by Sugeng Budiharsono

PhD in Rural and Regional Development Planning, 1995 Chief Technical Advisor for LED at Ministry of National Development Planning/BAPPENAS Lecturer at Graduate Program at University of Indonesia and Bogor Agricultural University

Email: budiharsonos@yahoo.com Presented at International Short Course on Local Economic Development

Wageningen University and Research CDI, The Netherlands and The SAB World of Learning, South Africa Johannesburg, South Africa, September 30, 2014

Indonesia

Capital: Jakarta

Geography: Indonesia is an archipelago country that comprise 17.508 islands. The largest islands are Sumatera, Java, Kalimantan (part of Borneo), Sulawesi (Celebes), and Papua.

Surface area: 1,905,000 sq km

Official language: Bahasa Indonesia with 742 local languages

Population: 248 million (2013)

Culture: Indonesia has about 300 ethnic groups, each with cultural identities developed over centuries, and influenced by Indian, Arabic, Chinese, and European sources

History:

Fossils and the remains of tools show that the Indonesian archipelago was inhabited by Homo erectus, popularly known as "Java Man", between 1.5 million years ago and as recently as 35,000 years ago

Colonized by Dutch for 350 years, Portuguese, British, and Japan

Independence day: August 17, 1945

Natural resources: petroleum, tin, natural gas, nickel, timber, bauxite, copper, fertile soils, coal, gold, silver.

538.6 709.3

845.6 877.8 870.3 859.3

954.00

1,025.00

1,113.60 1,204.00

1,292.80 1,382.90

0

500

1000

1500

2000

2500

2009 2010 2011 2012 2013 2014

GDP PPP (Int'l $bn)

GDP in currentprices (US $ bn)

The World Bank report (2014): Indonesia is the 10 largest economy in the world with the country contributing 2.3 percent of global economic output.

Regional disparity especially between Java Island and outer Java (Sumatera, Kalimantan, Sulawesi, Maluku, Papua and Nusa Tenggara)

Unemployment rate

The poverty incidence

Increasing in Gini ratio (income disparity)

Relative share of SME on Employment and GDP

16.58 15.42

14.15 13.33

12.49 11.96 11.37

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

2007 2008 2009 2010 2011 2012 2013

Poverty Evidence (%)

PovertyEvidence (%)

9

According to the Law No 22/2009 and then amended by the Law 32/2004 on Regional Autonomy (decentralization), the authority (except for 5 aspects: justice, national monetary and fiscal policies, defense and security, religion, and foreign affairs) was granted to sub-national level i.e. provincial , district or municipality.

Regional economy is a part of national economy, so that the performance of national economy is determined by the performance of regional economy.

Indonesia territory is very spacious with abundant of natural resources:

Local resources for local economic development will be more effective and efficient if it is managed by the local stakeholders

Diversity can create a beautiful "mosaic" when properly managed.

LED is necessity to the national strategy in order to improve the quality of national economic growth.

LED uses territorial and bottom-up approaches, so it can be corrected for sectoral approach.

The majority of businesses in the LED are SMEs (56.5 million = 99.9% in 2012) which are based on local resources

LED can overcome problems of employment and poverty, as well as improving the resilience of the national economy.

First Generation: PLED (Partnership of Local Economic Development) was nationally implemented by BAPPENAS, the United Nations Development Program (UNDP) and UN Habitat. It was established in 1998 as the PARUL project (Poverty Alleviation through Rural Urban Linkages) aiming at improving linkages between remote regions and greater markets outside the regions. After PLED expired in 2003, there is no sustainability from the local level to continue this program.

Second Generation: RED-GTZ/GIZ Program. The major objective of the RED program is to heighten the competitiveness of a region by spurring regional economic growth. RED is not directly aiming at poverty alleviation as PLED/KPEL did. RED gears to its objective of higher regional competitiveness by boosting SME performance through a unique economic development approach which includes stakeholders from all parts of the society and works both on district level and across district boundaries. This program will be expired by the end of December 2014.

Third Generation: LED is the activities using local resources which are initiated and implemented by the local stakeholders

Lack of coordination on horizontal and vertical institutions among district/municipalities, provincial and national level further delay a strategic economic development.

Limited of local economic facilitation institutions both in terms of capacity, number and duration. More of facilitation only for three years, and because the local stakeholders do not involved, then after the project ends from the central government, it is also ended of the activities (not sustainable).

Lack of infrastructure accessibility. The infrastructures do not built based on regional development and lead commodity development.

Lack of support from the research and development institutions for lead commodity development

Low of human resources capacity especially at the local level

The low quality of local economic governance. Many regulations do not support even hinder local economic development.

Inter-regional co-operation has not been well established due to the lack of regulations governing it.

Establishing LED’s Stakeholders Forum at the National, Provincial and District/Municipalities level.

Formulating a Master Plan

Developing Cluster and Region Brand

Monitoring dan Evaluation

Step 1

Step 2

LED Forum establishment at the central, provincial and district/municipality level

Value Chain Analysis

Regional Development Analysis

Rapid Assessment for LED (RALED)

Participatory data and

information collection

Spatial Planning and Local mid term dev. plan

Master Plan

CSO

Donors

Cluster Development Private Sectors

Local planning and

budgeting system

Monitoring and Evaluation

Step 3

Step 4

Region Branding

These activities are initiated by National Development Planning Agency at the national level and Local Development Planning Agency at the local level (provincial and districts/municipalities).

First step: Identify the local stakeholders who will participate in the LED’s Stakeholders Forum (government, private sectors, academician, NGO etc.).

Second step: National/Local Development Planning Agency establish the LED’s Stakeholder Forum

Third step: Formulation of article and the action plan of LED’s Stakeholder forum

These processes are facilitated by technical advisors

THE STRUCTUR OF LED’s STAKEHOLDER FORUM AT NATIONAL LEVEL

WG 2WG 1 WG 4WG 3

Local and Regional Economic

Development Support Facility

(LREDSF)

Sector Communication

Forum

Non Goverment Forum

Regional

LRED Coordination Team

(TKPED)

Non Goverment LRED Forum (FPNP)

1. As a forum for national LED 2. Coordinating and Synchronizing in:

a. Planning, implementing, and developing of LED program

b. The LED regulation both at national and local level c. LED data and information

3. Socializing the regulation, the rule, problem solving, lesson learned, and information of LED

4. Monitoring and Evaluation of LED program 5. Coordinating, Evaluating, and providing

recommedation on strategic issue of LED

THE ROLE OF LED COORDINATION TEAM (TKPED) (Ministerial Decree No KEP.16/M.PPN/HK/02/2010 about lED Coordination team Establishment) :

1. As a forum for National Non Government LED stakeholders

2. As government partner to find solution for LED strategic issues in national level

3. Assisting government in implementing LED program.

4. Assisting in policy making, implementation, monitoring and evaluation of LED program

5. Assisting government in policy socialization and dissemination

THE ROLE OF NON GOVERNMENT LED FORUM

FPERD Forum of Economic

and Resource

Development

FEDEP Forum for Economic

Development & Employment

Promotion

CLUSTER CONCULTATION

FORUM

PROVINCIAL LEVEL

MUNICIPALITY/ DISTRICT LEVEL

CLUSTER LEVEL

Government of

District/Municipality:

•Local Dev. Planning Agency

•Department

•etc

Business Association

Large Business

Member of District/Municipality

Parliament

UKM UKM SME Department

Provincial Government • Local Dev. Planning Agency • Department •etc

Business Association

• Academician

• OSS

• BDS

Member of Provincial Parliament

Providing inputs for policy formulation on economic and resource development to strengthen the economy

Coordinating institution / organization at provincial level and FEDEP at Districts/Municipalities;

Facilitating the development of SMEs through cluster (Industrial, Agricultural, and Tourism Cluster);

Facilitate the development of BDS, in order to assist the SMEs);

Facilitate the development of a conducive business climate;

Facilitate FEDEP at District/municipality in the context of information networks and collaboration with stakeholders from within and outside the country;

Giving recommendations to the local governments on several programs as follows:

Strengthening small and medium businesses.

Strengthening the business cluster.

Strengthening the private sector in order to create business networking with other partners.

Optimization of the local government services to the private sector.

Increasing the efforts to create conducive business climate.

Improving the performance of the government sector.

Increasing the marketing of the potential of the region.

Promoting cooperation among stakeholders, including local government, business, academia and others.

Improving the system through capacity building.

To carry out the evaluation and monitoring of the FEDEP Programs.

Best practices

Internal and external FEDEP networking was developed gradually. 50% FEDEP have networks on regional level, 50% on national, only a few at international level.

Programs synchronization between Local Government agencies related to clusters development have generated a better coordination on their role on distribution in district level.

Numerous policies were formulated although only a few which took into account the promotion of local resource utilization.

FEDEP activities have been encouraged by FERD through annual Provincial budget which were allocated for every district, and technical assistance opportunity which developed by provincial coordination with donor institutions and national institutions such as Ministry of National Development Planning.

Bad practices: FEDEP has not been widely recognized as LED forum in district level stakeholders, although it is popular enough on many LED actors in regional and national level. Many FEDEP promotions through leaflets, posters and banners have been done in their exhibitions which take place outside their district.

Many FEDEP’s activities are voluntary dominated by local championship. Most of local championship comes from the local government agencies. So, any duty rotation which naturally happened as a consequence of District HRD decisions would become a serious setback on FEDEP capability.

FEDEP still facing problems on updating information and developing accessible data/information related to district LED activities due to limited documentation and lack of internal monitoring/evaluation.

Many LED program related to governance development are not implemented based on the need priority of FEDEP capacity building road map. Most of them are implemented as project oriented due to government program/project.

Political system transformation due to changes of Local Mayor/Regent give significant influence in local policy on mainstreaming LED or vice versa.

Local development planning agency in cooperation with FEDEP initiate to formulate a master plan. Step 1: Data and information collection with participatory process Step 2: Data Analysis:

Location Quotient (LQ) or Revealed Comparative Advantage (RCA). Value Chain Analysis Rapid Assessment Techniques for Local Economic Development (RALED) Sociogram and Scalogram

Step 3: Determining leading commodities Considering long term and mid-term local development planning Considering land-use planning Considering the above-mentioned analyses Market oriented (domestic and international market) Considering short term and long term demand Not single commodity development but should be integrated with other commodities, for example: tourism

Step 4:Formulating Action Plan Step 5: Formulating Program Financial Matrix These processes are facilitated by regional technical advisors

Steering Committee

(CLED + NGLEDS)

Technical Committee

Secretariat

BAPPENAS Line

Ministries

Program Financial Matrix

Donors

SOEs

Private Sector

Contractor Recipient

Province

District/

Municipality

Sustainable LED

Increasing social welfare

Regional Performance Regional disparity

GRDP

Labour productivity

Employment rate

Research and Technology

Development

Infrastructure and humanl

capital

Foreign Direct

Investment

SME

Economic Structure

Social Structure

Innovative activity

Decision centers

Regional Accessibility

Skills of work force

Environment Regional Identity

Target

Basic Category

Development Factors

Success Determinant

Modification of Pyramid of

regional competitiveness

(Lengyel, 2007)

Natural Resources

Institutions and social

capital

A cluster is a geographically proximate group of interconnected companies and association institution in particular field, linked by communalities and complementarities (Porter, 1998). Cluster theory focuses on removing obstacles, relaxing constraints, and eliminating inefficiencies to productivity growth.

Type of Cluster:

New cluster. The new cluster grows primarily on the initiation or intervention of the government policy.

Mature cluster or Natural Cluster. Mature clusters are often associated with the traditional industrial centers which have been known as a center of industry.

Socialization of cluster development to the key stakeholders

Identify leading commodity

Conducted field survey to validate and collecting data for identify the availability of raw materials and the linkage with other business

Evaluation for leading commodity

Establish the leading commodity that can be developed through cluster development.

Establish the cluster management

Formulate the cluster article

Formulate a cluster business plan

The implementation of cluster development

Traditional Transportation

Hotel

Restaurant

Agriculture

Tourism

Pottery

Souvenir Shop

Performance Art

Ivory Coast supplies 40 percent of the world's cocoa and coffee bean market. It is the number one exporter of cocoa, and number three exporter of coffee. Colombia has less of a market share, but its coffee is traded at premium prices, while Ivory Coast is regarded as a poor quality variety. It sells at low prices and is usually blended with other beans before going to market. Without a strong brand of its own Ivory Coast coffee is subject to market pressures and ultimately brings in less revenue and generates less investment and employment for Ivory Coast. Colombian coffee, on the other hand, has been sold under the now famous image of Juan Valdez with his mule since 1981.

Why region branding is important?

They need to differentiate themselves

They need to recogniseable Identity

They are in competition

Region compete for:

Investment

Tourist and visitors

To retain people and business

The concept of branding has been traditionally associated with corporations and their products and services, in either the consumer or the business-to-business markets. But today the concept is also being used for the shaping of a country's or region’s image.

Brand is a name, term, design, symbol, or any other feature that identifies one seller's good or service as distinct from those of other sellers.

Branding has two purposes: first, it serves as a ‘major tool to create product differentiation and secondly it represents a promise of value. Brand can have social and emotional value to users as it enhances the perceived utility and desirability of a product (Kotler and Gertner, 2002).

Nation/region branding: Establishment of an image (internally and externally) for a country/region based on positive and relevant values and perceptions.

The fundamental assumption in nation/region branding is that country/region names amount to brands and as result, convey images of the country/region. A region brand has the power to translate into better perception of the country, increasing export, inward tourusm, and foreign investment (Vicente, 2004).

Ying Fan (2006)

Aspect Nation/Region Branding Product Branding

Offer Nothing on offer A product or service on offer

Attribute Difficult to define Well defined

Benefits Purely emotional Functional and emotional

Image Complicated, various, vague Simple, clear

Association Secondary, numerous and diverse

Primary and secondary, relatively fewer and more specific

Purpose To promote national/regional image

To help sales and develop relationship

Ownership Unclear, multi stakeholders Sole owner

Audience Diverse, hard to define Targeted segment

LEADERSHIP

GOVERNANCE

INVESTMENT EXPORT OF

LEADING SECTOR

CULTURAL AND

HERITAGE

PEOPLE REGION BRANDING

*) Sugeng Budiharsono (2010)

The Benefits for Region Marketing Organizations

Provides a strategic focus based on competitive advantage and ways to resonate with key audiences.

Fosters a unified and cooperative approach to build the city’s reputation and create a prosperous business climate within the city or downtown.

Provides a decision-making framework to build a strong, identity for the city and avoid contradictory and changing messages and images.

Results in a higher return on investment (ROI) from destination marketing investments.

Captures the strengths and personality of the place in ways that enables all stakeholders to use similar, consistent and compelling messages.

Provides product and business development opportunities.

The Benefits for External Customers

Provides peace of mind by increasing trust and reducing uncertainty in their decision-making.

Establishes a clear and valued point of difference in the consumer’s mind.

Saves time and effort in making choices.

Reflects well on customers for being associated with the place.

Taps into their needs and desires.

Provides perceived added value and benefits.

The Benefits for Community

Creates a unifying focus to aid all organizations that rely on the reputation and image of the city or downtown for all or part of their livelihood.

Addresses out of date, inaccurate or unbalanced perceptions.

Leads to improved income, profit margins, and tax revenues of stakeholders

Increases the ability to attract, recruit, and retain talented people.

Enhances civic pride.

Assess Current Image

Establish Working Group

Identify Regional Competitiveness

Identify Target Audience

Define Core Message and Region Identity

Assess Readiness

Measure Progress

Mselle (2007) in Mugobo and

Ukpere (2011)

Organisation or government embarking on region branding must evaluate the existing qualities associated with the region in order to reinforce positive perceptions while filtering out negative aspects. We can ask some questions about current image of the region as follows:

What associations are linked to the place?

Has the image of the place changed over time?

What is the current personality of the place?

What visual imagery does the place evoke?

The ultimate goal is to understand how the target audience perceives the place today so that the gap between the current state and the desired or aspirational state can be assessed. It is this gap that the positioning must close.

The region branding process must be a private-public sector partnership for it to be effective and the bulk of the funding must be from the government as the major player in the process.

The stakeholders should be involved:

Local government and legislative

Private sectors

NGO

Educators

Artist

Media

According to Vaknin (2008), in acquiring a brand name, a region makes use and leverages several factors including the following:

Natural endowments – the country’s history, geographical location, tourism sites, climate, national ‘mentality’ (hardworking, forward looking, amicable, peaceful etc.).

Acquired endowments – public goods, literacy levels, specialist skills, knowledge of foreign languages, quality of infrastructure, legal, health, banking and other national systems.

Risk mitigation – international standing, political risk, favourable international treaties, credit history and insurance available to investors and exporters.

Economic prowess – level of economic growth, economic policies, monetary stability, access to international credit and market

opportunities.

Identifying the region’s key audience is another important step in region branding.

Identification of target audience should be aligned with the intended region branding objective such as trade partners, export markets, political allies, cultural partners, students and business visitors. However, it is important that the local audience (internal target) be included in region branding efforts as they will then become the country’s brand ambassadors, for instance during their interactions with tourists, investors and other visitors.

According to Olins (2000), developing a core message means finding a way to “...articulate value proposition of a nation brand to its target audience.” A region cannot be everything to everyone and thus it must develop specific messages targeted at specific audiences.

The core messages must be clear, consistent and credible. The message must be in line with the national identity and must communicate the nation’s unique selling proposition or its competitive advantage. The core message must also be in line with the aspirations of the internal audience.

Every region brand must have a clear and distinct identity as its backbone. Regional identity is the way region is perceived by its external audience.

A region can use its history, culture, technological development or any other important milestone to carve a unique identity for itself.

Region branding is an expensive and time-consuming process and requires a strategic nation vision and detailed long-term planning.

Generally region branding programmes take between five and twenty years to bear fruit. It is also imperative for the nation branding authority to ensure the buy-in of all the economic sectors and the general public in the region in order to garner maximum support.

The region branding authority must ensure that adequate resources are available to fully implement and manage the region branding campaign.

Just like any process, once you start implementing a region branding programme, it is imperative to monitor the process to ensure that everything goes according to plan. Because of its complexity and the ever-changing environmental factors, it may be necessary to take corrective action in the form of programme adjustments, alterations and reinforcements.

For measuring the progress, the Hexagon of Region Branding can be used to assess the region branding.

Situation Analisis

Public Private Dialog Input from marketing expert FGD Training Task force stablishment

Positioning

Tagline competition

Limited bidding for logo design

The selection of an advertising agency

Capacity building and briefing for local agencies

Creative activity

Assessment by the Jury

Tagline

Interview with multi actors

Responses from 85 stakeholders

Launching logo and tagline

First Draft

Increasing tourist and visitors

Increasing products sales

The absence of regulation on inter-regional cooperation in developing region brand had made the region branding failed to run well

Lack of commitment from the Mayor/Head of Districts lack of budget

Overall, this program was not running well after the mayor of Solo became Governor of Greater Jakarta and later on became president of Indonesia

Leadership from the Regent/mayor plays an important role in local economic development in Indonesia.

FEDEP is a key role in local economic development, but very dependent on the presence or absence of local champions.

The master plan is still not used as a guidance/reference for the budget allocation for the development of the local economic development both by the line ministries and local stakeholders.

Cluster development approach are very encouraging local economic development

Innovation plays an important role in the development of the cluster, however the cooperation among local government, private sectors and higher education/research and development institutions is still not optimal.

Region brand is still not well developed, this is because the local stakeholders still do not understand the substance of the region brand and the lack of budget to develop it.