Knowledge diffusion and capacity building in Indonesian manufacturing industry in the era of world trade liberalization and economic globalization

Abstract

Capacity building is an important determinant of sustainable growth and global competitiveness of industries. At the nation level, United Nation Development Program (UNDP) defines capacity as the sustainable creation, retention, and utilization of capacity in order to reduce poverty, enhance self-reliance, and improve people's lives (Schacter, 2000).3 At the industry/firm level, capacity building can be defined thus as a long-term process requiring a systemic approach, demand for improved business performance, and supply of well-structured business organization and skilled personnel in order to improve competitiveness and hence to have a sustainable growth of the firm. The challenges of capacity building vary across business or sectors or subsector/industrial groups as well as across regions. This is because different business or sectors or industries have different characteristics with respect to labor used, organization, management and initial technology and knowledge endowment, and they face different challenges as well as problems; whereas, different regions characterized by different environment that affect business performance in the regions. One important element of capacity building is knowledge development, which can take place internally (inside the industry) or from outside from various sources, e.g. other domestic enterprises, multinational companies, universities or government institutes. Knowledge from outside sources, or knowledge diffusion can take various forms. For instance, in the form of transfer of technology embodied in imported goods or brought about through foreign direct investment by multinational firms, or, it can occur via knowledge spillovers