Government urged to stop interventionist approach

JAKARTA (JP): The government should stop intervening in the formation of partnerships between small and medium-sized enterprises and large companies, according to a survey.

The survey, conducted by the Institute of Social Research and Economy at the University of Indonesia and the Asia Foundation, said the government should simply act as a facilitator if it wished to make the small and large company alliance program a success.

Citing the results of the survey, the director of economic programs at the Asia Foundation, Roderick Brazier, lashed out at the government for overregulating the mechanisms of the partnerships.

"The government rules who participates in the partnerships and how to run the cooperation program," Brazier said.

The government has launched a program to partner up small and large businesses to help develop the country's small and medium- sized enterprises.

According to the survey, partnerships initiated by the government rarely were successful.

The survey included 300 companies, each with annual sales of about Rp 1 billion (US$125,000) in the garment, textile, wood and agro industries in Java, Bali and North Sumatra.

The majority of the companies have formed alliances with larger companies for the marketing of their products domestically and overseas.

The study showed that the main problem facing small and medium-sized companies in building partnerships with bigger companies was their lack of knowledge of business contracts.

This resulted in these smaller companies refusing to enter into written contracts with the larger companies for fear of being exploited. The smaller companies are also unsure the country's legal system will be able to protect them from exploitation.

The survey said the small businesses mostly preferred "flexible" contracts that allowed them to maintain their independence. However, as a result they lost the opportunity to benefit from the transfer of technology and financial support from their bigger partners. The survey thus recommended the government improve the country's legal system and cooperate with third parties such as universities and non-governmental organizations in educating the small and medium-sized businesses.

It said the government should also act as a fair and neutral mediator to resolve any conflicts in the partnerships.

The study proposed the government establish an information center to provide accurate information on potential partners for small and medium-sized businesses. (07)