AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
DANANG KRISNA YUDHA
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY BOGOR
DECLARATION
I hereby declare that the thesis entitled “An Analysis of Innovation Network Performance on the Palm Oil Industry in North Sumatera” is my original work produced through the guidance of my academic advisors and that to the best of my knowledge. This thesis also presented for the award of a degree in The University of Adelaide as a double degree program between Bogor Agricultural University and The University of Adelaide. All of the incorporated material originated from other published or unpublished papers are stated clearly in the text as well as in the bibliography.
I hereby delegate the copyright of my paper to the Bogor Agricultural University.
Bogor, July 2015
SUMMARY
DANANG KRISNA YUDHA, 2015. An Analysis of Innovation Network Performance on the Palm Oil Industry in North Sumatera. Supervised by AJI HERMAWAN, Chairman and MACHFUD, Member of Advisory Committee.
Indonesia and Malaysia shared 85% of global palm oil production by weight in 2013, according to United States Department of Agriculture (USDA, 2014). Indonesia overtook Malaysia as the biggest producer of palm oil and reached a total production of 30 million tons in 2014 (Ministry of Agriculture, 2015). Although Indonesia became the leading country in the production of palm oil, most of this commodity are exported as Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CKPO) to Europe, China and India, so the value added going to another country. Therefore, the government wants to resolve this problem by increasing the added value of palm oil products.
Innovation is the key factor to increase the added value of palm oil products. Indonesian government set North Sumatera as a center of palm oil industry and encourage the growth of innovation in this region. Advances in innovation are considered as the main factor that affect the regional competitiveness and become the key factor for increasing national economic growth. Moreover, collaboration between government, universities and firms are important to produce the expected innovation.
This paper assess the effectiveness of network among actors on the palm oil industry in North Sumatera. A Social Network Analysis (SNA) was carried out to determine the structure and performance of this network. The result show that the government play insignificant role in this industry, while research institutions have more influence. Moreover, this study also identify the barriers which inhibit the collaboration among actors. This study use interpretive analysis based on the interviews to recommend some action plan, which are intended to improve the network.
RINGKASAN
DANANG KRISNA YUDHA, 2015. Analisa Kinerja Jaringan Inovasi pada Industri Kelapa Sawit di Sumatera Utara. Dibimbing oleh AJI HERMAWAN, Ketua dan MACHFUD, Anggota dari Komisis Pembimbing).
Indonesia dan Malaysia menghasilkan 85 % dari produksi minyak sawit global pada tahun 2013, menurut Departemen Pertanian Amerika Serikat ( USDA, 2014). Indonesia mengambil alih posisi Malaysia sebagai produsen terbesar minyak sawit dan mencapai total produksi sebesar 29,3 juta ton pada tahun 2014 (Kementerian Pertanian, 2015). Meskipun Indonesia menjadi negara unggulan dalam produksi kelapa sawit, sebagian besar komoditas ini diekspor sebagai Crude Palm Oil (CPO) dan Crude Palm Kernel Oil (CKPO) ke Eropa, China dan India, sehingga nilai tambah komoditi ini menjadi milik negara lain . Oleh karena itu, pemerintah ingin mengatasi permasalahan ini dengan cara meningkatkan nilai tambah dari produk kelapa sawit.
Inovasi menjadi faktor kunci untuk meningkatkan nilai tambah dari produk kelapa sawit. Pemerintah Indonesia menetapkan Sumatera Utara sebagai pusat industri kelapa sawit untuk mendorong pertumbuhan inovasi di wilayah ini. Kemajuan dalam inovasi dianggap sebagai faktor utama yang mempengaruhi daya saing daerah dan menjadi faktor kunci untuk meningkatkan pertumbuhan ekonomi nasional. Selain itu , kolaborasi antara pemerintah, universitas dan perusahaan merupakan faktor penting dalam menghasilkan inovasi yang diharapkan.
Makalah ini menilai efektivitas jaringan antar pelaku industri kelapa sawit di Sumatera Utara. Sebuah Analisis Jaringan Sosial (SNA) dilakukan untuk menentukan struktur dan kinerja jaringan ini. Hasil penelitian menunjukkan bahwa pemerintah memiliki peran yang kurang signifikan dalam industri ini, sementara lembaga penelitian memiliki pengaruh yang lebih kuat. Lebih jauh lagi, penelitian ini mengidentifikasi hambatan dalam membangun kolaborasi antara pelaku. Penelitian ini menggunakan analisis interpretatif berdasarkan wawancara untuk merekomendasikan beberapa rencana aksi, yang dimaksudkan untuk meningkatkan kinerja jaringan.
Copyright ©2015, by Bogor Agricultural University
All Right Reserved
1. No part or all of this thesis excerpted without inclusion or mentioning the sources
a. Excerption only for research and education use, writing for scientific papers, reporting, critical writing or reviewing of a problem
b. Excerption does not inflict a financial loss in the proper interest of Bogor Agricultural University
Thesis
Submitted to the Graduate School in Partial Fulfillment of Master Of Science
Degree In
Agroindustrial Technology
AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA
GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY BOGOR
2015
Thesis Title : An Analysis of Innovation Network Performance on the Palm Oil Industry in North Sumatera
Name : Danang Krisna Yudha
Registration Number : F 351137151
Study Program : Agroindustrial Technology
Approved Advisory Committee
Dr. Ir. Aji Hermawan, MM Chairman
Prof. Dr. Ir. Machfud, MS Member
Agreed
Coordinator of Program Agroindustrial Technology
Prof. Dr. Ir. Machfud, MS
Dean of Graduate School
Dr. Ir Dahrul Syah, MSc. Agr
ACKNOWLEDGEMENTS
Praise and gratitude to Allah Subhanahu wa Ta’ala, because of Him, the writer can complete this thesis as a requirement to get a Master Degree in Bogor Agricultural University (IPB). The title of the thesis is An Analysis of Innovation Network Performance on the Palm oil Industry in North Sumatera.
The writer want to say thank you, especially for Dr. Aji Hermawan as a chairman of the advisory committee, Prof. Machfud as an advisory committee member, and Dr Wendy Lindsay as an advisor from University of Adelaide whose gave positive criticisms and guidance to shape the outlook of this thesis. Special thanks for Dr. Barry Elsey and Ms. Amina Omarova from The University of Adelaide for their guidance in writing this thesis. They teach me how to write the thesis with a good structure.
I also would like to express gratitude to all the respondents who have taken their time to conduct an interview with the author. Special thanks to Mr. Deny
Mulyawan from PT. Perkebunan Nusantara III, Mr. Anshori Nasution from IOPRI and Mrs. Ida Yani Pane who took time to meet me in the middle of his/her work. My gratitude to DR. Listyani Wijayanti for the courage and motivation. I also thank Prof Erliza Hambali for her suggestion to reshape my thesis and Mr. Dahlius and Mrs. Dhiah Nuraini who also my colleagues in Ministry of Industry. I also offer my thanks for Mr. Fadhil who gave me new perspective of the palm oil industry.
In this acknowledgment, I want to take my time for expressing my love to my wife, Ajeng and my son, Hirzan who acoompany me in Adelaide and provide the biggest support. I also want to thank my father, mother, brother and sister who continuously to give their support, both in the difficult and good period. Last but not the least, I want to show my gratitude to my friends, namely Karim, Tri, Benny, Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko, Nuni, Anin, and Yani for their moral support especially when we all lived in Adelaide.
Bogor, July 2015
TABLE OF CONTENT
LIST OF TABLE
2.1. Network Terminology 7
3.1. Profile of Participants 12
3.2. Research Stages 13
4.1. Centrality 18
LIST OF FIGURE
2.1. Palm Oil Industrial Tree 5
2.2. Interaction Model Between Actors 9
2.3. Triple Helix Model 11
4.1. Network Visualization of the Palm Oil Industry 17
4.2. Relation Among Actors 20
LIST OF APPENDIX
Appendix 1. List of Questions 28
1
INTRODUCTION
1.1. Introduction
At the current time, Indonesia is the world's largest producer of palm oil, namely around 29,3 million tons in 2014 (Ministry of Agriculture of Republic Indonesia, 2015) and the industry has been the economy's most valuable agricultural export sector for the last century. Although Indonesia become the leading country in the production of palm oil, most of this commodity is exported as Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CKPO), which are categorised as semi-products with low added value. This condition encouraged the government to develop palm oil downstream products and set North Sumatera as a center of the downstream palm oil industry (Ministry of Industry Decree No. 13 Year 2010).
In an attempt to increase the value added of palm oil products, innovation plays important roles. Innovation is required to develop 23 downstream products of palm oil, as stated in government policy, and then bring those products to domestic or global market. However, the innovation process, from invention to commercialization, can be inhibited if the network between research institution, government and businesses is not managed properly. In the palm oil industry, many inventions which were produced by research institutions cannot fulfill the demand of the palm oil industry and failed to enter the market. Furthermore, lack of government support weaken the industry's desire to cooperate with research institutions. This condition lead to poor performance of innovation in downstream palm oil industry which causes many companies prefer to search innovation from external sources.
This study assess the effectiveness of network among actors that affect the innovation performance on the palm oil industry in North Sumatera. Collaboration between actors become an important factor in creating innovation. Moreover, this research identify the barriers which influence the network. The purpose of this study is to propose an action plan and policy design to improve the network among actors, which in turn will improve the innovation performance and enhance the development of downstream palm oil industry in North Sumatera.
1.2. Statement of the Problem
In North Sumatra, there are three types of institutions that carry out innovation activities in the downstream palm oil industry, namely business, government and research institution. These institution, which can be referred to as actors, have been cooperating and sharing resources in order to create innovation. However, many invention cannot be implemented in the industry because it is produced only to meet the academic interest. Furthermore, unclear government policies make the industry and research institution are reluctant to establish collaborative research.
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should be addressed in order to improve the innovation performance in the palm oil industry.
1.3. Background and Need
Innovation as described by Schumpeter (1947) is a process to create an invention and commercialize it. An invention could be called as innovation with the first commercial transaction and acceptance of the market. The innovation process is defined as the combined activities leading to new marketable products, methods and /or new systems (Burgelman, et al. 2006). In palm oil industry, innovation is important to support the government program by developing new technology or new downstream products of palm oil which can lead to a new business. More importantly, innovation will support the development of new products with higher value than CPO and CKPO. Many theories show that innovation has big impact on science/technology and economic growth. De Groot, Nijkamp and Acs (2001) argue that technological innovation has long been a concern in an effort to create opportunities for economic growth in the region. A region that has excelled in the development of new technologies or implementing the existing technology in economic activity have indicated a better competitive advantage.
A number of studies (Basiron 2002; Barlow, Zen and Gondowarsito, 2003; Dou, 2009) concluded that the chances of development of the Indonesian palm oil industry is still very open, especially because of the availability and suitability of land and supported by appropriate policies and strategies. The government set North Sumatera as a center of downstream palm oil industry because of its abundance of raw material and build palm oil industrial cluster in this region. Moreover, Pratama (2014) defined 3 major factors which affect the development of palm oil downstream industry, namely infrastructure, innovation and networking among actors. It indicates that innovation has a big impact on the development of the downstream palm oil industry.
Furthermore, collaboration is an important part of the innovation process, especially in developing countries such as Indonesia, which has a low research budget. The government, enterprises and research institutions interact and cooperate in generating innovation. Teece (1992) and Baum et al (2000) suggest that collaboration enables business to access complementary assets, technology, human resource and learning capabilities, thus boosting the company innovation performance. Usually government became the leading institution of this collaboration and provide the funding, while research institutions have the resources (human resource and research facilities).
1.4. Purpose of the Study
3 order to enhance the innovation network performance of the palm oil industry in North Sumatera.
1.5. Research Questions (RQ’s)
This study has several research questions to be answered, as follows:
1. What kind of innovation activities are being conducted by each actor of the palm oil industry in North Sumatera?
2. How effective is the network among actors of the palm oil industry in North Sumatera?
3. What are the barriers for establishing collaboration between actors of the palm oil industry in North Sumatera?
4. What factors could be developed in the future to improve the network among actors of the palm oil industry in North Sumatera?.
1.6. Significance to the Field
There are several contributions of this research, as follows:
a. On policy, this research may provide new perspective for local and central government about how to develop downstream palm oil industry. In addition, this research provide a recommendation about how to build collaboration among the actors involved.
b. From an academic point of view, this study may contribute to solve the problems of networking by identifying the barriers of collaboration.
c. In addition, this research assess the network performance of the palm oil industry in North Sumatera which may be useful for firms or other parties.
1.7. Limitation
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2
LITERATURE REVIEW
2.1. Innovation in the Palm Oil Industry
The government through the Ministry of Industry plans to develop palm oil downstream products with the hope of increasing the value added of CPO and CKPO. The price of CPO and CKPO in 2014 was USD 818,4 per ton, very low compared to the price of its downstream products (GAPKI, 2015). In fact, CPO and CKPO can be used as raw material for several derivative product, namely food products (including cooking oil, margarine and shortening) and oleochemicals (fatty acids, fatty alcohol and glycerin). Moreover, palm oil is the major raw material for biodiesel industry and become more important for the sustainability of energy in Indonesia. In figure 2.1 (page.5), it illustrates twenty three downstream products that will be developed by the Indonesian government.
In order to support the development of downstream palm oil industry, the government issued two main policies. The first policy listed on Ministry of Industry Decree No. 13 Year 2010 which includes the palm oil industry roadmap and long term strategy 2011-2025. In this regulation, the government set North Sumatera as a center for the downstream palm oil industry. Moreover, the government also established palm oil industrial cluster in North Sumatera as a special economic zone with various facilities and incentive to the industry. The other policy declared by government is joint regulation between Ministry of Research and Technology and Ministry of State Affairs No. 36 Year 2012 about regional innovation system. The policy focuses on developing a leading commodity for each province, for example palm oil for North Sumatera province. It indicates that North Sumatera is important region for the development of downstream palm oil industry.
5 Figure 2.1. Palm Oil Industrial Tree
Source : GAPKI (2015)
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Innovation become important factor in accelerating the development of downstream palm oil industry. As stated by Schumpeter (1938), there are five form of innovation, namely (1) new products ;(2) new methods of production;(3) new markets;(4) new sources of raw material;and (5) new organisations. In palm oil industry, “new products” means the development of twenty three downstream palm oil products which is listed on Ministry of Industry Decree No. 13 Year 2010. The innovation activities in the palm oil industry is expected to generate new products that address the needs of consumers. The innovators can add special attributes on downstream product of palm oil which can solve the customer problems. One of the main concern of consumers is the health issues of palm oil products and the innovators can try to solve this problem. This will affect the competitiveness of Indonesian palm oil products in the global market. Meanwhile, “new methods” is generated to increase the productivity and efficiency of the industry. With the increased performance of the industry, the costs will be smaller and it will boost up the competitive advantage of the industry. Furthermore, innovation in downstream products can bring new markets for domestic industry so that the value-added of palm oil products can be increased.
However, many inventions which is produced by research institution failed to enter economic system because of several factors, such as lack of collaboration, stagnation on government policy (Schepers 2013), limited funding and failure to identify market demand (Chiesa & Frattini 2011). This study will explore the network among actors and assess the effectiveness of the current research collaboration in the palm oil industry. Research and Development (R&D) partnership is becoming more familiar in the creation of innovation, along with the increasing complexity of technology. It could be used to access additional technology and market knowledge, to co-develop standards, to create a minimum (critical) size for a project, and to share innovations costs and risks (Hagedoorn 1993)
2.2. Assessing Innovation Network Performance with Social Network Analysis
2.2.1. Network Theory
7 Node The basic elements of a network Tie/Edge A set of two nodes. Ties can be
dichotomous (unweighted) or weighted/valued, directed or not (undirected)
Directed Tie An ordered set of two nodes, i.e., with an initial/sources and a
terminal/destination node
Network A set of nodes connected by a set of ties
Valued Network A network whose ties/edges are associated with a measure of magnitude or strength
Ego A node which receives particular focus Alters The set of nodes that has ties with the
ego but not including the ego itself Network Size The total number of nodes of a
network
Relational Data The set of ties of a network Sources: Coulon, 2005
. In the case of palm oil industry, the nodes are organizations, consist of government, research institution and business. The network connect all stakeholders and relay the information and knowledge which is important in the creation of innovation. Furthermore, Rodgers (1962) emphasize the importance of network in technology diffusion. The new technology will be spread quickly among actors through the existing network. More importantly, the existing network will help a new technology to be accepted by the community (lowering the resistance of new technology). That’s why, it is essential to manage the effective network among actors in the palm oil industry.
Actor
Latour (1992) define actors as “entities that do things”. The entities in his perception is, either a human or non-human, which has the character and ability to do some action. In innovation activities, an actor would need the help of other parties to create a new technology/product. This cooperation will form a network and they will share the resources to achieve common goals.
2.2.2. Social Network Analysis as Analitycal Tools to Assess Innovation Network Performance
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used to measure what criterion is being used, and it should be included in the performance measurement system (Provan & Kenis 2008). The indicator of innovation network performance, they called it “determinants of innovation network”. Those determinants consist of two main indicators which are shapes of network and connectedness of members. The shapes of network focused on number of researcher, level of research expenditure, and the quality of output. Meanwhile, the connectedness of members is represented by the intensity of communication (tacit and explicit knowledge), form of communication, amount of communication, and diversity of competencies and knowledge. The performace of a network can be measured by using social network analysis as a tool.
Social Network Analysis (SNA) views social relationship in terms of network theory, consisting of nodes, representing individual actors within the network, and ties which represent relationships between the individuals actors (Freeman, 2004). Social network analysis is based on assumptions about the importance of the relationship between nodes that interact include theory, models, and applications expressed by the concepts of relational or process analysis. Network analysis is not done individually, but with an entity consisting of individuals and relationships that exist between them. (Wasserman & Faust, 2008). According to Hanneman and Riddle (2005), social network analysis is a technique for studying the relationships or social relations among members in a group. Meanwhile, other theories stated that social network analysis is a process of learning and understanding of the network (formal and informal) in certain fields (Schelhas and Cerveny, 2002).
Some measurements to quantify the role and influence of actors in the network are as follows (Hanneman and Riddle, 2005) :
1. Degree of centrality, the degree of the presence and position of an actor in a social networking. This can be categorised into two types, which are: 1) In degree is the ability of actors to relate to an actor; and 2) Out Degree is an actor's ability to relate to other actors in the network.
2. Closeness centrality, shows the extent to which the information can be spread in the network and measures the distance between the actors in the network. Dissemination of information easily demonstrate with high proximity value 3. Betweeness centrality, shows how strong an actor can become a facilitator
between other actors in the network. An actor with a high betweeness value has the ability to convey information to actors who are not directly connected with them.
Overall, SNA calculate the tie strength which is important in assessing the overall degree of connectivity of members in an environment and the likelihood thatinformation will flow from one member to another (Haythornwaite, 1996). It means, this analysis will reveal whether the knowledge and information distribute and spread quickly among members. Information and knowledge are important factor for developing innovation in any aspects, includes downstream palm oil products. This attribute is very important to assess the effectiveness of network in the palm oil industry.
9 2.3. Collaborative Innovation Activities
Innovation activities has been divided into three major categorise which are internal , external and cooperation (Veugelers 1997). The internal innovation is an activity that conducted using internal resources and capabilities of a company, while external innovation can be interpreted as an access to knowledge and technology through licensing, hiring external researchers or outsourcing (Arora & Gambardella 1990). However, many companies realise that the process to produce a knowledge or technology is very complex and it would be costly for them to conduct it by themselves. Therefore, companies tend to build cooperation with external parties, such as universities, research institutes, government and other companies.
This condition also occurs in the palm oil industry in North Sumatra. The influence of institutions outside the region of North Sumatera cannot be denied. For example, the research policy is strongly influenced by the central governments, in this case they are the Ministry of Industry (MoI) and the Agency for the Assessment and Application of Technology (BPPT). This study considers the influence of other actors outside of North Sumatra in order to draw a complete picture of palm oil industry in North Sumatera.
Based on the theories above, innovation can be greatly affected by the interaction among actors. Interaction between actors is not inevitable because of the innovation process that requires a lot of resources and budget, with high risk and unpredictable environment/market. This condition also applies on the palm oil industry in North Sumatera. That’s why, many actors in palm oil business established cooperation because they cannot generate innovation by themselves. In many regional innovation systems, academic institutions, research centers, the government and firms cooperate with each other to make innovation effective. They share information, infrastructure, human skill, capital and many other components in order to make exact innovation. Zhao, Song, Zhu, Peng, and Cai (2013) illustrated a model of interaction model between actors (Figure 2).
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For further discussion, (Cooke & Morgan 1994) introduced “the network paradigm” and emphasized that an effective network should consist of:
a. Information sharing, the willingness of each actor of a network to share their information.
b. Trust, the willingness to place faith on other actors.
c. Learning, an awareness that knowledge and technology should be obtained through a learning process.
d. Partnership, an awareness of cooperation and building relationships
e. Decentralism, the realisation that centralised data or information without sharing is not effective
2.3.1. Triple Helix Model as Analytical Tools for Innovation System
Lenger (2008) stated that university and research institution play big role, especially for providing qualified researcher and produced locally adopted research. Meanwhile, the government can support the industry by providing substancial resources or infrastructure, namely incentive and energy sources. On the other hand, the readiness of business actors to adopt research results is very important. Many big oil palm enterprise such as SMART, Unilever, Lonsum and Sampoerna Agro have established their own R&D stations in order to enhance technology development, strengthen the competitiveness and build cooperation with SME’s (Liwang, Daryanto, Gumbira-Sáid, & Nuryartono, 2009).
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Figure 2.3 Triple Helix Model
2.4. Summary
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3
METHOD
3.1. Introduction
The research assess the effectiveness of network among actor that affect the innovation performance on the palm oil industry in North Sumatera. Moreover, this study will identify the barriers which influence the network. The purpose of this study is to propose an action plan and policy recommendation to improve the network among actors, which in turn will improve the innovation performance and enhance the development of downstream palm oil industry in North Sumatera.
3.2. Setting
This study conducted in palm oil industry which is located in North Sumatera. Based on Ministerial Regulation No. 13 Year 2010, North Sumatera is selected as a center of downstream palm oil industry, alongside Riau Province and East Kalimantan. This region has approximately 60 palm oil firms, several research institution and one industrial cluster which allows the interaction between industry players in generating innovation.
3.3. Participants
This research used purposive sampling since it is focused on the actors who have experience and expertise on downstream palm oil industry. Each of participants represent three category which are academic, business and government (table 3.1).
Table 3.1. Profile of Participants
No Participants Institution Position
1 Respondent 1 Research Institution A3 Researcher
2 M. Ansori Nasution,
ST, M.Sc Indonesian Oil Palm Research Institution Researcher
3 Ir. Dahlius Sei Mangkei Center of Innovation Head of Institution
4 Ir. Deny Mulyawan,
MT PT. Perkebunan Nusantara III Regional Manager
5 Respondent 2 Enterprise B2 Operational Manager
6 Fadhil Hasan Indonesian Palm Oil Association Executive Director
7 Ir. Dhiah Nuraini,
M.Si Ministry of Industry Deputy Director
8 Ir. Ida Yani Pane, MT Local Government of North Sumatera Head of Department
9 Dr. Listyani Wijayanti
Agency of the Assessment and Application of
Technology Deputy of the Institution
3.4. Measuremet Instruments
13 3.5. Procedure
In this research, interview became the main sources of data while observation and legal documents provide some additional information. The participants will be interview for 15-30 minutes to answer all the research questions. In order to assess the network performance, the data about cooperation among actor was collected from documents and interviews.
Table 3.2. Research Stages
Research Questions Stage Sources Data Analysis
What kind of innovation
2. This study using SNA to assess the network among actors
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4
RESULTS AND DISCUSSION
North Sumatra has around 60 companies engaged in the oil palm industry, both multinational companies and small medium enterprises. In general, multinational companies have their own R & D division to conduct innovation activities, while small and medium industries rely more on government funding and research from outside the company. In some studies, the need for cooperation between governments, research institutes and companies is enormous, especially in developing countries. It is encouraged by the fact that they can share the resources through collaboration and lowering the cost of innovation.
This study uses a case study approach in nine institutions which represent government, academic and business. Although it does not cover the entire palm oil industry in North Sumatra, the interviews which was conducted on each of the actors allow a deeper understanding of what is actually happening in the industry. 4.1. Collaborative Innovation Activities
It has been widely recognized that innovation affects the performance of an enterprise. The ability to generate new products or new technologies has become the driving force to ensure the sustainability of the company in the increasingly fierce competition. It also has a great influence on the economic growth of an enterprise (Baumol 2002). Learning from successful companies, many of them paid great attention to innovation by allocating funds for innovation activities. Hashi and Stojčić (2013) investigate whether failure in optimizing innovation and limited research funds causes low competitiveness of European industry, so that they lagged behind competitors in the global market. The results showed that investment in innovation activities have a positive influence on the performance of innovation, which in turn enhance the competitive advantage of companies.
In North Sumatera, palm oil enterprises has the tendency to build cooperation with another actors in order to create an innovation. The companies collaborate with research institution with the purpose to gain new knowledge and technology. Meanwhile, SBRC and PIKS have a connection with the government (e.g. Ministry of Industry and BPPT) and they conducted research collaboration on palm oil products. In fact, most of the actors in this study already has a cooperation with another parties. Overall, the collaborative innovation activities conducted by actors can be described as follow:
1. Academic/Research Institution
University or research institute is responsible for the creation of knowledge and technology through a series of research activities. It is possible because research institution has the resources to support those activities, such as laboratory equipment and human resources. Currently, research institutes has conduct more research on upstream products, for example about breeding, fertilizers and plantation management. Anshori (IOPRI) stated that:
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divided into process technology, product technology, design new equipment and utilization of industrial waste. However, our research in the downstream palm oil industry is still very low and we continuously strive to improve our efforts to produce innovation on downstream palm oil products. IOPRI has the motivation to expand its focus on downstream palm oil industry, but we need the support from government and the industry. The reason why IOPRI has not conduct a research in downstream product is limited funds and low demand from business”.
Another obstacle that inhibit the growth of innovation in downstream palm oil industry is dual function of research institution. In addition to research activities, the existing research institutes also provide services to the industry, in the form of training or product testing. The problem occur when the demand of product testing is very high, which cause the institution can not maintain its focus. Moreover, a lot of research in Indonesia only conducted to fullfill the academic interest, without thinking of the demand of industry. Results from these studies will be extremely difficult to implement by the palm oil industry.
2. Business
The majority of companies in North Sumatra has a R&D division which has a function to produces innovation, either new products or new methods. The innovation is intended to increase the profit through sales of new products or production efficiency. PT. Perkebunan Nusantara III and Venture B3 establish collaboration with research institutes such as IOPRI and SBRC. The companies and research institutions will discuss about the research topic and the funding will fully or partially covered by the company. In this type of cooperation, the company propose research topics which are relevant to their problems, and then the study will be carried out by the research institute.
3. Government
The government in collaborative innovation activity has a role in providing research funding. Funds could be allocated for research activities or the procurement of machinery and equipment. It is important because the business usually reluctant to allocate budget on research activities. There is no guarantee of success and the cost of innovation will be financial burden for the company. Morover, Ida Yani Pane (Local Government) emphasized about the role of government as a facilitator:
“Local government provide a support for the implementation of central government policies, namely regional innovation systems and industrial clusters. We tried to make a cooperation with companies and research institutions and the governor issued a regulation to support the growth of innovation in North Sumatera. One of the roles of government is to facilitate the cooperation between research institutions and companies, especially in the palm oil industry”
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Interaction among actors in palm oil industry
Etzkowitz (2003) claims that triple helix interactions can originate from varying institutional arrangements which can be set in three broad categories. The first is the statist model which features a strong governmental control over academia and industry. The second is the laissez-faire model in which industry, academia and government are set apart from each other with minimal interactions. The third model which many studies has consider as the ideal model, consists of hybrid organizations in which each institutional sphere maintains its identity and main mission, while also taking the role of the other.
Based on the interview, the existing collaboration model in palm oil industry is the laissez-faire model. The model has equal roles between the government, businesses and universities. (Lei et al. 2012) argue that this model arises because of the desire to reduce the role of government, which is considered to inhibit the creativity of the lower level (research institutes or companies). However, this the palm oil industry. This model allow each actors to engage close contact with a clear concept of cooperation. Trust shown by the exchange of information and knowledge between the actors. More importantly, every actor can help or even take on the role of other actors if necessary. For example, the industry can take on the role of funding which has been the domain of government, so that the problem of financing is not always become the bottle neck of collaboration. Dzisah and Etzkowitz (2009) illustrates that the dynamic of Triple helix Model consist of three things which are (1) the equal position and clear roles of academics, government and businesses; (2) the cooperation among three actors; and the helices taking each other roles. In conclusion, the actors should consider to adapt the hybrid model of triple helix with the purpose to enhance the collaboration. 4.2. Innovation Network Performance
The effectiveness of the network data analysis can be done using social network analysis. This method is used to determine the segmentation, connectedness and distribution of a network. In the palm oil industry, there are three principal actors: academic, business and government. This study assess the network among nine institution, namely:
1. Indonesian Oil Palm Research Institution (A1); 2. Sei Mangkei Center of Innovation (A2);
3. Bogor Agriculture University (A3); 4. PT. Perkebunan Nusantara III (B1);
5. PT. Unilever Oleochemical Indonesia (B2); 6. Indonesian Palm Oil Association (B3); 7. Ministry of Industry (G1);
17 9. and Local Government of North Sumatera (G3).
Based on the calculation, the overall tie strength (connectivity) of the network is 0.271 while the overall density (distribution) is 0.389. It means that both the tie strength and the density of this network are weak. Tie strength represent frequency, reciprocity, emotional intensity and intimacy of a relationship, as stated by Granovetter (1973). A strong network requires high frequency of contacts (Lin et al, 1978), confirmation from both sides/ reciprocity (Foster-Fishman et al, 2001) and trust among two parties. The low score of tie strength indicates that the actors did not establish extensive contact and the network is not well structured. The more connected an actor with other actors means that the information and knowledge can be delivered faster.
The visualization of network using UCINET can be shown on figure 4.1. Figure 4.1. Network Visualization of the Palm Oil Industry
Based on the diagram above, we can clearly see that there is no clear structure of coordination among actors. In this network, IOPRI (A1) remain the center of information and technology sharing and it has a close relationship with the government and businesses. In addition, IOPRI also establish cooperation with other research institutions. Currently, the institution assist the development of Sei Mangkei Center of Innovation, as a part of Memorandum of Understanding (MoU) between Ministry of Industry and PT. RPN. Dahlius who is the head of the Center of Innovation provides the following statement:
18
On the other hand, the government has a minimal role in the network. Neither the Ministry of Industry, BPPT and local governments have a considerable influence on the growth of innovation in the palm oil industry. In fact, the local government of North Sumatra have absolutely no contact with the business and research institutions.This is less than ideal conditions for government, who actually has the biggest power as policy maker and the providers of research fundings.
Degree of Centrality (Key Actors)
Based on table 4.1, IOPRI has the highest degree of centrality among actors. It means IOPRI has the biggest role on creating initiation and coordination among actors regarding the development of downstream palm oil industry. Pow et al. popularity with the value amounting to 6. Meanwhile, the second rank with a value amounting to 4 is shared by two actors namely the Ministry of Industry and PTPN III.
2. Closeness centrality is used to determine the actor who is fastest in disseminating information. After perform calculations in the group (connected components), showed that IOPRI is the actor who has the greatest value. 3. Betweeness centrality is used to determine which actors have the strongest
influence and have an important role in maintaining the flow of information within the network. After doing the calculations, this showed that the actor that has the most powerful network is IOPRI.
4. Eigenvector centrality is used to determine actors who have high popularity and can establish interaction with other actors who also have high popularity. After doing the calculations, it showed that the actor who has a perfect score is IOPRI.
Table 4.1. Centrality
Actors Density Closeness Beetwennes Eigenfactor
19 Segmentation
In the diagram, business actors seemed to form its own cluster. The clustering coefficient of Palm Oil Association is the highest (1,000) and it allows them to form clusters with PTPN III (0333) and PT. Unilever (1.000). In this cluster, PTPN III serves as a supplier to other companies (intermediate products of palm oil) so as to create a strong relationship between them and other businesses. Moreover, if we removed actor G2 (BPPT), then the group will be disconnect with G3 (Local Government). It indicates that G2 has an important role to connect G3 with the remaining actors.
Evolving role of the government
In many developing countries, such as Indonesia, the government has strong position and can greatly influence the success of business. They can extend their original roles, which are research policy and funding, and take more active role as prime mover. The government can become a facilitator of a national scale research and establish collaboration with university and business. Mahmood and Rufin (2005) suggest the government to take initiative and become facilitator for innovation or imitation of technology. In another study, Lei et al. (2012) illustrate the government as an actor who provide provide encouragement and inducement for other actors. In our network analysis, we can conclude that the government has had a very limited influence, something that does not reflect the potential role and power of government. The government seems to be outside the network and this condition is not good for industrial growth. Based on the interviews, several experts suggest that the government should take the initiatives to create collaboration among actors. For example, Diah (Ministry of Industry) says:
“The government should take the initiatives and coordinate other institution. But, we still do not know which government (central government or local government) is the most influential in the palm oil industry. One of them should try to become the leader of research collaboration on the palm oil industry. In my opinion Coordinating Minister for the Economy is the most appropriate to take on that role, because the agency has the function of coordination with several relevant ministries, such as Ministry of Industry, Ministry of Agriculture and the Ministry of Research and Technology”
4.3. Barriers
20
In order to explore the obstacles in the relationship between government and research institutions, the researcher conducted interviews with the palm oil industry. There are several things that act as barriers of collaboration in linkage 1, namely:
a. Limited coordination/meeting/synchronization among actors
One of the facts that appear in the interview is the lack of coordination between the government and research institutions, as if they were waiting for each other to be the main actor in collaboration. These conditions meant that cooperation between the actors did not show significant progress. Respondent 2 (Enterprise B3) states that:
"There is no single actor who willingly initiates cooperation between various institutions in the palm oil industry. This condition create inefficiency of the network. The government should take this role and become facilitator for the meetings”.
Figure 4.1. Relation Among Actors
(1) Linkage 1 (Government-Academics)
(2) Linkage 2 (Academics-Business)
(3) Linkage 3 (Government-Business)
(3)
Government
State Govt
Local Govt
Profit Oriented Effectiveness and
Efficiency Research Facilities
Human Resources (1)
Business Academics
1. Regional Innovation System
2. Palm Oil Industrial
Cluster (Palm Oil Hub
Association)
21
b. Funds
One of the obstacles aggravating the relationship between the actors is limited funding from the government. Currently, research institutions rely heavily on government funding but unfortunately the government only gives a limited amount of budget support for innovation in the palm oil industry.
However, to increase innovation in a region, does not necessarily mean to increase the budget for research and development. (Koch, Norgren & Oksanen 2003) give an argument that investment in research institutions are not automatically going to help the industry, if there is no attempt to integrate those research results into practical action.
c. Overlapping roles especially on the government institution
Overlapping between government agencies is the main factor that inhibits networking among actors in the palm oil industry. For example, the local government issued a policy of regional innovation systems in order to support downstream palm oil industry, while the Ministry of Industry declared policies to encourage palm oil industrial cluster. This makes other industrial players, such as research institutes, confused in determining the appropriate innovation strategies. qualified researchers. At Center of Innovation, the government has helped the procurement of laboratory equipment to support research activities, but lack of experts lead to low innovation produced by this institution. Another thing that creates the weakness in the research institute in Indonesia is the lack of international recognition. This is caused by limited infrastructure and lack of publication of research results. Dahlius (PIKS) raise this issue:
“Lack of qualified researchers and research facilities become the barriers of our institution. Many palm oil enterprise do not recognize our capabilities because of this factor. It is important for us to improve our facilities and recruit more qualified researchers in order to gain the trust from the businesses”.
b. Similarities of research (patent issues)
Another factors that become obstacles in establishing collaboration is the issue of patents. Innovators have experience where their technology/ innovation emulated by other institution. This resulted in trust issues among institution and reluctance to cooperate with other parties.
c. The absence of guarantees of the risk of failure of innovation
22
others. The government itself understands these issues and incorporate these things in Act No. 3 Year 2014 about National Industrial Policy. In these regulations , the government provides coverage for the risk of the use of technology which was developed domestically by research institutions, companies, and / or college. This Guarantee shall apply to technologies which have not been developed in Indonesia and does not apply to the risks arising from mismanagement. In Government Regulation No.14 Year 2015, the government offers two schemes in underwriting the risk which are insurance and reimbursement.
However, the implementation of this policy remains unclear. This is caused by the absence of technical guideline, mainly related to an insurance claim or reimbursement. The government itself has not appointed an insurance agency that will deal with this matter.
Meanwhile, some of the factors that create obstacles in the collaboration between government and business (linkage 3), are listed below:
a. Convoluted bureaucracy
Companies regard the government as an institution which has convoluted bureaucracy and lengthy procedures. This affects the willingness of businesses to cooperate with the government. Furthermore, companies are very concerned about the efficiency and effectiveness of its business. If the collaboration with the government does not provide benefits, then they will not do it. The absence of government incentives for collaborative research/ innovation becomes a factor that weakens the industry's willingness to cooperate with other actors. Deny (PTPN III) advise that:
“Common barriers that occur in building cooperation between companies and the government is funding, bureaucracy dasn risk. Long bureaucratic process makes companies reluctant to establish a relationship with the government so it needs special attention. Meanwhile, we should make a discussion about the risk of failure of a research. The risk should distributed fairly among government, research institutions and companies. This is because the leader of the company is considering the cost of innovation. If the innovation activities had no impact on sales or productivity of the company, then it would be difficult to provide support”
4.4. Action Plan and Policy Strategy
The issue that arises when the interviews were conducted is the importance of appropriate government policies to foster research cooperation in the oil palm industry. In addition, most of the participants showed the need for action plan in order to foster research collaborations that will result in the increase of innovation in the industry.
Policy strategy
1. Tax incentives for research collaboration
23 policies such as industrial cluster, and more amenable to supportive policy. For example, tax incentives for industries who collaborate with research institutions is a solution that can be offered. If a company wants to get the facility they are required to meet some criteria, for example, were able to show evidence of collaboration with local research institutions or assign local employees in positions related to technology transfer. Fadhil Hasan mentioned that:
"The government needs to take a role in funding the basic research on palm oil industry. Funding can be taken from the export duties imposed by the government to the company. We can follow the example of Malaysia which allocate some of the revenue from export duties as research funds. Not surprisingly, innovation in the Malaysian palm oil industry is more developed than our country. Tax incentives are one of the drivers for research cooperation in this field".
2. Turn Key Project and International Collaboration
In fact , most of the downstream palm oil industry is a multinational company and they are reluctant to do research in Indonesia ( prefers doing research in the country of origin ) . One of the policies that can be taken is to impose a "local content" to the palm oil industry . This policy requires companies to use local resources in the form of labor , raw materials and research. However, this policy can only be implemented on government projects making it less effective in accelerating innovation in downstream palm oil industry.
Therefore , the government itself through the national industrial policy will encourage the technology transfer between multinational company and local company. Multinational company, when they want to run a turn-key project in Indonesia, is required to build industrial facilities and conduct technology transfer to local labor/company. The technology transfer can be done through research collaboration involving research institution and local companies. In some country, the government also requires multinational companies to put local workers on top management positions related to technology development.
Moreover, Indonesia has the experience on national scale research which enable big funds and encourage international collaboration. For example, research collaboration with Japan in automotive industry or Korea in sewing machine industry. In order to provide the expected innovation, the government can initiate a national project and discuss the focus of the project with other actors. Lies (BPPT) illustrates the collaboration among actors as follows:
24
Action Plan
1. Improve the research facilities and qualified researchers
In the discussion above, research infrastructure and human resources become the ultimate barriers for research institution. The government can provide the funds for research institution to buy machinery or equipment. Moreover, training and certification should become the priority agenda in this action plan. 2. Shift from academic based into industrial need
Many research’s conducted only to meet the academic interests without considering the needs of the company. This condition causes low successful innovations implemented by the businesses. The stakeholders should begin to reconsider their focus on research collaboration. Respondent 1 who is the director of research institute suggest this following strategy:
“Nowadays, many research institution shift their focus from academic center to industrial needs. Usually, the businesses will come to the institution and explain their problems. This problem become the main attention for our research project”.
3. Regular coordination meeting
Coordination and monitoring is important to ensure that the research collaboration stay on track. In this meeting, the actors can discuss about the purpose and detailed information of the research. Dahlius (PPKS) said that:
“We consider it necessary to do periodic meetings between industry, government and research institutions. During the meeting discussed the current issues in the palm oil industry and the strategies to be taken in the future. Some important things to be discussed are (1) the research will be carried out; (2) the ability of research institutions; (3) action plan”
4.5. Summary
The network between actors in the palm oil industry does not have a clear structure and is less organized. In such networks, IOPRI become the most influential actor, while the government has a minimal role. The main factors which inhibit the collaboration between the actors are limited coordination, fundings, overlapping roles, risk of innovation, convoluted bureaucracy, trust and patents..
25
5
CONCLUSION
5.1. Summary
a. Collaboration among academics, government and businessess is important in creating innovation for downstream palm oil industry.
b. The key actor in palm oil industry is IOPRI and this institution become the center of information and technology. Meanwhile, the government has less influence on the network. Based on the network analysis, the local government did not have a direct connection with the businesses or research institution. The government should become the prime mover and improve their influence on the network.
c. Several barriers which inhibit collaboration among actors, namely trust, patent issues, limited coordination, funds, overlapping roles, convoluted bureucracy and risk of innovation
d. This study propose an action plan and policy strategy to improve the network among actors. The policy strategy consist of incentives for collaborative research, international collaboration and transfer technology. Meanwhile the action plan includes several things, namely improve the research facilities and qualified researchers, shift from academic based research and regular meeting.
5.2. Recommendation
Evaluation on network performance is important to assess the flow of technology and information among actors in the palm oil industry. Research with a broader scope by involving the wider actors will improve the result of network analysis
Further research, can be explore about the different types or backgrounds of a firm, for example private firms appear to be more reluctant to establish collaboration with government, compared to stated owned companies. In addition, a research can be done in another region, for example Riau or East Kalimantan, because every region has specific characteristic 5.3. Implication
26
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29 Appendix 1. List of Questions
Academic
1. What kind of innovation needed to enhance the development of palm oil downstream industry?
2. How do you manage the relationship with the government?
3. How do you offer technology and knowledge to the business sector? 4. What are the barriers to establish cooperation with other parties (business
and government)?
5. What could be developed in the future to improve the cooperation between academia, business and government?
Business
a. What do you think is the room for improvement in downstream palm oil industry in order to add value to the product?
b. What are the inhibitors in applying the technology and innovation from academia related to donwtream product of palm oil?
c. What benefits can you get from cooperation with academia and government?
d. What are the problems in cooperating with government and academia? e. What could be developed in the future to improve the cooperation between
academic, business and government
Government
a. What is the role of government in developing palm oil downstream industry?
b. What is the best policy to develop the palm oil downstream industry? c. How do you support the innovation and learning activities in academia and
business sector?
d. What is the barrier in establishing good cooperation between academia, business and government?
30
Appendix 2. Matrix for Social Network Analysis (SNA)
Actors B1 B2 B3 A1 A2 A3 G1 G2 G3 Document
PT. Perkebunan Nusantara III (B1) 0 1 1 1 0 0 1 0 0 MoU No.291/PPI/11/2011 (MoI) and No.3.13/MoU/03/2011 (PTPN III)
PT. Unilever Oleochemicals (B2) 1 0 0 0 1 0 0 0 0 Interview
Palm Oil Association (B3) 1 0 0 1 0 0 0 0 0 Interview
IOPRI (A1) 1 0 1 0 1 1 1 1 0 Ministerial Regulation No.111 Year 2009
Center of Innovation (A2) 0 1 0 1 0 0 1 0 0 MoU No.291/PPI/11/2011 (MoI) and
No.3.13/MoU/03/2011 (PTPN III)
SBRC (A3) 0 0 0 1 0 0 1 1 0 Interview
Ministry of Industry (G1) 1 0 0 1 1 1 0 0 0 MoU No.291/PPI/11/2011 (MoI) and
No.3.13/MoU/03/2011 (PTPN III)
BPPT (G2) 0 0 0 1 0 1 0 0 1 Governor Regulation No 34 Year 2012
31 AUTOBIOGRAPHY
Danang Krisna Yudha, the author of this thesis was born on 01st June 1987 in Yogyakarta, Indonesia. He completed his elementary education in 1999 and joined SMPN 12 Yogyakarta for junior education. He later joined SMAN 2 Yogyakarta and finished in 2005. He graduated from Gadjahmada University major in agroindustrial technology in 2009. Apart from formal education, Danang also participate in several training and workshop such as Youth Leader Program in 2008, held by Ministry of Youth and Sport.
He has been working in ministry of Industry as structural staff since 2009. As a government official, he engage with several activities namely policy design, create Indonesia National Standard (SNI) and training/ workshop. In 2012 and 2013, he joined an Indonesia delegation to promote heavy equipment industry and national convertion program from fuel to gas.
