The factors of SME cluster developments in a developing country: the case of Indonesian clusters

Since cluster development factors become a critical issue in the debate of the industrial cluster literature, several scholars have attempted to seek the variables that influence the cluster growth. This paper presents the case of the wood furniture cluster of Bukir- Indonesia to explain the development of SME clusters by identifying its influential factors. We utilize the model proposed by Parrilli (2009) that includes collective efficiency, social capital, and policy inducement variables to explore the driving factors of this cluster growth. Based on the qualitative approach, this case study found that collective efficiency and social capital affect the development of SME cluster being studied, while policy inducement provides limited contribution to the growth of this cluster. The availability of skilled labour, raw materials and the demand of domestic market supports the local external economy of this location while joint action among cluster actors in the form of sharing order and putting-out between SMEs and retailers adds to collective efficiency. Furthermore, social capital as a common value bound the unity among actors in a friendly competition. However, the inducement policy stimulating the development of this cluster has limited impact since there is no deliberative action seriously carried out by the municipal government of Pasuruan. The study recommends more deliberative program is designed to meet the needs of cluster actors to cope their obstacles.