In: Proceedings of the 2015 International Conference … ISBN: 978-1-63484-577-9

Editors: Ivan A. Parinov, Shun-Hsyung Chang et al. © 2016 Nova Science Publishers, Inc.

Chapter 74

CLUSTER DEVELOPMENT OF SMALL AND MEDIUM

MANUFACTURING INDUSTRY IN SURABAYA CITY,
EAST JAVA, INDONESIA

Erni Puspanantasari Putri*

Department of Industrial Engineering, Khon Kaen University (KKU) Thailand;
Department of Industrial Engineering, University of 17 Agustus 1945 (UNTAG)
Surabaya, Indonesia

ABSTRACT
The purpose of this research is to study the cluster development of small and
medium manufacturing industries in Surabaya City, East Java, Indonesia. Surabaya is the
capital city of East Java province, Indonesia as well as the largest metropolitan city in the
province. Surabaya is the second largest city in Indonesia after Jakarta. As a metropolitan
city, Surabaya became the center of business, commerce, industry, and education in
eastern Indonesia. Surabaya and the surrounding region is a region with the most rapid
economic development in the east of Indonesia and one of the most advanced with an
average economic growth of 7.5% per year. The method used in this study is the method
of Efficiency Theory, that is how effective is the development of the cluster based SMMI.
Geographically it is highly populated which makes it easy to find buyers looking for
suppliers of products. The labor pool allows employers to hire them as needed.
Entrepreneurs are flocking to Surabaya, it is easier to relate directly with the market,
easier, indeed to access market information, technology and training. This is a crucial
element in the cluster, the entrepreneur groups are more likely to cooperate for the
purchase of raw materials, marketing, manufacturing facilities, training and research. The
results of this research show that Cluster Development of SMMI in Surabaya City, East
Java, Indonesia should become the Creative Village. The Creative Village is one of the
breakthroughs of community empowerment. Residents are invited to get involved in the
development in accordance with the potential of their respective regions. The Creative
Village will allow economic growth for the villagers, and by this I mean a group of

* KKU Thailand, UNTAG Surabaya Indonesia; Email:erniputri@untag-sby.ac.id.

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people gathered together to create, produce and potentially generate an economy through
a commodity, in the Creative Village.

Keywords: cluster development, SMMI, creative village

INTRODUCTION
The economic crisis that hit Indonesia in mid-1997 caused the national economy to
decrease. Economic growth before the crisis was high, it was not supported by solid industrial
structure. Inequality of economic structure occurs because such a rapid growth in the
Manufacturing Industry Large Scale (MIL) is not supported by the Small and Medium
Manufacturing Industry (SMMI), so that the MIL received a very severe blow due to the
crisis, in fact this crisis had a huge impact on the Indonesian economy as a whole. However,
the economic crisis did not make the SMMI crash alongside the large companies. Whilst the
big companies found it difficult to operate, the SMMI continued as usual, some corporate
sectors of the SMMI actually benefited due to the depreciation of the rupiah against the
dollar.
The Small and Medium Manufacturing Industry (SMMI) has a strategic role in the
national economic development of Indonesia. Besides a role in economic growth and
employment, SMMI also plays a role in the distribution of developmental outcomes. The
SMMI should be increased (up graded) and active, in order to go forward and compete with
other economic players. If not, SMMI in Indonesia, which is the heart of the Indonesian
economy, will not be able to progress and develop [1].

METHODS
Definition of the SMMI Cluster

The SMMI cluster is the concentration of a number of similar SMMI (sectoral) and
adjacent regions (geographically). Besides sectoral and geographical concentration, suppliers,
and the relationship between cluster members, with other stakeholders, there are also links to
related industry and supported industry.

Cluster Benefits for the SMMI

The SMMI members of a cluster will benefit from the so-called collective efficiency
which consists of passive benefits (external economics) and active benefits (joint action).
Passive benefit means that without doing anything the SMMI will benefit from the existence
of clusters. Active benefits are the benefits of cooperation (joint action) between cluster
members. Clusters will perform of production chains and enter global value chains. With this
partnership members of the cluster will be able to increase their competitiveness [2].

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SMMI Cluster Development an Effective Way

According to the theory of efficiency the development of the SMMI based clusters is
effective. Geographically a greater population makes it easier for buyers looking for suppliers
of products. The labor pool allows employers to hire them as needed. Entrepreneurs are
flocking to all SMMIs because it is easier for them to relate directly to the market and easier
for them to actively access the market for information technology and training. This is a
crucial element in the cluster, entrepreneur groups are more likely to cooperate for the
purchase of raw materials, marketing, manufacturing facilities, training and research.

Cluster Development of the SMMI Center

The development of industrial clusters should be encouraged. The presence of the

synergy of clusters from upstream to downstream activities, or between the main activities
and auxiliary activities, raw materials supply and marketing outlets will accelerate the
business dynamics within the cluster. The essence of the strategy is the creation of integrated
and solid clusters to build a synergy to achieve economic growth with a wide base.
Regional autonomy at this point proves that the SMMI sector plays an important role in
national economic development. It opens opportunities for local government facilities to
members for regional excellence development (potential territory), including the development
of the SMMI.
The SMMI development focuses on driving regional economic groups, among which are
the SMMI supporters, the SMMI export-oriented group, and the SMMI‘s new initiative. In
order to achieve the expected goals, there needs to be adjustments to the type of industrial
developmental purpose, the level of industrial and technological development, as well as
considering the condition and potential of the region.

Key Factors and Determinants in Cluster Development

The key factors and determinants, which create a competitive advantage for the cluster‘s
development of the SMMI centers making them effective and dynamic, are as follows: (a)
Factor conditions, which includes: natural carrying capacity, human resources, infrastructure,
capital resources, and information technology (b) The SMMI product demand (c) Related and
Supporting Industries Related Industries, which includes: Capital Institution, Research and
Development Institution, Institute of Education/Training, Cooperative of the SMMI
craftsmen.
Supporting Industries, which include: Feeder Industries of raw material, machinery and
equipment productions (d) Firm Strategy, Structure and Rivalry (e) Change, that includes:
domestic and foreign policy and (f) The role of the Government [3].

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RESULT AND DISCUSSION

Surabaya City, East Java, Indonesia

Surabaya is the capital city of East Java province, Indonesia, as well as the largest
metropolitan city in the province. Surabaya is the second largest city in Indonesia after
Jakarta. As a metropolitan city, Surabaya became the center of business, commerce, industry,
and education in eastern Indonesia [9]. Surabaya and the surrounding region is a region with
the most rapid economic development in the East and one of the most advanced in Indonesia
with an average economic growth of 7.5% per year. Surabaya city consists of 31 districts,
which are divided into five regions. In each district, there are urban villages which now look
lush and green. The villages are part of the city (usually, populated by low-income people)
[4].

Creative Villages in Surabaya

Understanding Surabaya better with all the dynamics behind the bustle of metropolitan
activity. A group of people has gathered to create, produce and potentially generate economic
commodity in the creative village. The Department of Trade and Industry in the city of
Surabaya, has noticed some potentially growing villages by the peculiarities of their work,
accompanied by the huge success in the welfare of the community itself. In particular Bag
Village at Morokrembangan District, Paving Village at Pakal District, Cakes Village at
Rungkut District, Slippers-Shoes Village at Osowilangun Region and Ribbon Patchwork
Village at Tambak Asri.

Bag Village at Morokrembangan District

The biggest bag center in East Java, is in Tanggulangin, which is in the southern part of
Sidoarjo. However, in New Gadukan Road, Morokrembangan, Surabaya there is a village that
has turned everyday citizens into producing various kinds of bags. This bag village was
founded around 1978. Starting with 6-10 people who were experts in making bags of various
materials, their creativity eventually influenced other citizens. Now there are 68 craftsmen
who produce bags in the area.

Paving Village at Pakal District

Paving stones were chosen as a material for yards and streets, for its variety, because it
gives space for drainage, and because it is easy to repair. There was such an increased
demand for paving stones that many big companies producing these materials. In the midst of
these busy factories making stone paving you will also find it produced in Pakal Village.

Cakes Village at Rungkut District

Starting from a hobby of making cakes, housewives at the Flat Penjaringan Sari, Rungkut
District, developed their hobby into a business. They produce a variety of recipes for
delicious cakes which have economic value. Cake Village began with three home industries
which have produced a variety of cakes since 2001. Over time, other people around the flat
have since also set up in the cake making industry.
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Slippers-Shoes Village at Osowilangun Region

When you are shopping for shoes or slippers at the mall or grocery center at the
Surabaya, do not be surprised if the product has been made by the shoe-slipper craftsmen of
the Osowilangun Region. In this village thousands or even millions of products are made by
the local people, it is an inherited skill. Shoes and slippers were made in home industries,
without a brand sold to shoe and slipper traders then labeled, branded and marketed.

Ribbon Patchwork Village at Tambak Asri

Villagers at Tambak Asri, a suburb of Surabaya have succeeded in producing creative
crafts and have managed to penetrate the foreign market. In the 1980s, the land was still
covered with lush trees. The atmosphere was dark, there was no light except obliquely.
Gradually this region was disturbed by human life. It started with just one or two people they
opened the land and then settled down to live there. This village was then called the Village
of 1001 Nights. Now the citizens are increasingly creative with ribbon patchwork craft [5].

The Role of Surabaya City Government in Developing SMMI

The Role of Surabaya City Government in developing Creative Villages is to develop a

business climate, the provision of technical assistance, financial aid, facilities and
infrastructure, empowering human resources through education and training, strengthening
and institutionalizing development, and encouraging national and international cooperation.
SMMI development is reached by selecting and prioritizing industrial sectors to become
the focus of development, that is:

a) Regional Economic Mobilization of the SMMI group, that is the industry developed
in an area, which will allow the local economy to grow quickly, and involves the
participation of the community at large.
b) Supporting the SMMI groups, that is industries that produce intermediate products.
c) Export Orientation SMMI groups, that is an industry which has had the opportunity
to supply the world market with the products produced.
d) New Initiatives within the SMMI groups, that is those SMMI based on science and
technology. [6].

CONCLUSION
Cluster Development of Small and Medium Manufacturing Industries in Surabaya city,
East Java, Indonesia is to develop the Creative Village. The Creative Village is one of the
breakthroughs of community empowerment. Residents are invited to get involved in the
development in accordance with the potential of their respective regions. The Creative
Village will improve the economic growth of the villagers. Surabaya City Government
encourages villages in Surabaya in the creative industry where the products will improve the
local economy. If the creative industries can be encouraged to grow it would be a revival of

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the creative industries in Surabaya which would impact on the economic growth of the local
community and the country as a whole.

ACKNOWLEDGMENTS
The author would like to thank:

1) Assoc. Prof. Dr. Danaipong Chetchotsak, as my advisor of PhD Program in Industrial

Engineering Department, Khon Kaen University Thailand.
2) Assoc. Prof. Dr. Kanchana Sethanan who provided me with the scholarship of
Research unit on System Modeling for Industry (SMI), Faculty of Engineering, Khon
Kaen University Thailand.

REFERENCES
[1] Erni Puspanantasari Putri, Supardi and Indahati, 2013. Product Quality Improvement of
Small and Medium Manufacturing Industry Craftsmen to Increase Competitiveness
Business, Proceedings of 2nd SciTech International Seminar: The Role of Innovative
Technology in Global Competitive Era, Welcoming ASEAN Community 2015, Faculty
of Engineering, University of 17 Agustus 1945 Surabaya pp 106-113.
[2] Erni Puspanantasari Putri and Indahati, 2007. Guide Business Assessment of Industry
Centers in Sidoarjo with Clustering Approach As Base For Developing Regional
Excellence Through Small and Medium Industry Development with Effective and
Competitive, Research Report of Young Lecturer, Directorate General of Higher
Education, Ministry of National Education.
[3] Erni Puspanantasari Putri and Supardi, 2014. Establish the Regional Excellence through
the Cluster Development of Small and Medium Manufacturing Industry Center with
Effective and Dynamic, Journal of Advanced Materials Research, KKU International
Engineering, Trans Tech Publication Inc., Material Science and Engineering, 931-932
(2014) pp 1701-1704.
[4] Surabaya City, Wikipedia bahasa Indonesia, http://id.wikipedia.org/wiki/Kota_
Surabaya.
[5] Kampung Kreatif Surabaya, http://wisata.suarasurabaya.net/news/2013 /124995-
Kampung-Kreatif-Surabaya.
[6] Direktur Jenderal Industri dan Dagang Kecil Menengah, 2003, Kebijakan dan Strategi
Pengembangan Industri, SNPI-ITB, Bandung.

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