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The Perceived Difference of National Competitiveness in Indonesia [April 2004]
Liang-Hsuan Chen,* Zulkieflimansyah,** Azhar Hadi** and Ninasapti Triaswati**
Abstract
In the global competitive environment, the concept of the national competitiveness of a country should be understood and further investigated in order to recognize global competitive advantages and to help policy makers evaluate the shortcomings of their development strategies. As the world’s largest archipelago, Indonesia was hit seriously by the Asian economics crisis due to its having several economic weaknesses. For investigating the national competitiveness of Indonesia, this paper studies the perceived difference of importance and levels of achievements as perceived from the Indonesian point of view. These are grouped into five categories of indicators which constitute the elements of national competitiveness. The findings show that the perceived achievement levels in most indicators are lower than Malaysia or Singapore’s, especially in the categories of economic performance and human resources. The comparisons between the perceived importance and achievements of subjects in each category are also made in order to examine their consistency.
Keywords : National competitiveness; Productivity; Indonesia
1. Introduction
The entrance of foreign direct investment and the participation in international business has resulted in increased pressure on competition [11]. Firms have to compete with competitors in both the domestic and global markets. This increased competition forces firms to increase their productivity in order to survive. Policy makers must understand the strengths and weaknesses in their country’s national competitiveness, relative to other countries, in order to help domestic firms establish the most effective business strategies. In the global competitive environment, the national competitiveness of a country must be investigated in order to offer businesses the opportunities for understanding the global competitive advantages required to survive [14].
The meaning of national competitiveness is that countries’ economies compete with each other, and when broken down into statistics it can measure a country’s relative competitive performance [17]. Competitiveness indices are useful to benchmark national performance so as to help policy makers evaluate the shortcomings of their development strategies. Indices can also aid investors in allocating resources between countries [7]. Tyson [13] defines competitiveness as “our ability to produce goods and services that meet the test of international competition while our citizens enjoy a standard of living that is both rising and sustainable.” Some key issues must be considered, such as nation’s ability to increase the wealth and welfare of its people and the ability of its companies to gain competitive advantage from technologies and products in the global markets [12]. For examples, Porter [9], Scott and Lodge [10], and Blaine [2] have given similar definitios of national competitiveness based on the above concerns. It is recognized that pure economic indicators do not sufficiently indicate a nation’s overall welfare and competitiveness level. A number of factors can influence a nation’s competitiveness, such as economic, social, human resources, technological, and environmental factors. The policy makers in developing countries are always concerned with national competitiveness and their country’s ranking in international competitive performance [7]. Particularly, the East Asia countries consider competitiveness to be a matter of national economic survival [7].
Indonesia achieved independence from the Netherlands in 1949, and is the world’s largest archipelago, comprised of more than 13000 islands and having a land area of about two million square kilometers. In 2003, Indonesia’s population was estimated at 235 million [16]. The Indonesian economy was one of the fastest developing in Southeast Asia until 1997, when the Asian economic crisis began. Since then, most countries belonging to the Association of South-East Asian Nations (ASEAN) have been fighting for economic recovery. Indonesia was hit seriously by the crisis due to several economic weaknesses [4]. The Rupiah was de-valued by about 80% in comparison to the US dollar in 1998, with inflation running at over 80% and growth rates dramatically reduced to 0.6% from a high of around 8% prior to the crisis [17]. Figure 1 shows the the growth of real Gross Domestic Product (GDP) in Indonesia from 1996 to 2002 [15]. Two particularly low points were hit in 1998 and 1999. In 2002, Indonesia’s GDP was estimated at US$ 663 billion, the real GDP grew at approximately 3.5%, and the GDP per capita was around US$ 3100 [16]. Political turmoil led to the resignation of President Soeharto in May 1998. Although Abdurrahman Wahid was then elected President in June 1999, serious political and economic problems still remained. On 23 July 2001, President Wahid was replaced by his Vice President, Megawati Soekarnoputri. Under President Megawati, the economy has moved onto firmer footing than previously [17].
Because the country is rich in natural resources, the Indonesian economy has been strongly supported by the exploitation of enormous mineral deposits, resulting in Indonesia being one of the world’s leading exporters of liquid and natural gas [17]. Agriculture was the main contribution of the Indonesian economy until the late 1980s. Although its contribution to GDP has since been surprassed by manufacturing, the agricultural sector still employs more than one-half of the labor force, which shows its importance in the Indonesian economy [1]. Currently Indonesia faces severe economic development problems due to the secessionist movement, the lack of reliable legal recourse in contract disputes, corruption, weakness in the banking system, strained relations with International Monetary Fund (IMF), and other things [16]. The current issues in the nation include: alleviating widespread poverty, implementing IMF-mandated reforms in the banking sector, and so on [16].
Being mainly interested in the national competitiveness of Indonesia, this paper investigates the subjective measurements of perceived importance and the achievement levels of various national competitiveness categories from the Indonesian point of view. The differences between the perceived importance and achievement levels, called “perceived difference” in this paper, will be discussed. In the following sections, we will first introduce the national competitiveness categories and the associated subject. The perceived difference between importance and achievement levels of subjects in each category is analyzed in Section 3. We draw our conclusions in the final section.
* Department of Industrial and Information Management, National Cheng Kung University, Tainan, Taiwan, R.O.C.
**Faculty of Economics, University of Indonesia, FEUI, New Campus UI Depok, 16424, Indonesia
Asia Pacific Management Review (2004) 9(2), 229-246
Abstract
In the global competitive environment, the concept of the national competitiveness of a country should be understood and further investigated in order to recognize global competitive advantages and to help policy makers evaluate the shortcomings of their development strategies. As the world’s largest archipelago, Indonesia was hit seriously by the Asian economics crisis due to its having several economic weaknesses. For investigating the national competitiveness of Indonesia, this paper studies the perceived difference of importance and levels of achievements as perceived from the Indonesian point of view. These are grouped into five categories of indicators which constitute the elements of national competitiveness. The findings show that the perceived achievement levels in most indicators are lower than Malaysia or Singapore’s, especially in the categories of economic performance and human resources. The comparisons between the perceived importance and achievements of subjects in each category are also made in order to examine their consistency.
Keywords : National competitiveness; Productivity; Indonesia
1. Introduction
The entrance of foreign direct investment and the participation in international business has resulted in increased pressure on competition [11]. Firms have to compete with competitors in both the domestic and global markets. This increased competition forces firms to increase their productivity in order to survive. Policy makers must understand the strengths and weaknesses in their country’s national competitiveness, relative to other countries, in order to help domestic firms establish the most effective business strategies. In the global competitive environment, the national competitiveness of a country must be investigated in order to offer businesses the opportunities for understanding the global competitive advantages required to survive [14].
The meaning of national competitiveness is that countries’ economies compete with each other, and when broken down into statistics it can measure a country’s relative competitive performance [17]. Competitiveness indices are useful to benchmark national performance so as to help policy makers evaluate the shortcomings of their development strategies. Indices can also aid investors in allocating resources between countries [7]. Tyson [13] defines competitiveness as “our ability to produce goods and services that meet the test of international competition while our citizens enjoy a standard of living that is both rising and sustainable.” Some key issues must be considered, such as nation’s ability to increase the wealth and welfare of its people and the ability of its companies to gain competitive advantage from technologies and products in the global markets [12]. For examples, Porter [9], Scott and Lodge [10], and Blaine [2] have given similar definitios of national competitiveness based on the above concerns. It is recognized that pure economic indicators do not sufficiently indicate a nation’s overall welfare and competitiveness level. A number of factors can influence a nation’s competitiveness, such as economic, social, human resources, technological, and environmental factors. The policy makers in developing countries are always concerned with national competitiveness and their country’s ranking in international competitive performance [7]. Particularly, the East Asia countries consider competitiveness to be a matter of national economic survival [7].
Indonesia achieved independence from the Netherlands in 1949, and is the world’s largest archipelago, comprised of more than 13000 islands and having a land area of about two million square kilometers. In 2003, Indonesia’s population was estimated at 235 million [16]. The Indonesian economy was one of the fastest developing in Southeast Asia until 1997, when the Asian economic crisis began. Since then, most countries belonging to the Association of South-East Asian Nations (ASEAN) have been fighting for economic recovery. Indonesia was hit seriously by the crisis due to several economic weaknesses [4]. The Rupiah was de-valued by about 80% in comparison to the US dollar in 1998, with inflation running at over 80% and growth rates dramatically reduced to 0.6% from a high of around 8% prior to the crisis [17]. Figure 1 shows the the growth of real Gross Domestic Product (GDP) in Indonesia from 1996 to 2002 [15]. Two particularly low points were hit in 1998 and 1999. In 2002, Indonesia’s GDP was estimated at US$ 663 billion, the real GDP grew at approximately 3.5%, and the GDP per capita was around US$ 3100 [16]. Political turmoil led to the resignation of President Soeharto in May 1998. Although Abdurrahman Wahid was then elected President in June 1999, serious political and economic problems still remained. On 23 July 2001, President Wahid was replaced by his Vice President, Megawati Soekarnoputri. Under President Megawati, the economy has moved onto firmer footing than previously [17].
Because the country is rich in natural resources, the Indonesian economy has been strongly supported by the exploitation of enormous mineral deposits, resulting in Indonesia being one of the world’s leading exporters of liquid and natural gas [17]. Agriculture was the main contribution of the Indonesian economy until the late 1980s. Although its contribution to GDP has since been surprassed by manufacturing, the agricultural sector still employs more than one-half of the labor force, which shows its importance in the Indonesian economy [1]. Currently Indonesia faces severe economic development problems due to the secessionist movement, the lack of reliable legal recourse in contract disputes, corruption, weakness in the banking system, strained relations with International Monetary Fund (IMF), and other things [16]. The current issues in the nation include: alleviating widespread poverty, implementing IMF-mandated reforms in the banking sector, and so on [16].
Being mainly interested in the national competitiveness of Indonesia, this paper investigates the subjective measurements of perceived importance and the achievement levels of various national competitiveness categories from the Indonesian point of view. The differences between the perceived importance and achievement levels, called “perceived difference” in this paper, will be discussed. In the following sections, we will first introduce the national competitiveness categories and the associated subject. The perceived difference between importance and achievement levels of subjects in each category is analyzed in Section 3. We draw our conclusions in the final section.
* Department of Industrial and Information Management, National Cheng Kung University, Tainan, Taiwan, R.O.C.
**Faculty of Economics, University of Indonesia, FEUI, New Campus UI Depok, 16424, Indonesia
Asia Pacific Management Review (2004) 9(2), 229-246
