinants of National Innovation”, and “Innovation Challenges in Indonesia”. This thesis found
84 articles relevant to the theoretical foundation. 3.1.2 Phase 2
In the second phase, the literature review served as a foundation to construct the semi-structured interview to enable the discussion of insights during the interview (Gill et al., 2008). The semi-structured interviews were recorded and transcribed to support the inductive and deductive analysis thereafter (Yin, 2003). This study also used a field note to ensure all of the coded data was included and made the iterative research process feasible. The interview questionnaire is constructed based on the national innovation climate factor proposition (Table 1). The semi-structured interview used two types of questions which are scale questions and open-ended questions. The 5-Point Likert Scale ranging from 1 (“Not important at all” or “Far below average”) to 5 (“Extremely important” or “Far
above average”). The first Likert Scale question type was constructed to assess the rank of factor
importance to Indonesia innovation climate. While the second Likert Scale was constructed to assess how well does Indonesia scored on the constructed factors. The first research question was formulated based on the constructed factors of innovation climate which summarized in Table 1.Whereas, the second research question is formulated by asking open-ended questions to gain the participants’ advice to the Indonesia government according to their perception.
participants are questioned in regard to how Indonesia is scored on them (current situation) and where do participants think Indonesia should be (most appropriate situation). Fourth, they contribute to the study by giving advice on how to improve these factors of Indonesia innovation climate according to their perspective.
After the raw data regarding the factors that inhibit the Indonesia innovation climate is collected via semi-structured interview, the data analysis starts with the iterative process of multiple reading, coding, and interpreting the interview results. To compare each factor, the result will be analyzed by contrasting and highlighting the responses.
There were two types of coding process induced in this study, which are inductive and deductive coding (Wolfswinkel, 2013). The inductive coding involved the process of observing the participants in the interview session and assimilate it with the analysis from the literature review in order to find the correlation both from the theory and real practice (Thomas, 2006). The deductive coding process is conducted by testing the established national innovation theory whether it matches with the specific context -developing countries- (Kenneth, 2000). The outcome of the coding process was to provide the summarized raw data into a framework conveying key themes and processes, which in this case are the factors that inhibit the national innovation climate in developing countries (Wolfswinkel, 2013).
3.2 Trustworthiness
In qualitative research, it is essential to ensure the research trustworthiness (Thomas, 2006). Trustworthiness in qualitative research is described by Lincoln and Guba (1985) by a condition where the research has to fulfill four criteria which are credibility, transferability/generalizability, dependability, and confirmability (Shenton, 2004). The credibility criteria will be achieved through stakeholder checks and peer reviews. While dependability will be ensured by auditing and comparing the data with the research findings and interpretations. Another procedure to evaluate trustworthiness is through consistency checks and stakeholder reliability checks. Stakeholder reliability checks provide the opportunities for people - innovation expert, government employee, university lecturer, business actors- with particular interest to be involved in the evaluation process (Gill et al., 2008). As the interview process is transcribed, the reliability and controllability can be assessed (Van Aken et al., 2012). The study confirmability or reliability is defined as the extent of the study independency between the study results and the study subject’s main characteristics (Swanborn, 1996).
4. Results
performing in each factor and sub-factor (current situation) along with describing their perception of where Indonesia should be (most appropriate situation). The scales are identical between 1: “Not important at all” or “Far below average” to 5: “Very important” or “Far above average”. By comparing responses, this study determines the rank of importance of each factor and which factor is the most challenging to be improved. Lastly, the participants discussed their arguments on how Indonesia should improve on each factor.
The participants' occupations are varied (Appendix I) such as innovation consultant, management consultant, private tech employee, R&D specialist, Science & Technology (S&T) ministry employee, S&T deputy, venture capitalist, banker, public policy analyst, and IP lawyer. The participants are mainly located in Java Island. Thus, all of the interviews were conducted through a telephone call. The majority of participants age is between 24-30 with a minimum of 3 years experience in the innovation-related field.
The majority of the responses appear to agree upon the six constructed factors which are presented in Table 1 (Appendix V). Nevertheless, there are three respondents who suggested to add some sub-factors. First, in Human Resource factor, a respondent stated that Nutrition should be included. Second, there are two respondents stated that the National Culture factor should include additional sub-factors, namely, Growth Mindset and Religion.
The result based on respondents’ perceptions shows that the most important factor for Indonesia innovation climate is Supporting Infrastructure with up to 60% response answered “extremely important”. Followed by Financial Resource (56%), Network & Entrepreneurship (48%), Human
Resource (32%), Institutional Efficiency (24%), and National Culture (20%). This order reflects the
respondents' perception of how these factors are important to Indonesia innovation climate, which might be contingent on their occupational field. A similar result was found based on respondents’ appraisal on the current situation and most appropriate situation. This gap between respondents expectation and the current situation reflects how far Indonesia is lacking behind these factors. The farthest deviated factor (Appendix IV) from the expectation is Supporting Infrastructure, followed by
Resources. The result shows that Supporting Infrastructure is the most important and lagging factor,
which is aligned with the assertions from respondents that see Indonesia as a massive country yet its mobility still becomes a huge problem due to the overpopulation in big cities, plus the economic distribution in rural areas that is not supportive enough for innovation.
In the factor context, regarding Institutional Efficiency, all participants were agreed upon sub-factors that represent the Institutional Efficiency factor. It resulted that the Efficiency & Rule of Law sub-factor as the most important sub-factor for Indonesia innovation climate with 40% of respondents deemed it “extremely important”. Followed by Regulatory/Policies with 32%, while on average,
Public Participation and Stability sub-factors are at the same level of importance (Appendix IV).
Respecting National Culture sub-factor, the results indicate that the mutual agreement to perceive innovation as positive values (Intensity & Crystallization) is more important than risk-taking behavior (Uncertainty Avoidance) with 36% and 12% responses at “extremely important”, respectively. Meanwhile, in the current situation, Indonesian people are characterized to be more risk-taking with 28% respondents answer it at “above average” than to see innovation as a positive value with 52% response at “below average”. Hence, the biggest challenge is reflected in the Intensity &
Crystallization sub-factor with 48% respondents expected it at “above average” on the most
appropriate situation, while currently, 52% respondents answered it is still “below average”. In Appendix V, the majority of the participants are certain that society should recognize more about the innovative thinking (P2; P3; P5; P9; P13; P16), should instill critical thinking, empathy, and innovative value since the early stage (P1; P3; P6; P11; P19; P20), and should change the policymaker perspective towards innovation (P14). Moreover, the government should internalize the culture of innovation as a part of formal education curriculum (P1). In addition, Indonesian should not only observe foreign innovation works but also positively develops local creative and innovative efforts in local indigenous technology by offering incentives (P6; P15; P25).
Concerning Human Resources factor, participants consider that the Human Resource sub-factors are adequate. The Youth Education Attainment Level sub-factor resulted as the most important sub-factor with 44% response at “extremely important” and 48% at “very important”. It is followed by SSE &
SSH Graduates & Doctorates with 24% at “extremely important” and 52% at “very important”, and Population with Tertiary Education with 20% at “extremely important” and “56% at “very
majority of respondents answered it only from “far below average” to “average”, representing that people’s attainment in further education after high school is still limited. However, the most challenging sub-factor is the Youth education attainment level as 28% of respondents expect it at “far above average”, while currently, it’s only 4% who answer it “above average”, even 20% respondents are still at “far below average”. The participants mainly advise (Appendix V) that Indonesia should focus on the fulfillment of mid-level workers by building a tiering education system such as vocational schools, certification, and youth course skill preparation(P1; P5; P7; P9; P13). Access to education should also be improved by creating more schools, research institutes, and scholarships, and by distributing teachers to remote areas in order to reach people without access to education (P3; P4; P8; P9; P10; P16; P19; P22; P24; P25). Furthermore, the government needs the reformation of education curriculum to be taken into account so that it can be more comprehensive and updated (P6; P12; P24).
In regard to Financial Resources, by looking at Appendix V, respondents deemed the sub-factors adequate to represent the Financial Resource factor in Indonesia innovation climate. The Public R&D
Expenditure deemed as the most important as 36% respondents are at “extremely important”,
followed by Business R&D, Venture Capital & Private Credit, and IT Expenditures. For the most challenging sub-factor, it indicates Public R&D Expenditures as the most challenging with expectations up to 32% at “far above average” and 60% at “above average”. In contrast, around 24% respondents are still at “far below average” and 36% are at “below average”. Conversely, Indonesia
Regarding Network & Entrepreneurship, the sub-factors deemed as sufficient. It indicates that the most important sub-factor is Collaboration among Actors with up to 96% respondents when combined are at both scales of “very important” and “extremely important”. Ease of Doing Business ranks second with up to 88% response on both scales. Whereas, the less important sub-factors are
Quality of Life with 48% response at “very important” and Non-R&D innovation expenditures with
52% response also at the same scale. In fact, Non-R&D Innovation Expenditures positioned at the worst performing sub-factor with the farthest condition from expectation. Followed by Ease of Doing
Business and Quality of Life, participants indicate that the collaboration between economic actors is
still limited (P14; P16; P24). Concerning Non-R&D Innovation expenditure, it suggests that the government should initiate the socialization of innovation importance in investment other than R&D (P21). The majority advised that Indonesia should increase the collaboration between actors to support an efficient network information exchange, as well as to reform the business regulation, procedure, and policies in order to be simpler, connected, and transparent (P1; P3; P4; P5; P8; P14; P22).
or public transportation, the government should create an innovation lab along with incentives for the scientist/researchers (P20).
5. Discussions
To answer the first research question of “What are the factors that hinder innovation in Indonesia?”, first, this study constructed the national innovation climate factors from the literature review before conducting the interview. This study incorporated Natario et al. (2011) factors with other studies in adapting to developing countries. Eventually, the constructed factor added an extra factor of
Supporting Infrastructure as this factor is argued to be essential in determining the developing
countries innovativeness (i.e., Dahlman & Utz, 2005; Feder et al., 1985; Sridhar & Sridhar, 2007; WorldBank, 2010). This thesis also adopted several sub-factors such as Public Participation
(Institutional Efficiency), Intensity & Crystallization (National Culture), Ease of Doing Business and Quality of life (Network & Entrepreneurship). Aiding the literature found, the interview outcome
supports the constructed factors, as the majority agreed that the presented factors are adequate to represent Indonesia’s innovation climate. Therefore, the answer to the first research question can be elaborated by comparing respondents' perception of how important are those factors to Indonesia’s innovation climate and how far Indonesia is lagging behind expectations. Correspondingly, the listed factors based on its importance are, respectively: Supporting Infrastructure, Financial Resource,
Network & Entrepreneurship, Human Resource, Institutional Efficiency, and National Culture. While,
listed from the most lacking factor that hinders Indonesia innovation are, respectively: Supporting
Infrastructure, Human Resource, Network & Entrepreneurship, Financial Resource, Institutional Efficiency, and National Culture. The differences between both lists were in the Financial Resource
and Human Resource. Both factors swapped places due to the gap between what is needed and what is presently available which makes them more challenging to improve. The result indicates that initially, respondents perceive that Indonesia obliges to improve Financial Resource more, but in fact, Human
Resource is more pressing than Financial Resource. This discussion will be structured based on the
around information infrastructure, educational attainment, and business environment. Furthermore, on average, the result indicates that Indonesia’s innovation performance is still lagging as the current situation substantially differs from the participants’ expectation of Indonesia innovation climate (Appendix IV).
The Supporting Infrastructure which comprises Physical and ICT infrastructure is designated as the biggest challenge. This factor represents the farthest lagging based on respondents expectation and current situation. The result confirms the theoretical view from Siyanbola et al. (2012) and Feder, et al. (1985) as they stated that government in developing countries should aid their infrastructure construction faster to encourage more rapid innovation adoption. It turns out that the Physical
Infrastructure is more challenging to be improved (Appendix IV). This proves Bullinger (2004)
argument that the inadequateness of road, airports, and public transportation - i.e., grouped as physical infrastructure - inhibited the national innovation as the mobilization of information exchange becomes difficult. In comparison, the ICT infrastructure is deemed to be relatively less challenging to be improved, but it is still evident from past studies and respondents’ advice that the development of ICT
infrastructure, such as internet network and data center hardware, is essential to support the
innovative knowledge flows (Bullinger, 2004; Den Hertog, 2002; Sridhar & Sridhar, 2007).
The Indonesia’s second biggest challenge is the Human Resource factor. The youth interest in preparing themselves before joining the workforce is proved to be the most important and the most challenging in Indonesia. It indicates that a low level of Youth education attainment leads to lower national innovativeness. This result is aligned with other literatures which show that the development of human capital on early age has been fundamental to innovation growth process (Bastien & Holmarsdottir, 2017; Godin, 2007; Maritz et al., 2014; OECD, 1997; 1999). People attainment in further education results as the second most challenging sub-factor, supporting Santiago (2008) that tertiary education after high school is crucial to human capital growth in developing countries as the nation is highly dependent on low-skilled workers. The least challenging sub-factor is the total number of S&E and SSH graduates & doctorates to population, as Human Resource is still far from the appropriate situation. This result is also represented by the literatures stating that low innovative countries are indicated by a smaller number of graduates (Edquist, 2005; Godin, 2007; Laranja, 2001). The third most significant challenge for Indonesia innovation climate is the Network &
Entrepreneurship factor. Non-R&D innovation expenditures serves as the worst performing sub-factor
people will be unable to derive valuable information through foreign technologies. Collaboration
among Economic Actors results in the least challenging but serves as an essential sub-factor in
Indonesia, meaning Indonesia is already in the right direction due to past studies stated that extensive cooperation could benefit innovation (Godin, 2007; Edquist,1997; Lundvall, 2007).
The fourth most challenging factor is Financial Resource. Participants highly considered the public allocation in R&D to be improved extensively (P1; P2; P24;), supported by past studies which stated that the financial endorsement from government (Public R&D Expenditure) is highly essential to positively influence the national innovativeness (Hu & Matthews, 2005, Maharajh & Kraemer-Mbula, 2010). The second significant sub-factors contribution to Indonesia innovation deficiency is the private investment in R&D. This confirms that limited R&D business investment leads to lower adoption in technology which subsequently hinders the national innovation (Cooke, 1992; Mowery & Oxley, 2005), then followed by IT expenditures and Venture capital & Private credit allocation
representing that the limited allocation of both sub-factors leads to lower degree of national commitment to innovation (Davenport, 1993; Feldman & Florida, 1994; Krammer, 2009; Fagerberg & Srcholec, 2008; Lerner, 2002).
Institutional Efficiency is the fifth most challenging factor to be improved in Indonesia. The
result proves that Indonesia institution is weak in legal enforcement, high corruption level, and lacking in innovation-driven policies. Hence, these sub-factors inhibit Indonesia innovation climate according to the argument that stated, the countries innovativeness is reflected by government effort in administering its instruments (Dahlman & Utz, 2005; Mungiu-Pippidi, 2015; Pisano & Teece, 2007; Sheng et al., 2011; Veracierto, 2008; WorldBank, 2010).
Lastly,the least challenging factor for Indonesia is the National Culture. It is evident that Indonesian should urgently perceive innovation as a positive value to complement risk-taking behavior. This outcome confirms Pervaiz & Ahmed (1998) perspective that in order to strengthen the innovative culture, both norms, namely, Intensity & Crystallization should be fulfilled (O’Reilly, 1989). Notably, it indicates that Indonesia has the potential to conduct higher innovation activities as Indonesian is relatively tolerable in uncertain condition (Shane, 1995).
For the research question of “How should these factors be molded to foster Indonesia’s
innovation climate.”, this study asks the respondents to advise what Indonesia government should do
Concerning Human Resource, the advises essentially revolve around the development of vocational schools (skills certification) targeting the fulfillment of mid-level workers, the creation of innovative apprenticeship with tech companies, and the increasing of scholarships program. The government is urgently demanded to provide bigger education access for people in remote areas and to reform the education curriculum to focus not only on hard skills but also soft skills (critical thinking).
Regarding Network & Entrepreneurship, participants particularly urge the government to simplify the business permit procedural which consequently reforms the bureaucracy efficiency (P1; P3; P4). Participants also urge that government should improve the communication between ministries in each business sector (P24), reevaluate the regulation to support small business to grow without eliminating legality and taxation (P8), socialize the importance of non-R&D investment (P21), increase the collaboration with local community to develop indigenous technology, and initiate more creative public places to encompass innovators (P7).
Respecting Financial Resource, the advises mainly force the government to increase the national budget allocation to R&D sector (P1; P4; P10; P21; P22; P24), encourage more funding collaboration with the private sector (P1; P8; P25), be more flexible in supporting the venture capitals (P19), and create better investment scheme (P1; P15).
In regards to Institutional Efficiency, the participants insist on the government to increase the quality, transparency, and flexibility of bureaucracy (P15), to provide incentive -e.g. Grants, patent provision- for innovators (P13), to improve the legal enforcement, to digitize the administration (P14), to re-evaluate S&T policy in fostering innovation rate (P14), to develop the public innovation-driven program (P10), to be faster in regulating the new emerging business sector -e-commerce- (P8), and to create a focused department to better integrate and coordinate between ministry (P1; P14; P16; P21; P24).
Concerning National Culture, it is stipulated that the government should strengthen the education curriculum to focus upon the future skills -empathy, critical thinking, creativity- (P1; P10), give more appreciation towards research and innovation (P14), instill the appreciation value of innovative ideas since early age (P5), increase the recognition towards innovative efforts such as to speak up (P4), to accept changes, or to think creatively (P3; P4; P7), and encourage the youth culture to be more innovative oriented (P14).
5.1 Theoretical Contributions
developing countries, or specific, in Indonesia. This study developed Natario et al. (2011) by checking the factors using other studies (e.g., Dahlman & Utz, 2005; Sridhar & Sridhar, 2007) and factor definition fitness to the research scope. This study found that Natario et al. (2011) factors need to be adopted by one factor of Supporting Infrastructure which formed through the contribution of two sub-factors, namely Physical Infrastructure and ICT Infrastructure. The result from the constructed factors indicates that the Supporting Infrastructure factor serves as the most crucial factor in fostering developing countries innovation climate. While in Natario (2011), the Supporting Infrastructure factors is not included when assessing the developed countries nation’s competitiveness. Thus, this study contributes to the theory by proving the importance of Supporting Infrastructure as an extended factor when implementing the national innovation factors in developing countries.
5.2 Practical Implications
This study serves to practically orient the assessment of developing countries innovativeness through adapting factors from developed countries. The constructed factors are meant to be beneficial when applied by researcher, regulators, and business actors to assess which factor in a nation that inhibits the innovation climate and what the nation should do to improve these factors. This study provides several implications that the Indonesia government is demanded to take into account. First, the government is insisted to strengthen its infrastructure concerning physical and ICT as knowledge and information exchange become profoundly important. The government is also urged to focus on development of vocational schools targeting the fulfillment of mid-level workers, to provide more prominent access to education, to increase the scholarship, and to distribute teacher to remote areas or islands. This study also implies that, fundamentally, the government should support the entrepreneurship sector by reforming the business procedure, creating a conducive public place to increase the innovativeness of local community, and increasing the collaboration network between economic actors. From financial capital perspective, the government should enlarge the allocation to R&D sector, encourage sovereign wealth fund, collaborate with the private sector, and create better investment scheme. In tackling the institutional deficiency, the government should consider to digitize the administration, to develop S&T policy to allow innovation to be fostered, and to increase the bureaucracy flexibility. It is also essential to cultivate the creative culture in the education curriculum, to recognize innovative efforts made by a citizen, and to encourage more innovative participation in public projects. Thus, by providing the implication as mentioned earlier, this study can illustrate to other developing countries that these aspects are principally essential in fostering the national innovation climate.
6. Conclusion
This study chooses the theory development (qualitative) approach coupled with semi-structured interview approach to enable the in-depth discussion of insights which begins with the identification of problem represented by the research question, then continued by deliberately evaluating and advising the constructed factors. In the end, the results are based on comparing respondent’s response on how far Indonesia are lacked behind each factor. Thereby, the research questions can be answered.
Despite this thesis limitations, the factors that inhibiting innovation in Indonesia is answered by constructing from the most important to the least important factors which adopted from developed countries framework. This study also able to investigate the main challenges that Indonesia faces in fostering innovation. The result slightly differs in human resource and financial resource due to the current situation. Two most crucial factor are Supporting Infrastructure and Human Resource as both factors only slightly differs in the result. It indicates the Supporting Infrastructure is found to be the most challenging factor for Indonesia, where this factor is not included in the determinants of national innovation in Natario et al. (2011), it is due to developed countries are not focusing the basic living condition anymore as their infrastructure is already adequate (Lundvall, 2007). This study can conclude that such a factor is necessary to be included when assessing the innovation climate in developing countries. This research also indicates that the Supporting Infrastructure formed through the contribution of two sub-factors, namely, Physical Infrastructure and ICT Infrastructure.
To answer the second research question. This study is implementing pieces of advice from the participants. For the Supporting Infrastructure factor, it is mainly suggested to sustain the construction of basic physical infrastructure while also focusing on the development of ICT infrastructure. The movement of knowledge is more important than ever (P 5), thereby, the lack of infrastructure is essential to take into account as innovative activities are hindered. It is also noteworthy that Indonesia’s main challenge is also contributed to the underdeveloped human resource. According to the result, the Human Resource factor is positioned at the second biggest deviation when compared to the current situation with the most appropriate situation score. The advice essentially revolves around the development of vocational schools targeting the fulfillment of mid-level workers, while at the same time, focusing on the allocation to more scholarships program. The government is urgently demanded to take action in providing more access to education as people in remote areas still become problematic.
6.1 Limitations & Future Research
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