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The different between Japan and Indonesia in term of Technology Transfer By: Muslim (343583)

I. Introduction The term technology transfer (TT) can be defined as the process of movement of technology from one entity to another (Souder et al., 1990; Ramanathan, 1994). In this essay, we want to know how different Japan from Indonesia when it comes to innovation and TT process by referring to Jeremys Model, which is categorized as qualitative model and some others updated sources. Jeremy state that the process of TT cannot be captured by single formula or model. It is complex and product of many ingredients. It may be governed by economic forces, political forces, cultural arrangement, etc. Since no simple answer, Jeremy reproduced a question which may be involved in TT effort such as about source economy/society, Movement, the adoption of imported technology, modification of imported technology, reverse flow (Jeremy, 1991). It might be unfair if we compare Japan directly to Indonesia, because Japan is too superior from Indonesia historically and in the reality. So sometimes we compare it to Japan and also to some Indonesias neighbor such as Thailand. II. Regional Difference between Japan and Indonesia Indonesia is a huge archipelago country extending 5,120 kilometers from east to west and 1,760 kilometers from north to south. It encompasses 13,667 islands, only 6,000 of which are inhabited. There are five main islands (Sumatra, Java, Kalimantan, Sulawesi, and Papua). Indonesia's total land area is 1,919,317 square kilometers. Included in Indonesia's total territory is another 93,000 square kilometers of inlands. The additional surrounding sea areas bring Indonesia's generally recognized territory (land and sea) to about 5 million square kilometers. The main variables of Indonesia's climate are rainfall rather than temperature or air pressure. The archipelago is almost entirely tropical in climate. The Indonesian region is one of the most seismically active zones of the earth; at the same time it has many active and potentially active volcanoes. It is a typical island-arc structure with its characteristic physiographic features, such as a deep oceanic trench, a geo-anticline belt, a volcanic inner arc and a marginal basin. Indonesia has some 400 volcanoes, of which approximately 100 are active (USGS). Based on the reality, Japan and Indonesia is both archipelago country and mountainous but having a different climate. Total area of Indonesia is almost 5 times bigger than Japan and Indonesias Population is almost twice Japan. But geographically, Indonesia location is more strategic compare to Japan, because it is located between 2 big continents (Asia and Australia) and 2 big oceans (Indian and Pacific). III. Short Overview Of Japan And Indonesia History Relating To Transfer Technology Development Historically, Japan has passed several steps regarding technology transfer process. We can split TT process into: 1. Period before 1912, Cotton mill establishment in 1867 from British technology. Ishikawa, one of Satsuma-han clan samurai, stressed the cotton industry would be one of the most profitable industry in a future Japan and pointed out that industrial growth would meet a bottle neck in the low of efficiency of traditional spinning. (Nakaoka, 1991:183). 2. Period 1912-1937, Japan started system-Building and science-based industry. In 1915, three years after the death of the Emperor Meiji, the recently established Hitachi machinery firm was commissioned to produce 10.000 horsepower turbine for a new hydroelectric power station (Morris-Suzuki, 1994:105). It was a big development in term of energy resource. 3. Period 1937-1945, war of science and technology. There was a New Order for Science and Technology. In July 1937, after a skirmish between Chinese forces and Japanese troops stationed near Beijing,

the Japanese military launched a wholesale invasion of Chinese territory. From that moment on Japan was involved in a widening circle of military conflict which would end only with the surrender of August 1945. The Japanese invasion of China provoked a spiral of diplomatic conflict with the United States and its allies, and this in turn pushed Japan into a closer relationship with Germany and Italy, with whom the Japanese government signed the Tripartite Pact in 1940. War has obvious consequence to the rise of research establishment (Morris-Suzuki, 1994: 149). The period of the Second World War marked the high tide of Japanese government efforts to centralize and control the development of technology (Morris-Suzuki, 1994: 157) 4. Period 1945-1973, Technology and the Economic Miracle. At midday on 15 August 1945, Japanese people heard the wavering voice of Emperor Hirohito, announcing Japans surrender to allies, after Hiroshima and Nagasaki bomb (Morris-Suzuki, 1994:161). But technological inovation helped Japan to achieve rates of economic growth far higher than anything experienced before in this period. (MorrisSuzuki, 1994:206). 5. Period After 1973, Japan as one of leader in technology. In the other hand, Indonesia precondition quite different with Japan. We can summarize long history of Indonesia: 1. Period of Colonialism , about 350 years when the Dutch arrived on Java in the late sixteenth century, as part of their exploration to begin a monopolistic spice trade route, they found many small Hindu-Buddhist kingdoms and Muslim sultanates. When they returned several years later, it was in the ships of the Verenigde Oost-Indische Compagnie, or VOC, a new type of business venture, a joint-stock company supported by the government, which attained monopoly status over Dutch commercial interests in the East Indies, and soon thereafter, over other European interests in the area ( Jonathan A. Israel, 1998: 320-322.) Real change finally came with the Japanese occupation of island Southeast Asia during World War II. The Japanese essentially took over from the Dutch as colonists, but their policy of rousing the political interests of the locals, and their training and arming of locals, would contribute to the movement for Indonesian independence once Japan lost the war (Steinberg, 1987:418-419). 2. Period of Old order, 1945 1666. On August 17th, 1945, Sukarno and Mohammad Hatta proclaimed Indonesias independence. The Dutch, however, had no intention of giving up their colonial empire, so until 1949, the Dutch and Indonesians fought over the archipelago. Once Indonesia gained independence, the Dutch retained the right to carry on economically in Indonesia. In 1957, however, the Indonesian government took over the Dutch and other foreign business ventures, handing them over to the military. These included Dutch oil and rubber interests, so it was a huge financial gain for the Indonesian government (Steinberg, 1987:418-424). In 1965, Indonesian politics were again to undergo a huge change. A coup, attributed officially to the Indonesian communist party (PKI), against President Sukarno led to a counter-coup by General Suharto. This was followed by the mass slaughter of an estimated one to two million suspected communists, led by Suharto. Suharto became the leader of Indonesia, appointed by Sukarno in 1966 (Steinberg, 1987:424-425). 3. Period of New Order, 1966-1998. Suhartos regime, called the New Order, ran Indonesia like a corporation; historian David Joel Steinberg suggests. He returned the Dutch and other foreign assets to the foreign interests, opening up the economy. He won the election in 1968 and became president, and won the next three elections as well, though his democracy was dubious. Suhartos was a dictatorial military regime. Abidin Kusno suggests that it was not much different from the colonial regime, except that it was run by an indigenous leader (Abidin Kusno, 2000:8, 72). In 1998, Suharto was forced to step down because of popular pressure and corruption charges. 4. Period of Reformation, Indonesia is currently a parliamentary democracy and is rebuilding its economy in the wake of the New Order and a financial collapse in 1997-1998. Japan histories shows that they are succeed to pass every situation and their model even become a one a role model, how should the country get in touch in transfer technology and develop the technology for the

better. Indonesia history was colored by colonialism, instable political change and dictatorial regime, and unfortunately makes Indonesia like earth and sky with Japan in term of technology. But it makes sense, because we can say that Indonesia like a new baby, that just started the technology development after its independence on 1945, compared to Japan IV. Change in Technology and Main Industry Involved Japan has passed several transitions in technology development based on historical experience. Earlier time Textile industry was mainly involved in TT process and cotton mill establishment from British technology is also main issue (Nakaoka, 1991: 183). In period 1912-1937, main industries in Japans TT were hydroelectric power station, military, electric factory, television, etc. These are a proof that Japan successfully built its industry and science system by several development strategy (Morris Suzuki, 1994). In the next period, when war of science and technology happened at the level of individual industries, a series of measures modeled on the 1934 Petroleum Industry Law were passed in the late 1930s, the Automobile Manufacturing Industry Law in 1936, the Artificial Petroleum Law and Steel Industry Laws in 1937, the Machine Tool Industry Law and the Aircraft Manufacturing Law in 1938, the Ship-building Industry Law and the Light Metals Manufacturing Industry Law in 1939, and the Important Machines Manufacturing Law in 1941(Morris Suzuki, 1994:146). After war in 1945, Japan entered the period of technology and economic miracle. Some big development has been done by new Japan. Jet propulsion technology, space industry, automation, nuclear power industry, ship building, video, computers, NC machinery are some technologies develop in this period (Morris Suzuki, 1994:161-208). Nowadays Japan is one of the leaders of technology in the world, and most of all hi-tech industries are involved. When Japan has already known as a new power in technology, Indonesia has just got its independence in 1945. As we know from short history about Indonesia above, instable political transition was an issue in the earlier time of Indonesia independence. Economic growth and technology started in Soehartos periode, though its known as dictatorial regime. A contribution by the primary and secondary sectors towards GDP occurred in Indonesia where the share of agriculture fell from 53 % in 1966 to 20 % in 1992 while manufacturing rose from 10 % to 35 % during the same period (Hill 1996: 18-19). Indonesia matured into becoming industrializing countries during a remarkably short time span. Within manufacturing, a dramatic shift took place away from labor-intensive lines of production using little advanced technology towards capital-intensive branches necessitating a higher level of technological sophistication. In the mid-1950s, more than one-half of total employment in manufacturing in Indonesia was concentrated in two highly labor-intensive branches of industry alone, food processing and textiles (UN 1965: 396, 729). It is instructive to compare changes in the distribution of value-added and employment in manufacturing in Indonesia in longer time perspective ranging from around 1960 to 1996, i.e. from just before the thrust towards industrialization until the eve of the Asian crisis. Three traditionally highly labor-intensive branches of manufacturing food (with beverages and tobacco ), textiles, clothing and footwear saw their share in total manufacturing value-added drop from 46 % to 34 % in Indonesia. Meanwhile, the most capital-and technology-intensive industries metals, machinery and transport equipment gained from 11 % to 25 % in Indonesia (Frankema, 2007:7). We next focus on the final decade of structural change within manufacturing, i.e. the years from the mid1980s up to the late 1990s. In Indonesia, there was an increase of per capita value-added manufacturing using medium- or high-level technology from $ 86 (25 %) in 1985 to $ 115 (40 %) in 1998 (UNIDO 2002: 162, 164).The relative share of medium- or high-level technology in total manufacturing value-added is strikingly

high in Indonesia but, significantly, average value-added in the late 1990s was still below the level that had been achieved by its neighbor Thailand in the 1980s. (Frankema, 2007:7) It is instructive to take a closer look at the technology content embodied in manufactured production for foreign markets as it reveals the degree to which advanced technologies are actually mastered. In Indonesia resource-based and labor-intensive exports in 1992 still accounted for as much as 88 % of total manufactured exports (Hill 1996: 163). A rising technological content in export production inevitably has repercussions for import demand as well. This applies in particular to high-tech products. Technological upgrading of the manufacturing sector in Indonesia may be highlighted by focusing on six categories of high-tech products. Traded values and productivity levels are given for 1995, i.e. shortly before the onset of the Asian crisis (Table 1). If compared to its neighbor Thailand, we can say Indonesia lagging behind 10 years.
Table 1. Trade in high-tech manufacturing in Indonesia and Thailand in 1995 (dollars).

Sources: GGDC Total Economy Database; UN, International Trade Statistics Yearbook 1995.

V. Natural Resources, Power Supply and Labor Supply Since 1300 AD Marco Polo introduced Japan as the country of Gold. Gold, silver and copper veins were abundantly distributed along the Volcanoes Mountains which traverse the Japan-mainland from northeast to southwest (Uchida, 1995:26). But Japan has reached the time when they have a problem with natural resource problem. For example, Rubber tire was an important strategic material for both sides of war. Japan had already an established rubber-processing industry, and thanks to the abundant supply of natural rubber from its occupation territories, Malaya and Vietnam, they felt little shortage of rubber during the War (Uchida, 1995: 60). Indonesia was known as a country with abundance of natural resource. That why the reason, colonialism came to Indonesia and even Japan has invaded Indonesia in 1042-1945. Based on current data, Indonesia is 1st larger exporter of palm oil and coal, 2nd larger exporter of rubber and cocoa and 3rd larger investor of LNG in the world. Indonesia agriculture, fishery, forestry and natural resource contribute to 26,6% GDP (State.gov, 2010). Japan and Indonesia has a close relation in export import since Japan is 2 nd rank of Indonesia export country destination and 1st rank of Indonesia import country destination (BPS Strategic Data, 2010). So Japan technology is needed by Indonesia and Indonesia resource is needed by Japan. Discussing about power supply, Japan is going far away from Indonesia. Even they have started nuclear power plant after war. In Indonesia, electric power consumption in 2008 is lower than 500 KWh per capita. Its the lowest among South East Asia neighbor, for example Malaysia electric consumption in same period is almost 3500 KWh (World Bank, 2008). Indonesias infrastructure investment fell sharply after the Asian crisis (World Bank, 2011). It also effect to electrification in Indonesia. History showed that Japan in period 1937-1945, with its shortage of resources and abundance of labour, would do best to abandon US technology and turn exclusively to Germany in search of scientific and

technological inspiration. German technological rationalisation aims to limit the quantitative use of raw materials to the minimum and, qualitatively, to promote the use of substitutes (Morris Suzuki, 1994 : 144). From 1945 to 1952 the Allied Forces occupied Japan, Individual companies and government laboratories kept their human resource - scientists, engineers and skilled workers - in employment (Uchida, 1995: 63). This talented human resource changed Japan in term of labour system in industry. Automatic control combined with minicomputer resulted in industrial robot in 1970's, which increased in number in the assembly plant of home electric appliance and automobile manufacture to substitute for the monotonous human labour. By 1990 Japanese industry used a majority of robots in the world (Uchida, 1995:79). Indonesia in the early stage implemented labour-intensive system, especially in food production and textile. It seems reasonable that a country like Indonesia with a large supply of labour and large amounts of natural resources should export products that use these factors, rather than high-technology products (Okamoto, 2001:4). But this statement cannot be used for long term, because natural resource will be finished on time. Currently, weak education system also contributed to limitation of high skill labour supply. In 2009, Literacy rate in Indonesia is still 92% (World Bank, 2009). Although poor education could possibly be offset by extensive on the job training, another matter of concern is the low level of expenditures on human resource development in Indonesian firms. (Okamoto, 2001:15) VI. National Style Relating to TT Development In period 1912-1947, Japan built its industry and science system by several development strategies by corporate research and Social network of innovation, Tie up with foreign firms, reverse engineering, original investment, worker training and invention of corporate culture; research network in public education and private innovation. In period 1937-1945, created government Planning Agency (Kikaku In) to issue ordinances on research in technological areas of key national importance. in April 1940 and within the next three years more than 500 technology projects were initiated by the agency. Subcontracting and JustIn-Time system were applied in aircraft production (Morris-Suzuki, 1994). After war, Japan did technological and industrial recovery, import technology and innovation from US, rationalization and productivity movement, and moved from rationalization to automation. The national style of Japan succeeds to bring Japan to world leader in technology. There are two ways for Indonesia country to improve its technological capability. The first is to emphasize domestic innovative efforts, which includes building a strong domestic R&D capability. But R&D expenditures as a share of GDP are low in Indonesia. The low importance of R&D seems to be present throughout the manufacturing sector as revealed by industrial data. Even in the most R&D intensive sector, pharmaceuticals, R&D only comprises 0.24 per cent of output. Still, many firms have at least initiated some R&D activities, and the share of establishments engaged in R&D tends to be higher in scale-intensive, differentiated, and high-technology industries. Hence, establishments are engaged in R&D activities, but it is clearly not a major and significant source of technological capability. (Okamoto, 2001: 5). In Indonesia, Governments play a key role in encouraging and facilitating R&D. Because of high risks and considerable investment commitments, operations in such endeavors are likely to remain suboptimal unless the government is actively involved. There is always the problem of the free rider. In addition, absence of market discipline may create incentives for rent-seeking and it is far from certain that a country can dispose over the required physical and human resources. Worse still is the risk that investment in R&D serves a political rather than an economic priority. The most flagrant example is the ill-fated but very costly attempt by Indonesia in the mid1990s to set up an aircraft industry of its own, spearheaded by B.J. Habibie, then Minister for Research and Technology, the later President. Attempts at such a short-cut ignores that technological progress is generally a slow and gradual process. In addition, incentives to corruption easily germinate in weak institutional soils (Frankema, 2005: 19).

The second is to utilize external sources such as inward FDI, licensing, subcontracting, and original equipment manufacturing (OEM) arrangements. Indonesia has traditionally relied on capital inflows through external borrowing rather than through FDI. The extent of positive FDI spillovers depends on the time horizon and commitments made by the investor as well as the institutional environment in the host country. FDI alone can never form a sufficient condition for sustained technological development (Blomstrm and Kokko, 2001; Thee, 2001). FDI in Indonesia displayed high volatility overtime as expressed by a considerable standard deviation at almost 80 % of the long-run annual average. Volatility of FDI in Indonesia became especially pronounced during the financial crisis in the late 1990s (Hill 2002: 21-23). But Thailand also faced a same trend.
Graph I. Fluctuations in FDI inflows expressed as a percentage share of gross fixed capital formation in Indonesia and Thailand, 1970-1997

Source: World Bank, World Development Indicators 2004.

V. Conclusion Jeremy state that the process of TT cannot be captured by single formula or model. It is complex and product of many ingredients. It may be governed by economic forces, political forces, cultural arrangement, etc. Japan history and socio-cultural precondition teach us that technology transfer could be going for the better even some barrier was existing, such as rebellion in early stage after cotton technology transfer from British, limitation of resource and labor between 1937 - 1945, destroyed by war. Style in technology transfer process, which is started in the early of 20th century, was done built its industry and science system by several development strategies by corporate research and Social network of innovation, Tie up with foreign firms, reverse engineering, original investment, worker training and invention of corporate culture; research network in public education and private innovation. And after war Japan did technological and industrial recovery, import technology and innovation from US, rationalization and productivity movement, and moved from rationalization to automation as we can see today. In the other hand, Indonesia which in term of geographical condition, abundance of resource and the population potential is better than Japan, seems still struggling to be a newly industrialized country. About 350 years Netherland colonialism followed by the Japanese occupation of island Southeast Asia during World War II lead to a late start of Indonesia technology development process. Political instability after independence era, dictator regime and also in 1998 has also slowed the progress of Indonesia TT even compare to its neighbor such as Thailand and Malaysia. It seems also that Indonesia still doesnt have a better method or style to encourage the smooth change of TT phase like Japan did. Indonesia stuck to use laborintensive method and too much rely on natural resource trading instead of doing a value added process in its own country. Two major ways to impose its technological capability are building a strong R&D structure and utilize external source such as inward FDI, licensing, subcontracting, and original equipment manufacturing (OEM) arrangements. But its not easy because investment in R&D serves a political rather than an economic priority, slow progress in human resource capability and high corruption. But recently Indonesia is stepping up to be not only a market but also player in technology sector. The new spirit just comes in early 2012, when some students of some vocational in Java Island can manufactured a car to be used as a local government official vehicle. Hope the fail of aircraft industry spearheaded by B.J. Habibie, the former president, could not be repeated.

Source of literature
Blomstrm, M. and A. Kokko (2001), Foreign Direct Investment and Spillovers of Technology, International Journal of Technology Management 22: 435-454. Frankema, H (2005), Technological Development and Economic Growth in Indonesia and Thailand since 1950,Tokyo Hill, H. (1996), The Indonesian Economy. Cambridge: Cambridge University Press. Jeremy, David (1991): "Introduction: Some of the larger issues posed by technology transfer". In: David Jeremy (Hg.), International Technology Transfer. Europe, Japan and the USA, 1700-1914: Aldershot. Jonathan A. Israel (1998), The Dutch Republic: Its Rise, Greatness, and Fall 1477-1806, Oxford: Clarendon Press. Morris-Suzuki, Tessa (1994), Systems-building and Science-based Industry 1912 - 1937, in: The Technological Transformation of Japan. From the Seventeenth to the Twenty-first century. Okamoto, Y. (2001), Technology Development In Indonesia. Ramanathan, K. (1994), The polytrophic components of manufacturing technology. Technological Forecasting & Social Change. Nakaoka, T. (1991), The transfer of cotton manufacturing technology from Britain to Japan. In: David Jeremy (Hg.), International Technology Transfer. Europe, Japan and the USA, 1700-1914: Aldershot. UN (1965). The Growth of World Industry, 1938-1961. New York: United Nations. World Bank USGS, Political Map of Indonesia: http://neic.usgs.gov/nei s/world/indonesia/map.html