AN ANALYSIS OF INNOVATION NETWORK

PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH

SUMATERA

DANANG KRISNA YUDHA

GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
 DECLARATION
I hereby declare that the thesis entitled “An Analysis of Innovation
Network Performance on the Palm Oil Industry in North Sumatera” is my original
work produced through the guidance of my academic advisors and that to the best
of my knowledge. This thesis also presented for the award of a degree in The
University of Adelaide as a double degree program between Bogor Agricultural
University and The University of Adelaide. All of the incorporated material
originated from other published or unpublished papers are stated clearly in the text
as well as in the bibliography.
I hereby delegate the copyright of my paper to the Bogor Agricultural
University.

Bogor, July 2015

Danang Krisna Yudha

NRP. F351137151
 SUMMARY

DANANG KRISNA YUDHA, 2015. An Analysis of Innovation Network

Performance on the Palm Oil Industry in North Sumatera. Supervised by AJI
HERMAWAN, Chairman and MACHFUD, Member of Advisory Committee.

Indonesia and Malaysia shared 85% of global palm oil production by weight
in 2013, according to United States Department of Agriculture (USDA, 2014).
Indonesia overtook Malaysia as the biggest producer of palm oil and reached a
total production of 30 million tons in 2014 (Ministry of Agriculture, 2015).
Although Indonesia became the leading country in the production of palm oil,
most of this commodity are exported as Crude Palm Oil (CPO) and Crude Palm
Kernel Oil (CKPO) to Europe, China and India, so the value added going to
another country. Therefore, the government wants to resolve this problem by
increasing the added value of palm oil products.
Innovation is the key factor to increase the added value of palm oil products.
Indonesian government set North Sumatera as a center of palm oil industry and
encourage the growth of innovation in this region. Advances in innovation are
considered as the main factor that affect the regional competitiveness and become
the key factor for increasing national economic growth. Moreover, collaboration
between government, universities and firms are important to produce the expected
innovation.
This paper assess the effectiveness of network among actors on the palm oil
industry in North Sumatera. A Social Network Analysis (SNA) was carried out to
determine the structure and performance of this network. The result show that the
government play insignificant role in this industry, while research institutions
have more influence. Moreover, this study also identify the barriers which inhibit
the collaboration among actors. This study use interpretive analysis based on the
interviews to recommend some action plan, which are intended to improve the
network.

Keywords: palm oil industry, social network analysis, interpretive analysis

 RINGKASAN

DANANG KRISNA YUDHA, 2015. Analisa Kinerja Jaringan Inovasi pada

Industri Kelapa Sawit di Sumatera Utara. Dibimbing oleh AJI HERMAWAN,
Ketua dan MACHFUD, Anggota dari Komisis Pembimbing).

Indonesia dan Malaysia menghasilkan 85 % dari produksi minyak sawit

global pada tahun 2013, menurut Departemen Pertanian Amerika Serikat ( USDA,
2014). Indonesia mengambil alih posisi Malaysia sebagai produsen terbesar
minyak sawit dan mencapai total produksi sebesar 29,3 juta ton pada tahun 2014
(Kementerian Pertanian, 2015). Meskipun Indonesia menjadi negara unggulan
dalam produksi kelapa sawit, sebagian besar komoditas ini diekspor sebagai
Crude Palm Oil (CPO) dan Crude Palm Kernel Oil (CKPO) ke Eropa, China dan
India, sehingga nilai tambah komoditi ini menjadi milik negara lain . Oleh karena
itu, pemerintah ingin mengatasi permasalahan ini dengan cara meningkatkan nilai
tambah dari produk kelapa sawit.
Inovasi menjadi faktor kunci untuk meningkatkan nilai tambah dari produk
kelapa sawit. Pemerintah Indonesia menetapkan Sumatera Utara sebagai pusat
industri kelapa sawit untuk mendorong pertumbuhan inovasi di wilayah ini.
Kemajuan dalam inovasi dianggap sebagai faktor utama yang mempengaruhi daya
saing daerah dan menjadi faktor kunci untuk meningkatkan pertumbuhan ekonomi
nasional. Selain itu , kolaborasi antara pemerintah, universitas dan perusahaan
merupakan faktor penting dalam menghasilkan inovasi yang diharapkan.
Makalah ini menilai efektivitas jaringan antar pelaku industri kelapa sawit di
Sumatera Utara. Sebuah Analisis Jaringan Sosial (SNA) dilakukan untuk
menentukan struktur dan kinerja jaringan ini. Hasil penelitian menunjukkan
bahwa pemerintah memiliki peran yang kurang signifikan dalam industri ini,
sementara lembaga penelitian memiliki pengaruh yang lebih kuat. Lebih jauh lagi,
penelitian ini mengidentifikasi hambatan dalam membangun kolaborasi antara
pelaku. Penelitian ini menggunakan analisis interpretatif berdasarkan wawancara
untuk merekomendasikan beberapa rencana aksi, yang dimaksudkan untuk
meningkatkan kinerja jaringan.

Kata kunci: industry kelapa sawit, analisa jaringan sosial, analisa interpretatif
Copyright ©2015, by Bogor Agricultural University
All Right Reserved
1. No part or all of this thesis excerpted without inclusion or mentioning the
sources
a. Excerption only for research and education use, writing for scientific papers,
reporting, critical writing or reviewing of a problem
b. Excerption does not inflict a financial loss in the proper interest of Bogor
Agricultural University
2. No part or all of this thesis may be transmitted and reproduced in any form
without a written permission from Bogor Agricultural University
 AN ANALYSIS OF INNOVATION NETWORK
PERFORMANCE ON THE PALM OIL INDUSTRY IN NORTH
SUMATERA

DANANG KRISNA YUDHA

Thesis

Submitted to the Graduate School in Partial

Fulfillment of Master Of Science
Degree In
Agroindustrial Technology

GRADUATE SCHOOL
BOGOR AGRICULTURAL UNIVERSITY
BOGOR
2015
External Examiner: Prof. Dr. Ir. Erliza Hambali, M.Si
Thesis Title : An Analysis of Innovation Network Performance on
the Palm Oil Industry in North Sumatera
Name : Danang Krisna Yudha
Registration Number : F 351137151
Study Program : Agroindustrial Technology

Approved
Advisory Committee

Dr. Ir. Aji Hermawan, MM Prof. Dr. Ir. Machfud, MS

Chairman Member

Agreed

Coordinator of Program Dean of Graduate School

Agroindustrial Technology

Prof. Dr. Ir. Machfud, MS Dr. Ir Dahrul Syah, MSc. Agr

Examination Date: 11th June, 2015 Submission Date:

 ACKNOWLEDGEMENTS

Praise and gratitude to Allah Subhanahu wa Ta’ala, because of Him, the writer
can complete this thesis as a requirement to get a Master Degree in Bogor
Agricultural University (IPB). The title of the thesis is An Analysis of Innovation
Network Performance on the Palm oil Industry in North Sumatera.
The writer want to say thank you, especially for Dr. Aji Hermawan as a
chairman of the advisory committee, Prof. Machfud as an advisory committee
member, and Dr Wendy Lindsay as an advisor from University of Adelaide whose
gave positive criticisms and guidance to shape the outlook of this thesis. Special
thanks for Dr. Barry Elsey and Ms. Amina Omarova from The University of Adelaide
for their guidance in writing this thesis. They teach me how to write the thesis with a
good structure.
I also would like to express gratitude to all the respondents who have taken
their time to conduct an interview with the author. Special thanks to Mr. Deny
Mulyawan from PT. Perkebunan Nusantara III, Mr. Anshori Nasution from IOPRI
and Mrs. Ida Yani Pane who took time to meet me in the middle of his/her work. My
gratitude to DR. Listyani Wijayanti for the courage and motivation. I also thank Prof
Erliza Hambali for her suggestion to reshape my thesis and Mr. Dahlius and Mrs.
Dhiah Nuraini who also my colleagues in Ministry of Industry. I also offer my thanks
for Mr. Fadhil who gave me new perspective of the palm oil industry.
In this acknowledgment, I want to take my time for expressing my love to my
wife, Ajeng and my son, Hirzan who acoompany me in Adelaide and provide the
biggest support. I also want to thank my father, mother, brother and sister who
continuously to give their support, both in the difficult and good period. Last but not
the least, I want to show my gratitude to my friends, namely Karim, Tri, Benny,
Andar, Farda, Iwan, Nur Aini, Dwi, Syarifa, Aditya, Dickie, Ahmad Rudh, Koko,
Nuni, Anin, and Yani for their moral support especially when we all lived in Adelaide.

Bogor, July 2015

Danang Krisna Yudha

 TABLE OF CONTENT

LIST OF TABLE i
LIST OF FIGURE ii
LIST OF APPENDIX ii

CHAPTER 1. INTRODUCTION 1
1.1. Introduction 1
1.2. Statement of Problem 1
1.3. Background and Need 2
1.4. Purpose of the Study 2
1.5. Reserach Questions 3
1.6. Significance to Field 3
1.7. Limitation 3

CHAPTER 2. LITERATURE REVIEW 4

2.1. Innovation in the Palm Oil Industry 4
2.2. Assessing the Innovation Network Performance 6
2.2.1. Network Theory 6
2.2.2. Social Network Analysis (SNA) 7
2.3. Collaborative Innovation Strategy 9
2.3.1. Triple Helix Model as an Analytical Tool for Innovation
Collaboration 10
2.4. Summary 11

CHAPTER 3. METHOD 12
3.1. Introduction 12
3.2. Settings 12
3.3. Participants 12
3.4. Measurement Instrument 12
3.5. Procedure 13
3.6. Data Analysis 13
3.3. Summary 13

CHAPTER 4. RESULTS AND DISCUSSION 14

3.1. Collaborative Research Activities 14
3.2. Innovation Network Performance 16
3.3. Barriers 19
3.4. Action Plan and Policy Strategy 22
3.3. Summary 24

CHAPTER 5. CONCLUSION 25
3.1. Summary 25
3.2. Recommendation 25
3.3. Implication 25

BIBLIOGRAPHY 26
AUTOBIOGRAPHY 31
 LIST OF TABLE
2.1. Network Terminology 7
3.1. Profile of Participants 12
3.2. Research Stages 13
4.1. Centrality 18

LIST OF FIGURE
2.1. Palm Oil Industrial Tree 5
2.2. Interaction Model Between Actors 9
2.3. Triple Helix Model 11
4.1. Network Visualization of the Palm Oil Industry 17
4.2. Relation Among Actors 20

LIST OF APPENDIX
Appendix 1. List of Questions 28
Appendix 2. Matrix for SNA 29
 1 INTRODUCTION

1.1. Introduction
At the current time, Indonesia is the world's largest producer of palm oil,
namely around 29,3 million tons in 2014 (Ministry of Agriculture of Republic
Indonesia, 2015) and the industry has been the economy's most valuable
agricultural export sector for the last century. Although Indonesia become the
leading country in the production of palm oil, most of this commodity is exported
as Crude Palm Oil (CPO) and Crude Palm Kernel Oil (CKPO), which are
categorised as semi-products with low added value. This condition encouraged the
government to develop palm oil downstream products and set North Sumatera as a
center of the downstream palm oil industry (Ministry of Industry Decree No. 13
Year 2010).
In an attempt to increase the value added of palm oil products, innovation
plays important roles. Innovation is required to develop 23 downstream products
of palm oil, as stated in government policy, and then bring those products to
domestic or global market. However, the innovation process, from invention to
commercialization, can be inhibited if the network between research institution,
government and businesses is not managed properly. In the palm oil industry,
many inventions which were produced by research institutions cannot fulfill the
demand of the palm oil industry and failed to enter the market. Furthermore, lack
of government support weaken the industry's desire to cooperate with research
institutions. This condition lead to poor performance of innovation in downstream
palm oil industry which causes many companies prefer to search innovation from
external sources.
This study assess the effectiveness of network among actors that affect the
innovation performance on the palm oil industry in North Sumatera. Collaboration
between actors become an important factor in creating innovation. Moreover, this
research identify the barriers which influence the network. The purpose of this
study is to propose an action plan and policy design to improve the network
among actors, which in turn will improve the innovation performance and
enhance the development of downstream palm oil industry in North Sumatera.

1.2. Statement of the Problem

In North Sumatra, there are three types of institutions that carry out
innovation activities in the downstream palm oil industry, namely business,
government and research institution. These institution, which can be referred to as
actors, have been cooperating and sharing resources in order to create innovation.
However, many invention cannot be implemented in the industry because it is
produced only to meet the academic interest. Furthermore, unclear government
policies make the industry and research institution are reluctant to establish
collaborative research.
It indicates that the current network among actors in developing innovation
is not effective. Even farther, the cooperation between actors is less structured and
less organised. It is not clear who is the leading institution in this network and this
partnership seems to run without the coordination and monitoring. This condition
2

should be addressed in order to improve the innovation performance in the palm

oil industry.

1.3. Background and Need

Innovation as described by Schumpeter (1947) is a process to create an
invention and commercialize it. An invention could be called as innovation with
the first commercial transaction and acceptance of the market. The innovation
process is defined as the combined activities leading to new marketable products,
methods and /or new systems (Burgelman, et al. 2006). In palm oil industry,
innovation is important to support the government program by developing new
technology or new downstream products of palm oil which can lead to a new
business. More importantly, innovation will support the development of new
products with higher value than CPO and CKPO. Many theories show that
innovation has big impact on science/technology and economic growth. De Groot,
Nijkamp and Acs (2001) argue that technological innovation has long been a
concern in an effort to create opportunities for economic growth in the region. A
region that has excelled in the development of new technologies or implementing
the existing technology in economic activity have indicated a better competitive
advantage.
A number of studies (Basiron 2002; Barlow, Zen and Gondowarsito, 2003;
Dou, 2009) concluded that the chances of development of the Indonesian palm oil
industry is still very open, especially because of the availability and suitability of
land and supported by appropriate policies and strategies. The government set
North Sumatera as a center of downstream palm oil industry because of its
abundance of raw material and build palm oil industrial cluster in this region.
Moreover, Pratama (2014) defined 3 major factors which affect the development
of palm oil downstream industry, namely infrastructure, innovation and
networking among actors. It indicates that innovation has a big impact on the
development of the downstream palm oil industry.
Furthermore, collaboration is an important part of the innovation process,
especially in developing countries such as Indonesia, which has a low research
budget. The government, enterprises and research institutions interact and
cooperate in generating innovation. Teece (1992) and Baum et al (2000) suggest
that collaboration enables business to access complementary assets, technology,
human resource and learning capabilities, thus boosting the company innovation
performance. Usually government became the leading institution of this
collaboration and provide the funding, while research institutions have the
resources (human resource and research facilities).

1.4. Purpose of the Study

The purpose of this study is to identify the innovation activities which is
conducted by each actors and then assess the innovation network performance in
the palm oil industry in North Sumatera. After knowing the performance of the
network in the industry, the next step is to investigate any obstacles in the
cooperation between actors. Finally, the outcomes of this research is to create an
action plan and policy design for how to manage the network among actors, in
 3

order to enhance the innovation network performance of the palm oil industry in
North Sumatera.

1.5. Research Questions (RQ’s)

This study has several research questions to be answered, as follows:
1. What kind of innovation activities are being conducted by each actor of the
palm oil industry in North Sumatera?
2. How effective is the network among actors of the palm oil industry in North
Sumatera?
3. What are the barriers for establishing collaboration between actors of the palm
oil industry in North Sumatera?
4. What factors could be developed in the future to improve the network among
actors of the palm oil industry in North Sumatera?.

1.6. Significance to the Field

There are several contributions of this research, as follows:
a. On policy, this research may provide new perspective for local and central
government about how to develop downstream palm oil industry. In addition,
this research provide a recommendation about how to build collaboration
among the actors involved.
b. From an academic point of view, this study may contribute to solve the
problems of networking by identifying the barriers of collaboration.
c. In addition, this research assess the network performance of the palm oil
industry in North Sumatera which may be useful for firms or other parties.

1.7. Limitation
This research has limitation on the data collected from interview. There are
nine participants consisting of three researcher, one industrial practitioner, three
people from government and two people from business. This data may not cover
and represent all of the population which means it cannot be generalized for all
palm oil industry. However, this research focus more on the barriers of
collaboration in palm oil industry. It is very important given the fact that
collaboration is key factor in developing innovation. Moreover, the action plan
and policy design may become the guidance for further development of
downstream palm oil industry.
4

2 LITERATURE REVIEW

2.1. Innovation in the Palm Oil Industry

The government through the Ministry of Industry plans to develop palm oil
downstream products with the hope of increasing the value added of CPO and
CKPO. The price of CPO and CKPO in 2014 was USD 818,4 per ton, very low
compared to the price of its downstream products (GAPKI, 2015). In fact, CPO
and CKPO can be used as raw material for several derivative product, namely
food products (including cooking oil, margarine and shortening) and
oleochemicals (fatty acids, fatty alcohol and glycerin). Moreover, palm oil is the
major raw material for biodiesel industry and become more important for the
sustainability of energy in Indonesia. In figure 2.1 (page.5), it illustrates twenty
three downstream products that will be developed by the Indonesian government.
In order to support the development of downstream palm oil industry, the
government issued two main policies. The first policy listed on Ministry of
Industry Decree No. 13 Year 2010 which includes the palm oil industry roadmap
and long term strategy 2011-2025. In this regulation, the government set North
Sumatera as a center for the downstream palm oil industry. Moreover, the
government also established palm oil industrial cluster in North Sumatera as a
special economic zone with various facilities and incentive to the industry. The
other policy declared by government is joint regulation between Ministry of
Research and Technology and Ministry of State Affairs No. 36 Year 2012 about
regional innovation system. The policy focuses on developing a leading
commodity for each province, for example palm oil for North Sumatera province.
It indicates that North Sumatera is important region for the development of
downstream palm oil industry.
North Sumatra is one of the palm oil producer in the country's. CPO
production in North Sumatera reached 7.3 million tons from more than 60
companies which operating in this region (Investment Coordination Board, 2012).
In this region, there are at least two major institutions that have a variety of
research and patent namely the Indonesia Oil Palm Research Institution (IOPRI)
and the Center of Innovation (PIKS). PPKS was founded in 2002, consist of three
research institutes in Medan, Marihat and Bandar Kuala. This institution has been
conducted several research on innovation related to palm oil industry. IOPRI
vision is to become an international research institution that is capable of being a
center of innovation for the palm oil industry. IOPRI has gained international
recognition through its scientific publication and research contribution.
Meanwhile, PIKS is a research institute that is established to accelerate the growth
of downstream palm oil industry through innovation. This institution was
established to support the development of the palm oil industrial cluster in Sei
Mangkei, North Sumatra. The main function of this institution is to produce
innovation and research related to the downstream palm oil industry. In addition,
the institute has a goal to increase the capacity of downstream palm oil industry
through training, instrument calibration and certification
 5

Figure 2.1. Palm Oil Industrial Tree

Source : GAPKI (2015)

Nowadays, innovation is considered to be one of the most important issue in
business strategy and management. Many theories show that innovation has big
impact on science/technology and economic growth. Advances in technological
innovation are considered as the main factor that affect the competitiveness of
firms, industries and become the key factor for increasing national economic
growth and wealth (Porter 2008). Both Marshall (2004) and Simon (1971) state
that, directly or indirectly, knowledge affect economic activity and economic
activity also changes the knowledge, and it takes place in a constant round of
change.
6

Innovation become important factor in accelerating the development of

downstream palm oil industry. As stated by Schumpeter (1938), there are five
form of innovation, namely (1) new products ;(2) new methods of production;(3)
new markets;(4) new sources of raw material;and (5) new organisations. In palm
oil industry, “new products” means the development of twenty three downstream
palm oil products which is listed on Ministry of Industry Decree No. 13 Year
2010. The innovation activities in the palm oil industry is expected to generate
new products that address the needs of consumers. The innovators can add special
attributes on downstream product of palm oil which can solve the customer
problems. One of the main concern of consumers is the health issues of palm oil
products and the innovators can try to solve this problem. This will affect the
competitiveness of Indonesian palm oil products in the global market. Meanwhile,
“new methods” is generated to increase the productivity and efficiency of the
industry. With the increased performance of the industry, the costs will be smaller
and it will boost up the competitive advantage of the industry. Furthermore,
innovation in downstream products can bring new markets for domestic industry
so that the value-added of palm oil products can be increased.
However, many inventions which is produced by research institution failed
to enter economic system because of several factors, such as lack of collaboration,
stagnation on government policy (Schepers 2013), limited funding and failure to
identify market demand (Chiesa & Frattini 2011). This study will explore the
network among actors and assess the effectiveness of the current research
collaboration in the palm oil industry. Research and Development (R&D)
partnership is becoming more familiar in the creation of innovation, along with
the increasing complexity of technology. It could be used to access additional
technology and market knowledge, to co-develop standards, to create a minimum
(critical) size for a project, and to share innovations costs and risks (Hagedoorn
1993)

2.2. Assessing Innovation Network Performance with Social Network

Analysis
2.2.1. Network Theory
A network is a set of nodes connected by a set of ties (see table 2.1). The
nodes can be anything whether it is a persons/individuals, teams, organizations,
concepts, patents, etc (Coulon, 2005). In social terminology, a network could
become a capital for a person/organisations. Burt (1997) define 4 attributes on
social network in his study which are roles, emotional closeness, duration and
frequency. Based on his findings, people who has more contact in his/her “pocket”
will eventually get benefits, for example early promotion. It is quite reasonable,
considering the people who have extensive networks will easily get the
information and knowledge so that they can adapt well in any conditions. In
organisation level, company which has wider network, either with government or
research institutions, will gain an access to innovation or incentives. The
organization Some usual way in building the network is doing intensive contact
with the other party, exchanging important information and build trust. It is
 7

important for evolving organization to manage their networking in order to

withstand any challenges in the future.
Table 2.1. Network Terminology
Network Analysis Definitions
Terms
Node The basic elements of a network
Tie/Edge A set of two nodes. Ties can be
dichotomous (unweighted) or
weighted/valued, directed or not
(undirected)
Directed Tie An ordered set of two nodes, i.e., with
an initial/sources and a
terminal/destination node
Network A set of nodes connected by a set of
ties
Valued Network A network whose ties/edges are
associated with a measure of
magnitude or strength
Ego A node which receives particular focus
Alters The set of nodes that has ties with the
ego but not including the ego itself
Network Size The total number of nodes of a
network
Relational Data The set of ties of a network
Sources: Coulon, 2005

. In the case of palm oil industry, the nodes are organizations, consist of
government, research institution and business. The network connect all
stakeholders and relay the information and knowledge which is important in the
creation of innovation. Furthermore, Rodgers (1962) emphasize the importance of
network in technology diffusion. The new technology will be spread quickly
among actors through the existing network. More importantly, the existing
network will help a new technology to be accepted by the community (lowering
the resistance of new technology). That’s why, it is essential to manage the
effective network among actors in the palm oil industry.
Actor
Latour (1992) define actors as “entities that do things”. The entities in his
perception is, either a human or non-human, which has the character and ability to
do some action. In innovation activities, an actor would need the help of other
parties to create a new technology/product. This cooperation will form a network
and they will share the resources to achieve common goals.
2.2.2. Social Network Analysis as Analitycal Tools to Assess Innovation Network
Performance
Performance is known to be a complex concept, especially concerning
its measurement. It should be assessed by performance indicators, instruments
8

used to measure what criterion is being used, and it should be included in the
performance measurement system (Provan & Kenis 2008). The indicator of
innovation network performance, they called it “determinants of innovation
network”. Those determinants consist of two main indicators which are shapes of
network and connectedness of members. The shapes of network focused on
number of researcher, level of research expenditure, and the quality of output.
Meanwhile, the connectedness of members is represented by the intensity of
communication (tacit and explicit knowledge), form of communication, amount of
communication, and diversity of competencies and knowledge. The performace of
a network can be measured by using social network analysis as a tool.
Social Network Analysis (SNA) views social relationship in terms of
network theory, consisting of nodes, representing individual actors within the
network, and ties which represent relationships between the individuals actors
(Freeman, 2004). Social network analysis is based on assumptions about the
importance of the relationship between nodes that interact include theory, models,
and applications expressed by the concepts of relational or process analysis.
Network analysis is not done individually, but with an entity consisting of
individuals and relationships that exist between them. (Wasserman & Faust, 2008).
According to Hanneman and Riddle (2005), social network analysis is a technique
for studying the relationships or social relations among members in a group.
Meanwhile, other theories stated that social network analysis is a process of
learning and understanding of the network (formal and informal) in certain fields
(Schelhas and Cerveny, 2002).
Some measurements to quantify the role and influence of actors in the
network are as follows (Hanneman and Riddle, 2005) :
1. Degree of centrality, the degree of the presence and position of an actor in a
social networking. This can be categorised into two types, which are: 1) In
degree is the ability of actors to relate to an actor; and 2) Out Degree is an
actor's ability to relate to other actors in the network.
2. Closeness centrality, shows the extent to which the information can be spread
in the network and measures the distance between the actors in the network.
Dissemination of information easily demonstrate with high proximity value
3. Betweeness centrality, shows how strong an actor can become a facilitator
between other actors in the network. An actor with a high betweeness value
has the ability to convey information to actors who are not directly connected
with them.
Overall, SNA calculate the tie strength which is important in assessing the
overall degree of connectivity of members in an environment and the likelihood
thatinformation will flow from one member to another (Haythornwaite,
1996). It means, this analysis will reveal whether the knowledge and information
distribute and spread quickly among members. Information and knowledge are
important factor for developing innovation in any aspects, includes downstream
palm oil products. This attribute is very important to assess the effectiveness of
network in the palm oil industry.
 9

2.3. Collaborative Innovation Activities

Innovation activities has been divided into three major categorise which are
internal , external and cooperation (Veugelers 1997). The internal innovation is an
activity that conducted using internal resources and capabilities of a company,
while external innovation can be interpreted as an access to knowledge and
technology through licensing, hiring external researchers or outsourcing (Arora &
Gambardella 1990). However, many companies realise that the process to produce
a knowledge or technology is very complex and it would be costly for them to
conduct it by themselves. Therefore, companies tend to build cooperation with
external parties, such as universities, research institutes, government and other
companies.
This condition also occurs in the palm oil industry in North Sumatra. The
influence of institutions outside the region of North Sumatera cannot be denied.
For example, the research policy is strongly influenced by the central
governments, in this case they are the Ministry of Industry (MoI) and the Agency
for the Assessment and Application of Technology (BPPT). This study considers
the influence of other actors outside of North Sumatra in order to draw a complete
picture of palm oil industry in North Sumatera.
Based on the theories above, innovation can be greatly affected by the
interaction among actors. Interaction between actors is not inevitable because of
the innovation process that requires a lot of resources and budget, with high risk
and unpredictable environment/market. This condition also applies on the palm oil
industry in North Sumatera. That’s why, many actors in palm oil business
established cooperation because they cannot generate innovation by themselves.
In many regional innovation systems, academic institutions, research centers, the
government and firms cooperate with each other to make innovation effective.
They share information, infrastructure, human skill, capital and many other
components in order to make exact innovation. Zhao, Song, Zhu, Peng, and Cai
(2013) illustrated a model of interaction model between actors (Figure 2).

Figure 2.2. Interaction Model Between Actors

10

For further discussion, (Cooke & Morgan 1994) introduced “the network
paradigm” and emphasized that an effective network should consist of:
a. Information sharing, the willingness of each actor of a network to share their
information.
b. Trust, the willingness to place faith on other actors.
c. Learning, an awareness that knowledge and technology should be obtained
through a learning process.
d. Partnership, an awareness of cooperation and building relationships
e. Decentralism, the realisation that centralised data or information without
sharing is not effective
2.3.1. Triple Helix Model as Analytical Tools for Innovation System
Lenger (2008) stated that university and research institution play big role,
especially for providing qualified researcher and produced locally adopted
research. Meanwhile, the government can support the industry by providing
substancial resources or infrastructure, namely incentive and energy sources. On
the other hand, the readiness of business actors to adopt research results is
very important. Many big oil palm enterprise such as SMART, Unilever,
Lonsum and Sampoerna Agro have established their own R&D stations in order
to enhance technology development, strengthen the competitiveness and build
cooperation with SME’s (Liwang, Daryanto, Gumbira-Sáid, & Nuryartono, 2009).
One of the models which are developed based on the interaction between
actors is a Triple Helix Model. This model provides an illustration of the
cooperation between universities, industry and government in the creation of
innovation or technology. The technology is expected to encourage national and
regional development (Etzkowitz & Leydesdorff, 2000). In further discussion, has
been studied about how the ideal interaction between university, industry and
government. In the beginning, the government considered a central figure in
innovation activities with its policy and budget (Figure 3(a)). But over time,
(Etzkowitz & Klofsten, 2005) argued that the most appropriate model is that each
actor has equal status and have close interaction/ intersect (Figure 3(c)) .
Moreover, Brannback, Carsrud, Krueger Jr, and Elfving (2008) adapted the theory
and illustrates the the configuration of academic, business and government in
figure 3.
 11

Figure 2.3 Triple Helix Model

2.4. Summary
Based on those theory above, this research will assess the performance of
innovation network on the palm oil industry in North Sumatera. It will focus on
information sharing and communication between actors in order to create an
innovation. Moreover, this study identify the barriers of collaboration which is
important to design action plan and policy strategy.
12

3 METHOD

3.1. Introduction
The research assess the effectiveness of network among actor that affect the
innovation performance on the palm oil industry in North Sumatera. Moreover,
this study will identify the barriers which influence the network. The purpose of
this study is to propose an action plan and policy recommendation to improve the
network among actors, which in turn will improve the innovation performance
and enhance the development of downstream palm oil industry in North Sumatera.
3.2. Setting
This study conducted in palm oil industry which is located in North
Sumatera. Based on Ministerial Regulation No. 13 Year 2010, North Sumatera is
selected as a center of downstream palm oil industry, alongside Riau Province and
East Kalimantan. This region has approximately 60 palm oil firms, several
research institution and one industrial cluster which allows the interaction
between industry players in generating innovation.
3.3. Participants
This research used purposive sampling since it is focused on the actors who
have experience and expertise on downstream palm oil industry. Each of
participants represent three category which are academic, business and
government (table 3.1).
Table 3.1. Profile of Participants
No Participants Institution Position
1 Respondent 1 Research Institution A3 Researcher
M. Ansori Nasution,
2 Indonesian Oil Palm Research Institution Researcher
ST, M.Sc
3 Ir. Dahlius Sei Mangkei Center of Innovation Head of Institution
Ir. Deny Mulyawan,
4 PT. Perkebunan Nusantara III Regional Manager
MT
5 Respondent 2 Enterprise B2 Operational Manager
6 Fadhil Hasan Indonesian Palm Oil Association Executive Director
Ir. Dhiah Nuraini,
7 Ministry of Industry Deputy Director
M.Si
8 Ir. Ida Yani Pane, MT Local Government of North Sumatera Head of Department
Dr. Listyani Agency of the Assessment and Application of
9 Deputy of the Institution
Wijayanti Technology

3.4. Measuremet Instruments

The study utilised two measurement methods, namely: 1) SNA approach to
determine the network performance; 2) coding and themes based on interview.
For quantitative analysis, this research used UCINET as analytical tools to assess
the network performance.
 13

3.5. Procedure
In this research, interview became the main sources of data while
observation and legal documents provide some additional information. The
participants will be interview for 15-30 minutes to answer all the research
questions. In order to assess the network performance, the data about cooperation
among actor was collected from documents and interviews.

Table 3.2. Research Stages

Research Questions Stage Sources Data Analysis
What kind of innovation Identification of the role 1. Interview with Descriptive
activities are being conducted and innovation activities the participants analysis
by each actors on palm oil conducted by each actors 2. Documentation
industry in North Sumatera? and Report

How effective is the network Assessment of the current 1. Interview with Social Network
among actors on palm oil network among actors on the participants Analysis
industry in North Sumatera? the palm oil industry in 2. Documentation
North Sumatera and Report
What are the barriers for Identification of barriers Interview with the Descriptive
establishing collaboration that inhibit the participants Analysis and
between actors on palm oil collaboration among Interpretive
industry in North Sumatera? actors Analysis

What activities/program could Create action plan and Interview with the Descriptive
be develop in the future to policy recommendation participants Analysis and
improve the network among based on factors for Interpretive
actors on palm oil industry in improvement Analysis
North Sumatera?

3.6. Data Analysis

The data analysis can be divided into three part as illustrates in table 3.2,
namely:
1. Descriptive analysis will be used to map the role of each actors and its
working program.
2. This study using SNA to assess the network among actors
3. Explore the barriers and factors for improvement with interpretive analysis.

3.7. Summary
The study used mixed method research design to answer the research questions.
Social Network Analysis was used to determine the network performance while
interviews are used to explore the barriers and factors that affect collaboration.
Those findings was the basis for creating the action plan and policy
recommendation
.
14

4 RESULTS AND DISCUSSION

North Sumatra has around 60 companies engaged in the oil palm industry,
both multinational companies and small medium enterprises. In general,
multinational companies have their own R & D division to conduct innovation
activities, while small and medium industries rely more on government funding
and research from outside the company. In some studies, the need for cooperation
between governments, research institutes and companies is enormous, especially
in developing countries. It is encouraged by the fact that they can share the
resources through collaboration and lowering the cost of innovation.
This study uses a case study approach in nine institutions which represent
government, academic and business. Although it does not cover the entire palm
oil industry in North Sumatra, the interviews which was conducted on each of the
actors allow a deeper understanding of what is actually happening in the industry.
4.1. Collaborative Innovation Activities
It has been widely recognized that innovation affects the performance of an
enterprise. The ability to generate new products or new technologies has become
the driving force to ensure the sustainability of the company in the increasingly
fierce competition. It also has a great influence on the economic growth of an
enterprise (Baumol 2002). Learning from successful companies, many of them
paid great attention to innovation by allocating funds for innovation activities.
Hashi and Stojčić (2013) investigate whether failure in optimizing innovation and
limited research funds causes low competitiveness of European industry, so that
they lagged behind competitors in the global market. The results showed that
investment in innovation activities have a positive influence on the performance
of innovation, which in turn enhance the competitive advantage of companies.
In North Sumatera, palm oil enterprises has the tendency to build
cooperation with another actors in order to create an innovation. The companies
collaborate with research institution with the purpose to gain new knowledge and
technology. Meanwhile, SBRC and PIKS have a connection with the government
(e.g. Ministry of Industry and BPPT) and they conducted research collaboration
on palm oil products. In fact, most of the actors in this study already has a
cooperation with another parties. Overall, the collaborative innovation activities
conducted by actors can be described as follow:
1. Academic/Research Institution
University or research institute is responsible for the creation of knowledge
and technology through a series of research activities. It is possible because
research institution has the resources to support those activities, such as laboratory
equipment and human resources. Currently, research institutes has conduct more
research on upstream products, for example about breeding, fertilizers and
plantation management. Anshori (IOPRI) stated that:
"IOPRI have credible research division and has resulted in many innovations
and patents related to the palm oil industry. We conduct research activities, both in
upstream and downstream industry, using palm oil as a raw material. Research can be
 15

divided into process technology, product technology, design new equipment and
utilization of industrial waste. However, our research in the downstream palm oil
industry is still very low and we continuously strive to improve our efforts to produce
innovation on downstream palm oil products. IOPRI has the motivation to expand its
focus on downstream palm oil industry, but we need the support from government
and the industry. The reason why IOPRI has not conduct a research in downstream
product is limited funds and low demand from business”.
Another obstacle that inhibit the growth of innovation in downstream palm
oil industry is dual function of research institution. In addition to research
activities, the existing research institutes also provide services to the industry, in
the form of training or product testing. The problem occur when the demand of
product testing is very high, which cause the institution can not maintain its focus.
Moreover, a lot of research in Indonesia only conducted to fullfill the academic
interest, without thinking of the demand of industry. Results from these studies
will be extremely difficult to implement by the palm oil industry.
2. Business
The majority of companies in North Sumatra has a R&D division which has
a function to produces innovation, either new products or new methods. The
innovation is intended to increase the profit through sales of new products or
production efficiency. PT. Perkebunan Nusantara III and Venture B3 establish
collaboration with research institutes such as IOPRI and SBRC. The companies
and research institutions will discuss about the research topic and the funding will
fully or partially covered by the company. In this type of cooperation, the
company propose research topics which are relevant to their problems, and then
the study will be carried out by the research institute.
3. Government
The government in collaborative innovation activity has a role in providing
research funding. Funds could be allocated for research activities or the
procurement of machinery and equipment. It is important because the business
usually reluctant to allocate budget on research activities. There is no guarantee of
success and the cost of innovation will be financial burden for the company.
Morover, Ida Yani Pane (Local Government) emphasized about the role of
government as a facilitator:
“Local government provide a support for the implementation of central
government policies, namely regional innovation systems and industrial
clusters. We tried to make a cooperation with companies and research
institutions and the governor issued a regulation to support the growth of
innovation in North Sumatera. One of the roles of government is to facilitate
the cooperation between research institutions and companies, especially in
the palm oil industry”
The main roles of government is to design policies that support the
development of innovation in the palm oil industry. Ministry of Industry has a
policy about industrial cluster which is equipped with the infrastructure and
incentives. Meanwhile, the local government of North Sumatra also has a policy
of regional innovation systems. The problem arise when central and local
government did not have regular coordination about those two policies.
16

Interaction among actors in palm oil industry

Etzkowitz (2003) claims that triple helix interactions can originate from
varying institutional arrangements which can be set in three broad categories. The
first is the statist model which features a strong governmental control over
academia and industry. The second is the laissez-faire model in which industry,
academia and government are set apart from each other with minimal interactions.
The third model which many studies has consider as the ideal model, consists of
hybrid organizations in which each institutional sphere maintains its identity and
main mission, while also taking the role of the other.
Based on the interview, the existing collaboration model in palm oil industry
is the laissez-faire model. The model has equal roles between the government,
businesses and universities. (Lei et al. 2012) argue that this model arises because
of the desire to reduce the role of government, which is considered to inhibit the
creativity of the lower level (research institutes or companies). However, this
model show the contact between the three types of actors is very thin. Each of
these actors behave as if they are waiting for others to take the initiative, which
means none of the institutions take action to start a collaboration and become a
coordinator. This result in the low cooperation in generating innovation in the
palm oil industry.
Moreover, the hybrid model offer a more flexible and suitable solution for
the palm oil industry. This model allow each actors to engage close contact with a
clear concept of cooperation. Trust shown by the exchange of information and
knowledge between the actors. More importantly, every actor can help or even
take on the role of other actors if necessary. For example, the industry can take on
the role of funding which has been the domain of government, so that the problem
of financing is not always become the bottle neck of collaboration. Dzisah and
Etzkowitz (2009) illustrates that the dynamic of Triple helix Model consist of
three things which are (1) the equal position and clear roles of academics,
government and businesses; (2) the cooperation among three actors; and the
helices taking each other roles. In conclusion, the actors should consider to adapt
the hybrid model of triple helix with the purpose to enhance the collaboration.
4.2. Innovation Network Performance
The effectiveness of the network data analysis can be done using social
network analysis. This method is used to determine the segmentation,
connectedness and distribution of a network. In the palm oil industry, there are
three principal actors: academic, business and government. This study assess the
network among nine institution, namely:
1. Indonesian Oil Palm Research Institution (A1);
2. Sei Mangkei Center of Innovation (A2);
3. Bogor Agriculture University (A3);
4. PT. Perkebunan Nusantara III (B1);
5. PT. Unilever Oleochemical Indonesia (B2);
6. Indonesian Palm Oil Association (B3);
7. Ministry of Industry (G1);
8. Agency of the Assessment and Application of Technology (G2);
 17

9. and Local Government of North Sumatera (G3).

Based on the calculation, the overall tie strength (connectivity) of the
network is 0.271 while the overall density (distribution) is 0.389. It means that
both the tie strength and the density of this network are weak. Tie strength
represent frequency, reciprocity, emotional intensity and intimacy of a
relationship, as stated by Granovetter (1973). A strong network requires high
frequency of contacts (Lin et al, 1978), confirmation from both sides/ reciprocity
(Foster-Fishman et al, 2001) and trust among two parties. The low score of tie
strength indicates that the actors did not establish extensive contact and the
network is not well structured. The more connected an actor with other actors
means that the information and knowledge can be delivered faster.
The visualization of network using UCINET can be shown on figure 4.1.
Figure 4.1. Network Visualization of the Palm Oil Industry

Based on the diagram above, we can clearly see that there is no clear
structure of coordination among actors. In this network, IOPRI (A1) remain the
center of information and technology sharing and it has a close relationship with
the government and businesses. In addition, IOPRI also establish cooperation
with other research institutions. Currently, the institution assist the development
of Sei Mangkei Center of Innovation, as a part of Memorandum of Understanding
(MoU) between Ministry of Industry and PT. RPN. Dahlius who is the head of the
Center of Innovation provides the following statement:
“IOPRI as the oldest palm oil research institution assisted PIKS since
2009. This is part of the cooperation between Ministry of Industry and PT.
RPN, in order to increase the innovation on downstream palm oil industry.
IOPRI helps us to formulate the Standard Operational Procedure (SOP),
calibrate our research equipment and train our human resource. It is
important to improve the capabilities of our institution”.
18

On the other hand, the government has a minimal role in the network.
Neither the Ministry of Industry, BPPT and local governments have a
considerable influence on the growth of innovation in the palm oil industry. In
fact, the local government of North Sumatra have absolutely no contact with the
business and research institutions.This is less than ideal conditions for
government, who actually has the biggest power as policy maker and the
providers of research fundings.
Degree of Centrality (Key Actors)
Based on table 4.1, IOPRI has the highest degree of centrality among actors.
It means IOPRI has the biggest role on creating initiation and coordination among
actors regarding the development of downstream palm oil industry. Pow et al.
(2012) explain about the importance of in-degree and out-degree centrality for
determining the effectiveness of a network. The more connected an actor with
other actors means that the information and knowledge can be delivered faster.
There are 4 calculations used to determine the most influential actors in the
network. Here is the explanation:
1. Degree centrality is used to determine the actors who have the highest
popularity. After doing the calculations, it show that IOPRI has the highest
popularity with the value amounting to 6. Meanwhile, the second rank with a
value amounting to 4 is shared by two actors namely the Ministry of Industry
and PTPN III.
2. Closeness centrality is used to determine the actor who is fastest in
disseminating information. After perform calculations in the group (connected
components), showed that IOPRI is the actor who has the greatest value.
3. Betweeness centrality is used to determine which actors have the strongest
influence and have an important role in maintaining the flow of information
within the network. After doing the calculations, this showed that the actor
that has the most powerful network is IOPRI.
4. Eigenvector centrality is used to determine actors who have high popularity
and can establish interaction with other actors who also have high popularity.
After doing the calculations, it showed that the actor who has a perfect score is
IOPRI.

Table 4.1. Centrality

Actors Density Closeness Beetwennes Eigenfactor
PT. Perkebunan Nusantara III (B1) 4 0,615 4 0.384
PT. Unilever Oleochemicals (B2) 2 0.444 0.33 0.191
Palm Oil Association (B3) 2 0.533 0.33 0.251
IOPRI (A1) 6 0.800 13.33 0.537
Center of Innovation (A2) 3 0.571 2.5 0.315
SBRC (A3) 3 0.571 1 0.333
Ministry of Industry (G1) 4 0.615 1.833 0.428
BPPT (G2) 3 0.571 7 0.257
North Sumatera Local Government (G3) 1 0.381 0 0.07
 19

Segmentation
In the diagram, business actors seemed to form its own cluster. The
clustering coefficient of Palm Oil Association is the highest (1,000) and it allows
them to form clusters with PTPN III (0333) and PT. Unilever (1.000). In this
cluster, PTPN III serves as a supplier to other companies (intermediate products of
palm oil) so as to create a strong relationship between them and other businesses.
Moreover, if we removed actor G2 (BPPT), then the group will be disconnect
with G3 (Local Government). It indicates that G2 has an important role to connect
G3 with the remaining actors.
Evolving role of the government
In many developing countries, such as Indonesia, the government has strong
position and can greatly influence the success of business. They can extend their
original roles, which are research policy and funding, and take more active role as
prime mover. The government can become a facilitator of a national scale
research and establish collaboration with university and business. Mahmood and
Rufin (2005) suggest the government to take initiative and become facilitator for
innovation or imitation of technology. In another study, Lei et al. (2012) illustrate
the government as an actor who provide provide encouragement and inducement
for other actors. In our network analysis, we can conclude that the government has
had a very limited influence, something that does not reflect the potential role and
power of government. The government seems to be outside the network and this
condition is not good for industrial growth. Based on the interviews, several
experts suggest that the government should take the initiatives to create
collaboration among actors. For example, Diah (Ministry of Industry) says:
“The government should take the initiatives and coordinate other
institution. But, we still do not know which government (central government
or local government) is the most influential in the palm oil industry. One of
them should try to become the leader of research collaboration on the palm
oil industry. In my opinion Coordinating Minister for the Economy is the
most appropriate to take on that role, because the agency has the function of
coordination with several relevant ministries, such as Ministry of Industry,
Ministry of Agriculture and the Ministry of Research and Technology”
4.3. Barriers
This section will analyse the main obstacles which inhibit the collaboration
between actors on palm oil industry in North Sumatera. In the figure 4.1, it can be
seen that there are three types of relationships between actors, namely (1) The
relationship between the government and research institutions; (2) The
relationship between research institutions and businesses; and (3) The relationship
between government and businesses. Each of these relationships has its own
characters and challenges
20

Figure 4.1. Relation Among Actors

Government

State Local
Govt Govt

1. Regional Innovation
System
2. Palm Oil Industrial Hub
Cluster (Palm Oil
(1)
Association)

(3)

Profit Oriented
Research Facilities
Effectiveness and
Human Resources
Efficiency
(2)

Academics Business

(1) Linkage 1 (Government-Academics)

(2) Linkage 2 (Academics-Business)
(3) Linkage 3 (Government-Business)

In order to explore the obstacles in the relationship between government and

research institutions, the researcher conducted interviews with the palm oil
industry. There are several things that act as barriers of collaboration in linkage 1,
namely:
a. Limited coordination/meeting/synchronization among actors
One of the facts that appear in the interview is the lack of coordination
between the government and research institutions, as if they were waiting
for each other to be the main actor in collaboration. These conditions
meant that cooperation between the actors did not show significant
progress. Respondent 2 (Enterprise B3) states that:
"There is no single actor who willingly initiates cooperation between
various institutions in the palm oil industry. This condition create
inefficiency of the network. The government should take this role
and become facilitator for the meetings”.
 21

b. Funds
One of the obstacles aggravating the relationship between the actors is
limited funding from the government. Currently, research institutions rely
heavily on government funding but unfortunately the government only
gives a limited amount of budget support for innovation in the palm oil
industry.
However, to increase innovation in a region, does not necessarily mean to
increase the budget for research and development. (Koch, Norgren &
Oksanen 2003) give an argument that investment in research institutions
are not automatically going to help the industry, if there is no attempt to
integrate those research results into practical action.
c. Overlapping roles especially on the government institution
Overlapping between government agencies is the main factor that inhibits
networking among actors in the palm oil industry. For example, the local
government issued a policy of regional innovation systems in order to
support downstream palm oil industry, while the Ministry of Industry
declared policies to encourage palm oil industrial cluster. This makes other
industrial players, such as research institutes, confused in determining the
appropriate innovation strategies.
In the second linkage, which is the relationship between the academic and
business (linkage 2), there are some factors that hinder the creation of
collaboration, among others:
a. Trust from business/user
It is caused by the low capabilities of research institution and lack of
qualified researchers. At Center of Innovation, the government has helped
the procurement of laboratory equipment to support research activities, but
lack of experts lead to low innovation produced by this institution.
Another thing that creates the weakness in the research institute in
Indonesia is the lack of international recognition. This is caused by limited
infrastructure and lack of publication of research results. Dahlius (PIKS)
raise this issue:
“Lack of qualified researchers and research facilities become the
barriers of our institution. Many palm oil enterprise do not recognize
our capabilities because of this factor. It is important for us to
improve our facilities and recruit more qualified researchers in order
to gain the trust from the businesses”.
b. Similarities of research (patent issues)
Another factors that become obstacles in establishing collaboration is the
issue of patents. Innovators have experience where their technology/
innovation emulated by other institution. This resulted in trust issues
among institution and reluctance to cooperate with other parties.
c. The absence of guarantees of the risk of failure of innovation
Companies have concerns about the potential failure of R&D activities. In
general, the company is the party which suffers the biggest loss from the
failure of a technology. There are no guarantees of the success of
innovation and this makes the businesses more reluctant to cooperate with
22

others. The government itself understands these issues and incorporate

these things in Act No. 3 Year 2014 about National Industrial Policy.
In these regulations , the government provides coverage for the risk of the
use of technology which was developed domestically by research
institutions, companies, and / or college. This Guarantee shall apply to
technologies which have not been developed in Indonesia and does not
apply to the risks arising from mismanagement. In Government Regulation
No.14 Year 2015, the government offers two schemes in underwriting the
risk which are insurance and reimbursement.
However, the implementation of this policy remains unclear. This is
caused by the absence of technical guideline, mainly related to an
insurance claim or reimbursement. The government itself has not
appointed an insurance agency that will deal with this matter.

Meanwhile, some of the factors that create obstacles in the collaboration

between government and business (linkage 3), are listed below:
a. Convoluted bureaucracy
Companies regard the government as an institution which has convoluted
bureaucracy and lengthy procedures. This affects the willingness of
businesses to cooperate with the government. Furthermore, companies are
very concerned about the efficiency and effectiveness of its business. If the
collaboration with the government does not provide benefits, then they
will not do it. The absence of government incentives for collaborative
research/ innovation becomes a factor that weakens the industry's
willingness to cooperate with other actors. Deny (PTPN III) advise that:
“Common barriers that occur in building cooperation between
companies and the government is funding, bureaucracy dasn risk.
Long bureaucratic process makes companies reluctant to establish a
relationship with the government so it needs special attention.
Meanwhile, we should make a discussion about the risk of failure of
a research. The risk should distributed fairly among government,
research institutions and companies. This is because the leader of the
company is considering the cost of innovation. If the innovation
activities had no impact on sales or productivity of the company,
then it would be difficult to provide support”

4.4. Action Plan and Policy Strategy

The issue that arises when the interviews were conducted is the importance
of appropriate government policies to foster research cooperation in the oil palm
industry. In addition, most of the participants showed the need for action plan in
order to foster research collaborations that will result in the increase of innovation
in the industry.
Policy strategy
1. Tax incentives for research collaboration
Many experts believe that incentives will enhance the collaboration among
actors in the palm oil industry. Industry tends to be resistant to top-down
 23

policies such as industrial cluster, and more amenable to supportive policy.

For example, tax incentives for industries who collaborate with research
institutions is a solution that can be offered. If a company wants to get the
facility they are required to meet some criteria, for example, were able to show
evidence of collaboration with local research institutions or assign local
employees in positions related to technology transfer. Fadhil Hasan
mentioned that:
"The government needs to take a role in funding the basic research on
palm oil industry. Funding can be taken from the export duties imposed
by the government to the company. We can follow the example of
Malaysia which allocate some of the revenue from export duties as
research funds. Not surprisingly, innovation in the Malaysian palm oil
industry is more developed than our country. Tax incentives are one of
the drivers for research cooperation in this field".
2. Turn Key Project and International Collaboration
In fact , most of the downstream palm oil industry is a multinational company
and they are reluctant to do research in Indonesia ( prefers doing research in
the country of origin ) . One of the policies that can be taken is to impose a
"local content" to the palm oil industry . This policy requires companies to use
local resources in the form of labor , raw materials and research. However,
this policy can only be implemented on government projects making it less
effective in accelerating innovation in downstream palm oil industry.
Therefore , the government itself through the national industrial policy will
encourage the technology transfer between multinational company and local
company. Multinational company, when they want to run a turn-key project in
Indonesia, is required to build industrial facilities and conduct technology
transfer to local labor/company. The technology transfer can be done through
research collaboration involving research institution and local companies. In
some country, the government also requires multinational companies to put
local workers on top management positions related to technology
development.
Moreover, Indonesia has the experience on national scale research which
enable big funds and encourage international collaboration. For example,
research collaboration with Japan in automotive industry or Korea in sewing
machine industry. In order to provide the expected innovation, the government
can initiate a national project and discuss the focus of the project with other
actors. Lies (BPPT) illustrates the collaboration among actors as follows:
“In the innovation chain there are several stages of the development of
ideas, a laboratory-scale research, pilot plan, plan demonstration, testing
and production. Each actor has a role in the innovation activities. LIPI
and research institutes can conduct research and development of
knowledge, while BPPT more assessing market opportunities,
environment, local content and security technology. Synergy between the
actors is indispensable in the growth of innovation”
24

Action Plan
1. Improve the research facilities and qualified researchers
In the discussion above, research infrastructure and human resources become
the ultimate barriers for research institution. The government can provide the
funds for research institution to buy machinery or equipment. Moreover,
training and certification should become the priority agenda in this action plan.
2. Shift from academic based into industrial need
Many research’s conducted only to meet the academic interests without
considering the needs of the company. This condition causes low successful
innovations implemented by the businesses. The stakeholders should begin to
reconsider their focus on research collaboration. Respondent 1 who is the
director of research institute suggest this following strategy:
“Nowadays, many research institution shift their focus from academic
center to industrial needs. Usually, the businesses will come to the
institution and explain their problems. This problem become the main
attention for our research project”.
3. Regular coordination meeting
Coordination and monitoring is important to ensure that the research
collaboration stay on track. In this meeting, the actors can discuss about the
purpose and detailed information of the research. Dahlius (PPKS) said that:
“We consider it necessary to do periodic meetings between
industry, government and research institutions. During the meeting
discussed the current issues in the palm oil industry and the strategies to
be taken in the future. Some important things to be discussed are (1) the
research will be carried out; (2) the ability of research institutions; (3)
action plan”

4.5. Summary
The network between actors in the palm oil industry does not have a clear
structure and is less organized. In such networks, IOPRI become the most
influential actor, while the government has a minimal role. The main factors
which inhibit the collaboration between the actors are limited coordination,
fundings, overlapping roles, risk of innovation, convoluted bureaucracy, trust and
patents..
.
 25

5 CONCLUSION

5.1. Summary
a. Collaboration among academics, government and businessess is important
in creating innovation for downstream palm oil industry.
b. The key actor in palm oil industry is IOPRI and this institution become the
center of information and technology. Meanwhile, the government has less
influence on the network. Based on the network analysis, the local
government did not have a direct connection with the businesses or
research institution. The government should become the prime mover and
improve their influence on the network.
c. Several barriers which inhibit collaboration among actors, namely trust,
patent issues, limited coordination, funds, overlapping roles, convoluted
bureucracy and risk of innovation
d. This study propose an action plan and policy strategy to improve the
network among actors. The policy strategy consist of incentives for
collaborative research, international collaboration and transfer technology.
Meanwhile the action plan includes several things, namely improve the
research facilities and qualified researchers, shift from academic based
research and regular meeting.
5.2. Recommendation
Evaluation on network performance is important to assess the flow of
technology and information among actors in the palm oil industry. Research
with a broader scope by involving the wider actors will improve the result of
network analysis
Further research, can be explore about the different types or
backgrounds of a firm, for example private firms appear to be more reluctant
to establish collaboration with government, compared to stated owned
companies. In addition, a research can be done in another region, for example
Riau or East Kalimantan, because every region has specific characteristic
5.3. Implication
This research might encourage the actors to establish collaboration
because they understand the barriers to progress and the ways to solve it. This
study might suggest the government to issue a policy that will encourage the
collaboration among actors, for example by offering incentives. The action
plan could be implemented in order to solve the problem of collaboration
among actors. Removing barriers of collaboration is important in theory-
building.
26

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 29

Appendix 1. List of Questions

Academic
1. What kind of innovation needed to enhance the development of palm oil
downstream industry?
2. How do you manage the relationship with the government?
3. How do you offer technology and knowledge to the business sector?
4. What are the barriers to establish cooperation with other parties (business
and government)?
5. What could be developed in the future to improve the cooperation between
academia, business and government?

Business
a. What do you think is the room for improvement in downstream palm oil
industry in order to add value to the product?
b. What are the inhibitors in applying the technology and innovation from
academia related to donwtream product of palm oil?
c. What benefits can you get from cooperation with academia and
government?
d. What are the problems in cooperating with government and academia?
e. What could be developed in the future to improve the cooperation between
academic, business and government

Government
a. What is the role of government in developing palm oil downstream
industry?
b. What is the best policy to develop the palm oil downstream industry?
c. How do you support the innovation and learning activities in academia and
business sector?
d. What is the barrier in establishing good cooperation between academia,
business and government?
e. What could be developed in the future to improve the cooperation between
academia, business and government
30

Appendix 2. Matrix for Social Network Analysis (SNA)

Actors B1 B2 B3 A1 A2 A3 G1 G2 G3 Document
MoU No.291/PPI/11/2011 (MoI) and
PT. Perkebunan Nusantara III (B1) 0 1 1 1 0 0 1 0 0
No.3.13/MoU/03/2011 (PTPN III)
PT. Unilever Oleochemicals (B2) 1 0 0 0 1 0 0 0 0 Interview
Palm Oil Association (B3) 1 0 0 1 0 0 0 0 0 Interview
IOPRI (A1) 1 0 1 0 1 1 1 1 0 Ministerial Regulation No.111 Year 2009
MoU No.291/PPI/11/2011 (MoI) and
Center of Innovation (A2) 0 1 0 1 0 0 1 0 0
No.3.13/MoU/03/2011 (PTPN III)
SBRC (A3) 0 0 0 1 0 0 1 1 0 Interview
MoU No.291/PPI/11/2011 (MoI) and
Ministry of Industry (G1) 1 0 0 1 1 1 0 0 0
No.3.13/MoU/03/2011 (PTPN III)
BPPT (G2) 0 0 0 1 0 1 0 0 1 Governor Regulation No 34 Year 2012
North Sumatera Local Government (G3) 0 0 0 0 0 0 0 1 0 Governor Regulation No 34 Year 2012
 31

AUTOBIOGRAPHY

Danang Krisna Yudha, the author of this thesis was born on 01st June 1987
in Yogyakarta, Indonesia. He completed his elementary education in 1999 and
joined SMPN 12 Yogyakarta for junior education. He later joined SMAN 2
Yogyakarta and finished in 2005. He graduated from Gadjahmada University
major in agroindustrial technology in 2009. Apart from formal education, Danang
also participate in several training and workshop such as Youth Leader Program
in 2008, held by Ministry of Youth and Sport.
He has been working in ministry of Industry as structural staff since 2009.
As a government official, he engage with several activities namely policy design,
create Indonesia National Standard (SNI) and training/ workshop. In 2012 and
2013, he joined an Indonesia delegation to promote heavy equipment industry and
national convertion program from fuel to gas.
In June 2013, he was awarded scholarship for Master’s Degree program by
Ministry of Industry of Republic Indonesia and joined Bogor Agricultural
University. It was a double degree program between Bogor Agricultural
University and The University of Adelaide. He is graduated from Bogor
Agricultural University with a Master of Science Degree in Agroindustrial
Technology.