Promoting Small and Medium Enterprises with a Clustering Approach: A Policy Experience from Indonesia

Small and medium enterprises (SMEs) in Indonesia are very important for employment creation and are important sources of economic growth and foreign currencies. It is therefore not a surprise that SMEs receive ample attention in Indonesia. In recent years, particular attention has been paid to development of SME clusters. The main aim of this paper is to review government policies on SMEs with a clustering approach, in Indonesia. The paper argues that in many cases, the development policy has not been so successful. In essence, most failures can be attributed to the fact that one or more critical factors for successful SME cluster development were either not existing or not addressed correctly. Neglecting cluster linkage to markets is one main reason for the failure. Prerequisite for successful cluster development is the cluster's potential to access growing markets, either domestic or abroad.