What hamper innovation of Indonesian manufacturing firms? Insight from the Indonesia Innovation Survey

Abstract

The main objective of this study is to provide new empirical evidence on obstacles that hamper innovation activities performed by Indonesian manufacturing firms. More specifically, this study aims to (1) investigate the innovation barriers perceived by Indonesian manufacturing firms based on the firms’ innovativeness i.e. innovators versus non-innovators; (2) investigate the nature of any factors that hamper innovation faced by Indonesian manufacturing firms; (3) link different innovation barriers with different types of innovation adopted by Indonesian manufacturing firms, and (4) investigate the influence of innovation barriers on innovation success. The empirical analysis in this study is derived from the second Indonesia Innovation Survey (IIS) 2011 that covers 2009-2010 periods. The findings show that constraints related to financial and risk is the most important perceived by the firms. Innovators and non-innovators perceived the barriers differently. Based on factor analysis, the innovation barriers can be grouped and labelled as: “market and institution”, “employee and organisation”, “financial and risk”, and “knowledge and cooperation”. The first two groups of barrier tend to have a positive direction of influence on types of innovation and innovation success; by contrast, the last two groups of barriers are more likely have a negative direction of impact. Based on the study findings, the following recommendations are proposed. Innovative firms that face revealed barriers related to employee and organisation is the necessity to implement better management of innovation activity e.g. education, training and workshop in order to minimise the impacts of the obstacles. Financial development or appropriate fiscal policy to provide the required finance to innovation activity may relevant to overcome financial and risk barrier, for instance, the easiness access to financial intermediaries. In this case, the involvement from the government is crucial.