Network Collaboration and Innovation Competence of Traditional Food Producers (A Case Study of Bengkulu Province, Indonesia)

Istiqomah Nurfitri – 920404611100

Supervisor: Dr. Jos Bijman Co-supervisor: Valentina Cristiana Materia, Ph.D

MSc Program – Management, Economic, and Consumer Studies Specialization – Management Studies Wageningen University September 2017

EXECUTIVE SUMMARY

In the rapid growing of food market, innovation becomes an essential strategy for producers in traditional food sector (mainly SMEs) to maintain their position in industry and reach a higher profit and market share. However, considering various limitation that SMEs had, they could not only rely on their own capabilities and need other parties to improve their ability to innovate. The research aims to understand the network collaboration among stakeholders of the traditional food sector and investigate the way the network is helping the producers to enhance the innovation competence. The study area in the research is the Province of Bengkulu, Sumatera Island, Indonesia. The data come from the desk research and also from semi-structured interview with 28 respondents from three different groups of traditional food producers and also their network partners. Group one consists of the producers that produce traditional snack with a long shelf life. Group two are formed by the producers that make the traditional snack with a short save life. Group three includes the producers of Bengkulu’s traditional side dish. The network partners consist of supplier, distributor, local government, academic organization, and financial provider. The result shows that the traditional food producers interact with various actors from their vertical, horizontal, third parties, and social networks. In line with the explanation in the literature review, collaboration in the vertical network is happening around seven different activities which are information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing, collaborative communication, and joint knowledge creation. Producers in group one conduct more collaboration with other actors in the chain network, whereas producers in group three conduct the least collaboration. The character of group one’s products creates a possibility to SMEs in group one to sell their product to more distributors, in a more far away area, comparing to SMEs in group two and three. However, the collaboration with suppliers is similar among groups. Regarding collaboration with the horizontal network, the activities occurred mostly for marketing purpose. The collaboration for purchasing purpose is only happening when the producers share information about their suppliers, they never really collaborate when doing the purchasing. In this network, producers in group three also conduct less collaboration comparing with other producers. The way producers sell their products is the reason behind it. Each SME in group three has their own place to sell the TFP. Thus, the opportunity to meet other SMEs from the same group and collaborate is low. For collaboration with third parties, the activities occur when the producers get advice, financial support, access to new technology, market, and relation, also facility to idea generation and business development from other organizations. Collaboration with social network occurs when the producers get additional capital and the additional employee from their relatives, friends, and acquaintances. The producers in group one, two, and three are created similar collaboration with their social network. From the network collaboration, the SMEs gain extra resources for the companies. Overall they get financial support, a new source of employee, wider knowledge, better opportunity to acquire skill, and additional assets. The financial resources from networks can be a short-term loan from the social network, formal credit scheme from a bank, a new capital grant from the local government, and some indirect financial benefits obtained through various interaction. The new source of the employee comes mostly from the social network. The producers hire additional workers during the high-demand season

iii based on the recommendation from existed workers, or the availability of people around them. Then, the SMEs conquer wider knowledge regarding consumer preferences and product improvement through information sharing and joint knowledge creation activities which are happening in the vertical and horizontal network. The better skill can be obtained from any training conducted by actors in third parties network. After the training, the producers are able to operate new tools, expand the network, and enrich the marketing ability. The SMEs also get additional physical assets such as machinery, transportation, and the new place for selling their TFP. However, considering the intensity of collaboration which is happening in each group, producers in group one collect more external resources than other producers. Regarding the implementation of innovation, the innovation is occurring in the form of product, process, market, and organization. Regarding product innovation, the whole group of producers are applied changing on composition, physical appearance, packaging, convenience level, and new product development. However, the producers in group two and three only do the composition changing if they get the request from the consumers. In process innovation, the whole group applied quality improvement and used new technology over the last five years. Concerning market innovation, the producers in group one, two, and three are created new distribution channels and new promotion strategies. The producers in group one even started to do the electronic marketing since a year ago. The market innovation regarding new consumer group only occurred in group one and three, whereas in group two, the consumer group remains the same for decades. In organizational innovation, the whole groups created new collaboration and hired new employee. However, a new structure only appears on the producers in group one. The more business is collaborating with its networks, the more external resources that can be obtained by the firm. Those external resources, combining with company’s internal resources will increase the company's innovation competence, which leads to the easiness for the company to create innovations. Comparing the TFP producers in group one, two, and three, the first group seems to have a better ability to conduct innovation than the others. The SMEs in group one produced more varies innovation, did a regular trial and error for producing a new product, provided special capital for innovation purposed, and employed supportive workers who help them to develop innovation idea. They also built a relationship with more partners, conducted more collaboration with them, and pro-actively approach them to conquer additional resources for innovation matters. In order to enhance the innovation competence, the producers should have the courage and desire to use the resources for innovation, produce flexible products, conduct as much collaboration as possible, be proactive to reach resources from other parties, and join various development activities. From the findings, several recommendation can be made. The TFP producers should consider the consumer preferences before deciding to apply any changing, and make sure that the changing do not affect TFP tastes, texture, and smell. Special for SMEs in group two and three, they should start focusing on investing in changing the character of the product by creating more durable products, with a longer shelf life. If the investing success, the opportunity to sell products to more distant and more varies places are opened. For policymakers, they could start to facilitate TFP producers to increase their bravery to take a risk by conducting a training or discussion sessions. The local government also could create a platform where the producers, especially producers in group three can regularly meet face to face and share their business problems. With the increased interaction, a trust will begin to grow among them so that the resources sharing activities can be started, and the ability to innovate could be increased. iv

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... iii TABLE OF CONTENTS ...... v LIST OF FIGURES ...... vii LIST OF TABLES ...... vii GLOSSARY ...... viii 1. INTRODUCTION ...... 1 1.1 Background and problem statement ...... 1 1.2 Research Objectives ...... 2 1.3 Research Questions ...... 2 1.4 Research Framework ...... 2 2. LITERATURE REVIEW ...... 4 2.1 Network ...... 4 2.1.1 Network Types ...... 4 2.1.2 Network for Innovation ...... 4 2.2 Collaboration within network ...... 5 2.3 Innovation ...... 7 2.3.1 Innovation Types ...... 8 2.3.2 Innovation Competence ...... 8 2.3.3 Innovation in Food Sector ...... 9 2.3.4 Innovation in Traditional Food ...... 10 2.4. Conceptual Framework ...... 11 3. METHODOLOGY ...... 13 3.1 Research Strategy ...... 13 3.2 Area of Study ...... 13 3.3 Data Collection ...... 15 3.3.1 Primary data ...... 15 3.3.2 Secondary data ...... 18 3.4 Data Analysis ...... 19 3.5 Operationalization ...... 19 3.5.1 Activities in network collaboration ...... 19 3.5.2 The implementation of innovation ...... 20 3.5.3 Enhancing innovation competence ...... 20 4. EMPIRICAL FINDINGS ...... 22

4.1 Actors in Traditional Food Sector in Bengkulu Province...... 22 4.1.1 TFP producers ...... 22 4.1.2 Suppliers ...... 26 4.1.3 Distributors/Buyers ...... 29 4.1.4 Local Government ...... 30 4.1.5 Academic Organization ...... 35 4.1.6 Financial Providers ...... 36 4.2 Collaboration Activities within Networks ...... 37 4.2.1 Vertical Collaboration ...... 37 4.2.2 Horizontal Collaboration ...... 39 4.2.3 Third Parties Collaboration ...... 41 4.3 Additional Resources ...... 43 4.3.1 Resources from Vertical Collaboration ...... 43 4.3.2 Resources from Horizontal Collaboration ...... 44 4.3.3 Resources from Third Parties Collaboration ...... 44 4.4 The Producers’ Implementation of Innovation ...... 45 4.4.1 Product Innovation ...... 46 4.4.2 Process Innovation ...... 48 4.4.3 Market Innovation ...... 50 4.4.4 Organizational Innovation ...... 52 4.5 Enhancing Innovation Competence ...... 53 4.5.1 SME’s Resources for Innovation ...... 54 4.5.2 Obstacles to Innovate ...... 55 4.5.3 Creating Ability to Innovate ...... 56 4.5.4 Enhancement factors ...... 57 5. ANALYSIS OF FINDINGS AND DISCUSSION ...... 59 6. CONCLUSION...... 62 7. LIMITATION AND RECOMMENDATION ...... 65 7.1 Limitation ...... 65 7.2 Recommendations ...... 65 7.3 Suggestion for further research ...... 65 REFERENCES ...... 67 APPENDIXES ...... 72

LIST OF FIGURES

Figure 1. Research Framework ...... 3 Figure 2. Conceptual Framework ...... 11 Figure 3. Study Area ...... 15 Figure 4. Traditional Food Products by Group One ...... 23 Figure 5. Traditional Food Products by Group Two ...... 24 Figure 6. Traditional Food Products by Group Three ...... 26 Figure 7. One of traditional market in Bengkulu Province ...... 27 Figure 8. Grocery store ...... 28 Figure 9. Pineapple from South Sumatera plantation ...... 28 Figure 10. Durian supply during the great harvest season ...... 29 Figure 11. The example of online selling of TFP from tokopedia.com ...... 30 Figure 12. The crowd during Bumi Rafflesia Festival ...... 31 Figure 13. Promotion area within the festival zone ...... 31 Figure 14. Manual process of making lempuk durian ...... 32 Figure 15. Website for online licensing system ...... 33 Figure 16. Household Food Industry License (PIRT) certificate ...... 34 Figure 17. Training activity conducted by Kemenkop ...... 34 Figure 18. Relationship between Concepts ...... 60

LIST OF TABLES

Table 1. Distribution of SMEs at Bengkulu Province in 2016 ...... 13 Table 2. The Distance from the Capital of Bengkulu Province with the Capital of the District ...... 14 Table 3. List of Respondents and Topics ...... 18 Table 4. Total Number of Research and Community Development Projects at University of Bengkulu in 2010-2015 ...... 35 Table 5. An Overview of Collaboration Activities in Vertical Network ...... 38 Table 6. An Overview of Collaboration Activities in Horizontal Network ...... 40 Table 7. An Overview of Collaboration Activities with Third Parties ...... 42 Table 8. The Innovation Outcome of TFP Producers ...... 45

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GLOSSARY

BB : Bank of Bengkulu BPS : Badan Pusat Statistik (National Agency for Statistics) BUMD : Badan Usaha Milik Daerah (Regional Owned Enterprises) Kemendag : Kementerian Perdagangan (The Ministry of Trade) Kemenkes : Kementerian Kesehatan (The Ministry of Health) Kemenkeu : Kementerian Keuangan (The Ministry of Finance) Kemenkop : Kementerian Koperasi dan Usaha Kecil Menengah (The Ministry of Cooperation and Small Medium Enterprises) Kemenpar : Kementerian Pariwisata dan Ekonomi Kreatif (The Ministry of Tourism and Creative Economy) LPPM : Lembaga Penelitian dan Pengabdian Masyarakat (Institute for Research and Community Service) PIRT : Pangan dan Industri Rumah Tangga (Household Food Industry License) Ramadhan : A particular time when Muslim community have to fasting for a month Sugar feast : Special event for Muslim community when they are celebrating the end of fasting period SIUP : Surat Izin Usaha Perdagangan (Business and Trade License) SME : Small and Medium Sizes Enterprise SUP : Surat Utang Pemerintah (Government Bonds) TDP : Tanda Daftar Perusahaan (Certificate of Company Registration) TFP : Traditional Food Product UNIB : University of Bengkulu

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1. INTRODUCTION

1.1 Background and problem statement

As a basic need for human being, food has always been an interesting topic to study. The fact that the world population experiences a continuous growth makes the topic even more attracting. This research will focus on traditional food products (TFP) because, according to Kühne et al. (2010), many communities put TFP as important components of their dietary patterns. Moreover, the TFP are an essential element of culture, identity, and heritage, thus contributing to the development and sustainability of rural areas and increasing the variety of food choice (Guerrero et al., 2012). Nowadays, the society uses different variety of TFP definitions such as ‘local food’, ‘original food’, ‘typical food’, or ‘speciality food’. However, this study will use the definition that came from Guerrero et al. (2009) after conducting a research related to traditional food in six European countries: ‘‘A traditional food product is a product frequently consumed or associated with specific celebrations and/or seasons, normally transmitted from one generation to another, made accurately in a specific way according to the gastronomic heritage, with little or no processing/manipulation, distinguished and known because of its sensory properties and associated to a certain local area, region or country.’’ A huge number of micro, small, and medium-sized enterprises (SMEs) which run a low-tech industry are dominating the agri-business sector. SMEs also dominating traditional food industry in particular (Kühne et al., 2010). According to Guerrero et al. (2012), in the European Union developed countries, the traditional food sector is mostly conducted by SMEs, representing more than 99% of the companies. The condition remains the same in the developing country like Indonesia, where the production of TFP still depends on the traditional way of manufacturing, often with low competitiveness and poor efficiency (Fito and Toldra, 2006). Moreover, the producers usually only use small internal investment in research and development (Kühne et al., 2010). Due to the rapid growth of food markets, innovation becomes an essential strategic tool for SMEs to reach a higher market share and profitability, also achieve competitive advantage (Vanhonacker et al., 2013). Hence, the traditional food sector is also forced to innovate. Innovation itself can be defined as an ongoing process of learning, searching and exploring, and in the end creates new products, techniques, markets, or forms of organization (Lundvall, 1995). However, introducing innovation is a hard thing to do for most of SMEs. Their organizational capabilities are restricted because of the lack of experiences, managerial competencies and strategic visions (Avermaete et al., 2003). Additionally, SMEs are also not aware of the importance of being innovative. According to Scozzi et al. (2005), the implementation and development of innovation also face the difficulties related to resource allocation and coordination activities, information gathering, and knowledge collection. A collaboration between the partners of a network can overcome these obstacles by using the technological, communication, and institutional development of the past decades (Weaver, 2008; Gellynck and Kühne, 2010). The networks used to collaborate is not only the vertical network which consists of actors in the same chain, but also the horizontal network composed by companies’ competitors and also third parties network consisted by supporting stakeholders. According to Cao and Zhang (2011), collaboration in the vertical network consists of seven activities which are information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing, collaborative communication, and joint knowledge 1 creation. For horizontal network collaboration, the activity is similar but focused on purchasing and marketing purposes (Lewis et al., 2015; Ghaderi and Leman, 2013). In third parties network, the collaboration is more in one direction because the SME becomes the one who receives the most advantages from the interaction (Pittaway et al., 2004). Collaboration offers opportunities for new or alternative relationships, links or markets and allows access to new or complementary competencies and technologies (Pittaway et al., 2004; Gellynck and Kühne, 2008). Moreover, through a systematic literature review, Pittaway et al. (2004) mentioned that the companies could gain various advantages from network collaboration. The benefits are risk sharing among partners, easier access to unfamiliar market and technologies, accelerating product to market, creating complementary skills, safeguarding property rights, and becoming the main factor for gaining access to external resources. As already widely recognized, firms rely on not only their internal capabilities but also on the external resources of information and other inputs from their network partners when developing innovation (Avermate et al., 2004). The internal and external resources of a firm are combined and transformed into innovation through the network and in the end, will help the company to achieve the competitive advantage (Gellynck et al., 2006). When talking about firm innovation competence, it is not only related to the successful innovation outcomes that counted but also related to the whole process that characterizes the innovation development and address the capacity to innovate further (Gellynck et al., 2006). Innovation competence refers to the ability of company to do the innovation continuously. Therefore, the study will investigate the network’s role in enhancing innovation competence among traditional food companies.

1.2 Research Objectives

The aim of this research is to explore the collaboration between traditional food producers and their network partners, and investigate the way the network is helping the producers to enhance innovation competence.

1.3 Research Questions

1. How do traditional food producers collaborate within networks? 2. What external resources do the companies get from network collaboration? 3. What innovations are implemented by traditional food producers? 4. How do the combination of company’s internal and external resources gained from network collaboration facilitate traditional food producers to enhance innovation competence?

1.4 Research Framework

The purpose of the research framework is to establish a clear visualization of the research process to achieve the aim of the project. The framework includes literature study, conceptual framework, empirical research, analysis, and conclusion.

Figure 1. Research Framework The first section represents the literature study. Based on the scientific literature on the theory of network, collaboration, and innovation, the relation of these aspects on the enhancement of innovation competence of traditional food producer were identified. The insights gained from the literature study were used to build the theoretical framework. The empirical research comprises of the exploration of primary data gathering via semi- structured interviews and secondary data gathering via private document collecting. In the analysis section, the empirical findings from different stakeholder of traditional food sector were compared. Finally, the last section comprises a conclusion about the possible managerial practices that could be implemented by the company in its current business in order to enhance its capacity to innovate a traditional food.

2. LITERATURE REVIEW

2.1 Network

Organizations who interact in the same network could find new relationships, creates new links or markets and also get access to new or complementary competencies and technologies that help them to grow (Pittaway et al., 2004). The network itself could be defined as a relation between mutually dependent actors who are working in one particular sector or between related sectors (Klijn et al., 1995; Omta, 2004). The relationship could be maintained and changed by a series of interactions among actors. The companies’ network is usually constructed by diverse organizations, such as buyer, supplier, peers, government, financial firms, and academic organizations that comprise the firm activities (Ghoshal and Bartlett, 1990). Thus, trough the networks, many opportunities to collaborate are opened. 2.1.1 Network Types Due to the limitation of firm’s internal resources, creating a strong company cannot be done by the company as alone (Gellynck et al., 2006). Hence, in order to survive while facing numerous challenges in the business process, SMEs have built a network with other parties. Gellynck and Kühne (2010) stated that there are three networking types in the traditional food sector, which are vertical, horizontal, and third parties. Horizontal network refers to a group of companies within the same industry who are gathered in the same line to gain a benefit from information sharing, informal engagement, and social activities (O'Donnell et al., 2001). Those companies are primarily competitors or peers who are considered a rich source of new knowledge (Omta, 2004; Kühne et al., 2015). In the traditional food sector, the horizontal network usually composed by producers who had the same objective regarding product protection issues such as quality guarantee and traditional label indication (Gellynck and Kühne, 2010). The members of a vertical network are companies in the same supply chain who work as a team to transform resources from the upstream side toward downstream (Omta, 2004). Hence, coordination between vertical network members will increase the efficiency of resources which flowing continuously from one member to another member. Third parties are research and governmental organization, financial providers, and also other organizations who have a professional relation with the companies in the network (Pittaway et al., 2004). These third parties can be important for creating an environment that stimulates innovation, through policy and support to network participation. Within this context, universities and other research organizations often act as independent mediators who are delivering ideas and means for innovation generation (Pittaway et al., 2004). 2.1.2 Network for Innovation Networks play an essential role in the diffusion and adoption of innovations (Pittaway et al., 2004; Kühne et al., 2015). It has an ability to increase the information flow, expand the available knowledge to the firm’s members and finally accelerate the translation of such knowledge into innovation. Participation in a network enables broader access and rapid composition to joint resources, particularly related to complicated knowledge resources and complex information flow. Hence, SMEs could enhance their innovation through network participation. Moreover, involvement in a network would create new relationships and provide new access to new or complementary competencies and technologies. According to Scozzi et al. (2005), the external sources of information, knowledge, skills, and tools for successful innovation could be gained from the customers, suppliers, competitors, and research institutions who collaborate with SMEs. 4

The combination of company’s external and internal resources through the network has a result in innovation generation (Gellynck et al., 2006). Even the idea of innovation development could be derived from activities with external companies and organizations. A firm could get an inspiration to innovate from alliances and exchanges with its buyers and suppliers, from participation at fairs and exhibitions, and joint R&D activities (Scozzi et al., 2005). According to Avermaete and Viaene (2002) and Gellynck et al. (2006), SMEs are more innovative if they can manage the interaction with other parties in network activities. Higher innovation capacity of companies could be achieved after participation in a network (Gellynck et al., 2006). But, the firms often face barriers to innovate in the network and even barriers to join networks (Pittaway et al., 2004). The main obstacles for innovation come from the limitations of SMEs itself such as the inability to understand the advantages of networking, the absence of proper methods and skills, and the lack of financial and physical resources. According to Gellynck and Kühne (2010), the successful SMEs has an ability to use their networks to cover their limitations and create possibilities for joint use of resources.

2.2 Collaboration within network

In growing industry, the companies will fail if they only rely on their resources without collaborating more with their partner in the network. The combination of company’s internal resources and its partner’s external resources within the same network will help a company to encounter its limitation to growing through innovation (Gellynck et al., 2006). Yoshino and Rangan (1995) stated that at least two partner companies together with their resources are needed to start a collaborative relationship or strategic alliance. The criteria are: the companies should remain independent after the collaboration has happened, should share costs, benefits, and managerial control when performing any collaboration activities, and should continuously make a strategic contribution to the alliance. Based on these criteria, the interdependence between the firms is formed, a new benefit for each member is gained, and further contributions to the relation are planned (Todeva and Knoke, 2005). By synthesizing the existed literature, Cao and Zhang (2011) define collaboration in vertical network as seven activities which are information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing, collaborative communication, and joint knowledge creation. These interconnected dimensions increase the value of collaboration by levelling up innovation, leveraging resources, and reducing risks and costs. According to Todeva and Knoke (2005), a decision to collaborate is a strategic intention which purposes to enhance the future circumstance for a company as individual, and their partnership as a whole. The explanation about seven core dimension of collaboration in vertical network are described as follow: 1. Information sharing refers to the extent to which a company shares a variety of relevant, precise, comprehensive, and private information promptly with its supply chain partners (Angeles and Nath, 2001; Sheu et al., 2006). This information could be useful for the whole actors in the supply chain. 2. Goal congruence between supply chain partners is the extent to which every firm in the supply chain set their goal based on the common objectives. It is the degree of goal agreement among supply chain partners (Angeles and Nath, 2001). With the present of this dimension, everyone in the supply chain will row in the same direction and try to reach the common destination.

3. Decision synchronization refers to the process by which supply chain partners make decisions in supply chain planning and operations that optimize the supply chain benefits (Simatupang and Sridharan, 2005). The decisions were divided into seven categories which are operations strategy planning, demand management, production planning and scheduling, procurement, promise delivery, balancing change, and distribution management. 4. Incentive Alignment refers to the process of sharing costs, risks, and benefits among supply chain partners (Simatupang and Sridharan, 2005). It includes determining costs, risks, and benefits as well as formulating incentive schemes. 5. Resource sharing refers to the process of leveraging and investing the capabilities and assets with supply chain partners (Harland et al., 2004). The resources obviously include the physical resources, such as manufacturing equipment, facility, and technology. 6. Collaborative communication is the process of transferring message among supply chain partners regarding frequency, direction, mode, and influence strategy (Goffin et al., 2006). Close inter-organizational relationship could be detected through an open, frequent, balanced, two-way, and multilevel communication. 7. Joint knowledge creation, through both knowledge exploration and exploitation, refers to the extent to which supply chain partners develop a better understanding of and response to the market and competitive environment by working together. This development could be done through both knowledge exploration and exploitation. Companies also apply such activities when collaborating in their horizontal network. Lewis et al. (2015) mentioned that for most producers, the initial motivation for collaborating in the horizontal network was based on commercial reasons, such as economies of scale, resource efficiency, risk sharing and access to equipment. Hence, collaboration activities in horizontal network occurred mostly for purchasing and marketing purpose. A study conducted by Ghaderi and Leman (2013) found that a company formed a purchasing group with its competitor in order to reduce the purchasing cost and create a shorter lead-time of raw materials. SMEs who are engaging in collaboration activities with their peers by sharing their resources and innovation information will gain benefit from the collaborative entity (McAdam et al., 2014). Related to marketing, Lewis et al. (2015) stated that collaboration between competitors would enable companies to increase the regional awareness of their collective product among business retailers and buyers. As already known, small companies are limited regarding the promotional activities they pursue and the markets they target due to the lack of knowledge and financial resource. Therefore, being united through collaborative activities will help them to gain a wider market. By combining the information from Lewis et al. (2015), Ghaderi and Leman (2013), and McAdam et al. (2014) with Cao and Zhang (2011), it could be said that collaboration in horizontal network consists of six activities. They are information sharing, goal congruence, incentive alignment, resource sharing, collaborative communication, and joint knowledge creation. However, in horizontal network, those activities occurred mostly for purchasing and marketing goals. Collaboration with third parties consist of different activities. Most of the time, the third parties become the one who give a support to companies who need it. Thus, comparing with collaboration on other networks, it happens more in one direction. Interacting with third parties opens an opportunity to SME to gain a valuable business advice, another source of financial support, new access to new technology, market, and relationship, inspiration for idea generation, and business development (Pittaway et al., 2004).

2.3 Innovation

Food sector nowadays is dominated by a big percentage of SMEs (Gellynck and Kühne, 2008). These SMEs were forced to adapt and innovate because of the changing of consumers’ food preferences and rapid entry of new comers. According to Vanhonacker et al., (2013), due to the rapid growth of food market, innovation becomes an essential strategic tool for SMEs to reach a higher market share and profitability, also achieve competitive advantage. Innovation itself can be defined as an ongoing process of learning, searching and exploring, and in the end creates new products, techniques, market, or forms of organization (Lundvall, 1995). The process of innovation is indeed difficult, and the difficulty is coming from the characteristic of the innovation process itself (Smith, 2015). David Smith through his book ‘Exploring Innovation’ identifies six attributes who make innovation difficult. The first is uncertainty and risk because no one can predict whether the innovation will be successful or not. The second one is trial and error, meaning that the innovation does not happen smoothly and systematically thus could take a long time. The third is failure; as Dudgson and Gann (2010) stated that the most trials on innovation are a failure. However, through the failure, companies could increase their knowledge. The fourth is fits and starts, showing that the innovation needs the right condition to be acceptable. The fifth is perseverance because the first to the fourth attributes are forcing the entrepreneur to give up, so perseverance is the best choice until the success comes. The sixth is collaboration, meaning that the innovation is normally a team effort with a lot of resources and more than one individual working behind it. According to Intrakamnerd et al. (2002), the application of innovation in developing countries is slightly different with its application in developed countries. The differences are consist of three aspects, which are the degree of innovation, the existence of specific third parties, and the importance of external sources. But overall, the concepts that explained above related to network, collaboration, and innovation which mainly comes from previous research in developed countries are still applicable for research in developing countries. First, in developing countries, incremental innovation occurred more frequently than radical innovation (Pietro and Rabellotti, 2011). Due to financial limitation reason, firms in developing countries are mostly created the incremental innovation based on nonR&D activities. They prefer to adapt existed technologies to new situations rather than create a new technology through a long R&D process (Lundvall et al., 2011). Regarding this issue, Baregheh et al. (2012) and Avermaete (2002) who did a research about innovation in European countries recognized that the SMEs in the food sector are mainly engaged with a low degree of radical innovation such as packaging innovation. Hence, the difference in innovation degree is not disturbing the application of the theories for research in developing countries. Second, the universities, R&D laboratories, and research institutes which play a significant role to help companies creating innovation in developed countries could not exist or only have a weak role in the developing countries (Lundvall et al., 2011). However, according to Pittaway et al. (2004), third parties composed of any organizations who collaborate with a company on its business activities. Thus, if there is no sufficient universities, R&D laboratories, and research institutes in the country, the third party could be anyone else. SMEs in developing countries more rely on the organizations that providing extension services and consultancies, which mostly done by the government.

Third, the inflows of knowledge and technology from external sources are essential components of the innovation and learning processes in developing countries (Intrakamnerd et al., 2002; Pietro and Rabellotti, 2011). In the developed countries, Avermate and Viaene (2002) also mentioned that SMEs do not only rely on their internal resource to create successful innovation but also combined their individual capabilities with the external resource. In this context, the ability to obtain information and other inputs from outside the firm is a key determinant of innovation in small firms.

2.3.1 Innovation Types Four categories of innovation types are classified by Francis and Bessant (2005) and also Gellynck et al. (2006) which are (1) product innovations, (2) process innovations, (3) market innovations, and (4) organization innovations. Product innovation includes all changed happened to ‘the things’, meaning that the product or service provided by producers. The changes could be incremental or radical, such as differentiation of composition, packaging, physical appearance, and convenience (Baregheh, 2012; Kühne et al., 2010). Process innovation refers to any modification through how the things are created and flowed to the consumer’s hand. The increasing level of quality and performance, the new technologies applied, and the traceability of the product are the example of process innovation (Baregheh, 2012; Kühne et al., 2010). Market innovation, or could be called as position innovation in some literature, is related to a new concept used by the producer to introduce the things, such as new distribution channel, promotion activities, new consumer group, and electronic marketing (Francis and Bessant, 2005; Baregheh, 2012). Organization innovation covered the changes in strategy used to running the organization, such as new organisation structure, new employee, new partners, and new collaboration applied (Baregheh, 2012; Gellynck and Kühne, 2008).

2.3.2 Innovation Competence The creation of innovation has to pass a long process composed by three steps: efforts, activities, and results (Gellynck and Kühne, 2008) before finally exist. The interpretation of effort is including a reflecting investment in human, financial, and, information assets (Kühne et al., 2013; 2015). The activities refers to each action conducted by companies with the application of the effort to improve innovation probability (Kühne et al., 2013). Moreover, Kühne et al., (2015) stated that the activities require an endless flow of inputs. Results, as the last process, includes whether tangible or intangible effects of the previous innovation efforts and activities. The tangible results could be profit and market share improvement, when the intangible results could be the increasing performance of companies in stability, efficiency, and reputation (Gellynck et al., 2006; Kühne et al., 2015). When examining the term of competence, Ritter and Gemünden (2003) found that competence is usually used to describe resources and preconditions such as skills, knowledge, activities, assets, and qualifications. However, Amit and Schoemaker (1993) already distinguish resources from competence by stating that resources are stocks of available factors that are owned or controlled by an organization. Competence, on the other hand, refer to the capacity to deploy the resources of an organization, which have an impact on innovation. According to Gellynck et al. (2006), innovation competence does not only indicated by the successful outcome of an innovation but also addresses the capacity to innovate in the future. Szeto (2000) defines innovation competence, as a continuous improvement of

8 capabilities and resources that an enterprise possesses in order to explore and exploit opportunities for developing new products to meet market needs. Neely et al. (2001) describe innovation competence as the firm’s potential to generate innovation outputs, embedded in the firm’s culture, processes, and capabilities to understand the environment. Chen (2009) considers innovation competence as the firm’s capacity, based on processes, systems, and organizational structure, that can be used in product or process innovations. Overall, many literature describe competence as a resources (Lemon and Sahota, 2004) when competence has been defined also as a process of actions or activities (Pant, 2012). Incorporating both point of views for the concept of competence, it could be said that the competence means having the necessary resources as well as using them effectively. As described by The New Oxford Dictionary of English (1998), competence is a potential, or qualification, to perform activities, i.e. ‘‘having the ability, power, authority, skill, knowledge, etc., to do what is needed’’. Hence, in this research, the term innovation competence is used to mean not only having required resources to innovate, but also able to perform some activities; using those resources to create innovation. Research has shown that innovation competence can be explained through application of the resource-based view (Gellynck et al., 2006). The process of innovation is driven by both internal and external resources that working as complementary (Cassiman and Veugelers, 2002), meaning that internal resources can be improved through incorporation of external resources, and in the end drawn together to potentially affect innovation competence. Research conducted by Forsman (2011) used three variables to examine the innovation competence: internal resources, capabilities and external input gained through networking. Thus, this research will assess the innovation competence of companies by exploring their internal and external resource for innovation process.

2.3.3 Innovation in Food Sector The consumer level of acceptance for particular food innovation diverse depend on the regions. Generally, based on Guerrero et al. (2009), people become more enclosed to innovation when they are living in a rural area, where tradition places an essential position for them. The same author discovered five major concepts of food innovation according to focus group discussions done in six European countries. Novelty and change is the first concept. Food could be called innovative when it used new ingredients, prepared in a new way, and have a new size, shape, or packaging (Fagerberg, 2004; Moskowitz et al., 2006). The second concept is variety which provides more options and possibility of choice for consumers. It could be variation in colours, in flavours, in the mixture, or in shapes and sizes. Consumer’s variety-seeking behaviour is a normal phenomenon that comes in order to fulfil their satisfaction and curiosity (La¨hteenma¨ki and Arvola, 2001). Thirdly, processing and technology come as one concept because, based on consumer point of view, applying new technologies or conducting more complex processes on food production could create an innovative product. But, these practices seems contradictory with consumer understanding about a traditional term. The fourth concept is origin and ethnicity. The strange image of a food product sometimes acted as a special attraction for consumers. But, the level of acceptance could be vary due to different interest and experience of consumer (Chambers et al., 2007). Convenience factor is the last concept. This is related to product capabilities to create an easier life for consumer due to their changing lifestyle. Based on research conducted by Cowan, and McCarthy (2007), a third of consumers are the ‘convenience- seeking grazers’. Hence, the convenience-based innovation obviously has a big market. 9

Food innovation is affected by the economic status of a country. However, the concepts explained above are not only applied in developed countries but also in the developing one. According to Earle (1997), companies always considering the preferences of consumers before doing an innovation in food sector, and the preferences follow the application of Maslow’s hierarchy of needs. The needs are flowing from physiological to safety and convenience, belonging and love, esteem, and in the end self-actualization. The physiological need is relates to the concept of variety because it consist of the necessity to consume food that contain specific ingredient that gives energy to the body. The safety and convenience need is obviously related to the convenience factor of food innovation. The need of belonging and love is correlates with origin and ethnicity because consumers need to consume food that give acceptance to a group which usually relates to specific ethnic. Processing and technology concept relates to the esteem need, while the novelty and change concept refers to the need of self-actualization.

2.3.4 Innovation in Traditional Food Defining a specific concept like ‘traditional’ is usually difficult. The same difficulties coming when talking about the definition of traditional food product. Nowadays, the society uses variety of TFP definitions such as ‘local food’, ‘original food’, ‘typical food’, or ‘speciality food’. However, when conducted a research related to traditional food in six European countries, Guerrero et al. (2009) used this definition: ‘‘A traditional food product is a product frequently consumed or associated with specific celebrations and/or seasons, normally transmitted from one generation to another, made accurately in a specific way according to the gastronomic heritage, with little or no processing/manipulation, distinguished and known because of its sensory properties and associated to a certain local area, region or country.’’ The definition used above could be applicable not only for defining traditional food in European countries but also in developing countries, including Indonesia. According to the online version of Indonesian Dictionary from Kemendikbud (2016), the term of traditional means the attitudes and ways of thinking and acting that always sticking to the specific norms and customs in particular area which exist hereditary, from one generation to further generations. However, after conducting a research in six European countries, Guerrero et al. (2009) provides more detailed explanation about the term of traditional food from consumer’s point of view. Basically, there are four main core dimensions for the concept of traditional food product that should be considered by producers before deciding to do an innovation, because these concepts are essential from consumer’s perspective. The first concept is habit and natural. TFP has a strong association with a habit. People regularly consume these food products and use them as a part of daily life. The frequent consumption behaviour was transmitted through generations and successfully removed a strange impression related to the food (Guerrero et al., 2009, 2010; Vanhonacker et al., 2010). But some consumers also linked TFP as food products that appear only in the special occasions such as Christmas and Easter. They seasonally tasted TFP from their early time and after that teach their children to do the same. The concept of TFP involved natural materials, tools, and processes that used for creating them. Thus, consumers believed that these products are healthy, nutritious and safe to consume.

Second concept relates to origin and locality. The origin of TFP is an important aspect for consumer, meaning that exporting the products to another region is unacceptable (Iaccarino et al,. 2006; Guerrero et al., 2009, 2010; Vanhonacker et al., 2010). Traditional food which going outside their area will be judged as regular products and lose their core value. Hence, locality was perceived as a streak requirement for TFP. However, some consumers believed that, in the globalisation era, when information flow is unbelievable fast, the possibility to move TFP to entirely new place is beginning to open (Luigi et al., 2008; Vanhonacker et al., 2010). The third and the last concepts are processing and elaboration, and sensory properties. In order to be recognized as traditional food, the traditional things that should be included are not only the raw materials but also the processes and recipes. Moreover, the taste of TFP, as one organoleptic characteristic, should be hard to duplicate (José et al., 2003; Guerrero et al., 2009, 2010). Hence, the authenticity of the products could be identified through the sensory criteria. In general, innovation in traditional food products is only acceptable when it ensures the maintenance and supports the improvement of the image of the traditional food product (Gellynck and Kühne, 2008). Consequently, with a view to maintaining the traditional character of the product, members of traditional food chain networks are reluctant to implement dramatic changes in type of raw materials used or in the production process.

2.4. Conceptual Framework

Figure 2. Conceptual Framework

The conceptual framework (Figure 2) is based on the findings of the literature review. The core element of the framework is the innovation competence of the traditional food producers. Based on the literature review, several concepts have been identified which have either a direct or indirect impact on companies’ innovation competence. These concepts are

11 network collaboration, internal and external resources of companies, and also the innovation outcome. No single company has all the resources required; the additional resources must be obtained from external parties. In a network, a business will meet and interact with other firms or organizations. These interactions can create collaboration, in which each party works together to achieve its own goals. Whether or not it is realized, in the collaboration, there are additional resources that companies get from other parties. Instead, the company also provides additional resources for the other firms. The additional resources from external parties will be combined with resources that are already owned by the company. Such combination will help SMEs to overcome their lack of resources problem. After receiving the additional resources, the companies will become more comfortable to conduct an innovation; their ability to do product, process, market and organizational innovation is increased. In the other word, the combination of company’s internal and external resources will help the SME to enhance its innovation competence. The conceptual framework shows a positive relationship between concepts, meaning that the more a traditional food producer is collaborating with its network partner, the opportunity to make innovation for the producer is more open. This is because the company get additional resources from the partners, which can help the producer to increase their ability to create innovation in various forms. Moreover, the further information regarding the operationalization of such concepts are provided in methodology part, precisely in the section 3.5.

3. METHODOLOGY

This chapter describes the methodology of the research. The first section explains information about case study design as a research strategy. The next section provides an explanation about the study area. Then, the data collection method which consist of primary and secondary data, also the sampling method are described in section three. In the last section, a description about data analysis is provided.

3.1 Research Strategy

The purpose of the research is to understand the network collaboration among stakeholders of the traditional food sector in a particular region. The research also has the aim to explore the way of internal and external resources combination enhancing innovation competence of traditional food producers. This study used qualitative approaches, which indicated by the use of words, context, and meaning to examine cases (Silverman, 2011). A case study with a descriptive and comparative research is used to answer the research questions and fulfil the purpose since the research focus of approaching a specific issue (network collaboration of traditional food producers and their innovation competence) for a case of a particular region (Bengkulu province, Indonesia). Purposive, judgmental, and information-oriented sampling techniques are used when selecting the cases. This technique is suggested by Kumar (2014). However, the generalizations to a population beyond cases similar to the one studied cannot be done. According to Burns (1997), the main focus of case study is not to the entire population of the issues, but to the case in particular complexity. The study was conducted for thirteen months in total; two months of proposal writing and research preparation, two months of field study, five months of data analysis and report, also four months break in between, due to the internship responsibility of researcher. The Gantt chart of the research study can be found in Appendix 1.

3.2 Area of Study

Table 1. Distribution of SMEs at Bengkulu Province in 2016

Sector Total NO District Industry Trade Agriculture Employee 1 Bengkulu City 447 13391 466 24533 2 Kaur 178 458 153 2064 South 3 Bengkulu 321 1799 64 3528 4 Seluma 413 185 52 2044 Central 5 Bengkulu 332 828 109 1254 North 6 Bengkulu 975 264 165 1183 7 Mukomuko 1023 247 633 1089 8 Kepahiang 215 477 497 1185 9 Rejang Lebong 425 1517 144 1621 10 Lebong 275 658 27 9853 Source: Documentation of data collection (2016)

The study area in the research is the Province of Bengkulu, Sumatera Island, Indonesia, which consists of 10 districts; South Bengkulu, Central Bengkulu, North Bengkulu, Kaur, Kepahiang, Lebong, Mukomuko, Curup, Seluma, and Bengkulu city. The capital of Bengkulu is Bengkulu city, where the majority of economic activities happen here. Table 1 shows that the highest number of SMEs who are doing trade activities (buying and selling goods and services) is coming from Bengkulu city, which is 13,391 SMEs. The largest number of SMEs in the industry sector (materials processing) are located in Mukomuko with 1,023 SMEs, North Bengkulu with 975 SMEs, then Bengkulu city with 447 SMEs. However, in Mukomuko and North Bengkulu, the processing is mostly happening to the plantation products, such as rubber, palm oil, tea, etc. Thus, there is an indication that the production and the trade of traditional food products are centred in the capital, which is Bengkulu city. Table 2. The Distance from the Capital of Bengkulu Province with the Capital of the District

Straight No District The capital Distance (Km) 1 South Bengkulu Manna 113.4 2 Rejang Lebong Curup 62.1 3 North Bengkulu Argamakmur 52.2 4 Kaur Bintuhan 176.4 5 Seluma Tais 53.0 6 Mukomuko Mukomuko 197.7 7 Lebong Muara Aman 101.5 8 Kepahiang Kepahiang 39.9 9 Central Bengkulu Karang Tinggi 22.3 10 Bengkulu City Bengkulu 0 Source: BPS (2014) Considering the fact that Bengkulu city is the centre of economic activities in the traditional food sector, the researcher only collected data from this specific area. Another consideration was related to the distance. Most of the transportation in the province, from and to the capital, is done by land transportation. Table 2 shows us the distance from the capital of Bengkulu city, to the capital of the districts, if we draw a straight line between them. Bengkulu’s hilly topography makes travelling from one city to another takes a lot of time. For example, if we want to go to the closest district from Bengkulu city, Central Bengkulu district, we have to spend at least 1 hours 11 minutes on the car, and 6 hours 26 minutes to the farthest region, Mukomuko district (Figure 3). This estimation was not taking into account the road condition which dominated by the damaged and perforated road. Hence, people from another province, who have a short visit to the province of Bengkulu and coming by plane, usually spend their time only in Bengkulu city.

Figure 3. Study Area a) Bengkulu province, b) Estimated road trip time to the farthest district Mukomuko, c) Estimated road trip time to the closest district Central Bengkulu (Google Maps, 2017)

The size of food companies in the capital tend to be bigger than in the districts, especially companies in traditional food sector. Most of producer in district areas are micro size entrepreneurs with the average number of employee less than five. Considering the situation, the research only focus on TFP producers in Bengkulu city. The Ministry of Cooperation and Small Medium Sized Enterprises in Bengkulu province said: The traditional food business in Bengkulu city is much more developed than in the district. Most companies in the district are still micro-scale home-based businesses, harder to develop because the market is also less. The consumers are centered in the capital of Bengkulu province, which is Bengkulu city. TFP producer from the district faces more difficulties to compete with capital's TFP because there is a transportation time and cost that should be considered.

3.3 Data Collection

The combination of primary and secondary data sources was applied for gathering the data. Primary data were collected by visiting the area of study and conducting semi-structured interviews with traditional food producers as respondents. The secondary data came from the desk research activity and document collecting from stakeholders. Appendix 2. shows an overview of the selected methods.

3.3.1 Primary data Sampling This research used a non-random sampling design, which is an exponential discriminative snowball sampling. This is a common sampling method that is used in qualitative research. In a snowball sampling, a respondent is selected then asked to identify other subjects to 15 become a respondent in the study (Kumar, 2014). Then, the respondent was purposively chosen based on the researcher’s judgement; the individual should have an ability to provide a relevant information. The main respondents in this research are the producers of TFP and other actors in traditional food sector. Before interviewing them, the researcher should show them the permission letter from campus, and local government so that they will be more willing to answer the questions. Thus, the researcher started the research by asking the permission and also the recommendation from local government. The first respondent was the SME who actively communicate with the government; then the snowball sampling begun. The data is collected until the researcher managed to get saturation point. In this case, Kumar (2014) stated that the researcher could draws a conclusion even if only small amount of information is available. Interview The primary data was obtained by means of interviews. These interviews were performed face to face with each respondent, separately. The researcher used an informal semi- structured interview with the use of general questions guide. The guide consists of a list of questions to remind the researcher of the areas to be covered in an interview (Kumar, 2014). Through a semi-structured interview, there is a possibility to explore the questions further when it was needed based on the response of respondents (Raworth et al., 2012). Additionally, the respondents were asked open-ended questions to obtain more objective answer according to their knowledge, views, and experiences. In the field, the researcher used Indonesian and Bengkulu language and accent with the respondents, according to the preferred language the respondents chose. Respondents Three group of traditional food companies that exist in Bengkulu city were chosen to be interviewed. Each group of companies active in producing different sort of traditional food. The brief explanation on those groups are as follow: 1. Group one consists of the producers that produce traditional snack with a long saving life (the products usually sold as food souvenirs for tourists). In Bengkulu province, the majority of TFP producers in group one are SMEs, but there are still also micro entrepreneurs among them. The saving life of group one’s products are longer than ten days; with good saving practices, the quality of traditional food remains good until up to 3 months. Most of the firms in group one are producing more than one type of traditional snack. But, they only have one type of product as a signature. 2. Group two are formed by the producers that make the traditional snack with a short saving life (mostly sold in a particular time, such as Ramadhan). In room temperature, the product could stay in good quality for maximum three days, a week in a refrigerator. Finding producers on SME level among this group is quite hard. Majority of them are a micro entrepreneur with an average number of employee two people. 3. Group three includes the producers of Bengkulu’s traditional side dish. It was challenging to find companies, even in the capital, who sell a traditional food side dish as their main menu. In most SMEs, the TFP is served, but in a small amount and variety; the ordinary food dominates the menu. The aim of interviewing different groups of companies is to level up the representativeness of the study. The important note is that all companies should produce traditional food that matches with the definition used in this research. Those companies also should belong to SME that defined by the constitution and the National Agency for Statistics (BPS) in Indonesia. 16

BPS uses the number of workers as the basis for determining the size of an enterprise. In its definition, SMEs are business units with 5 to 99 workers, and large enterprises are units with 100 or more workers (BPS, 2016). Business with less than 5 employees is called micro business. Additionally, Constitution number 20 the year 2008 about micro and small medium sized enterprises defines SME based on the company’s turnover (BI, 2016). It states that small business is a firm with turnover from 300 million to 2.5 billion rupiahs a year, where medium business is a company with annual turnover between 2.5 and 50 billion rupiahs. Researcher also interview other actors such as supplier, distributor, and third parties, within the SME’s network. Brief explanation about them are as follow: 1. Suppliers The ingredients for making traditional food are very diverse. When grouped, the supply of raw materials comes from three kinds of sellers, which are supplier of fresh ingredients (vegetables, spices, fruits, etc), supplier of basic ingredients (flour, sugar, salt, etc), and supplier of rare ingredients (pineapple, young bamboo, etc). For the research, I interviewed all of them. 2. Distributors Soekarno Hatta Street, in the center of Bengkulu city, is a famous region where almost all shops there are selling Bengkulu’s traditional food. It is common knowledge, for Bengkulu residents and tourists who come to Bengkulu, that the area serves any kind of Bengkulu's traditional foods. TFP from group one, two, and three could be found there every day. I got the opportunity to interview two distributors. 3. Local government Among 34 ministries in Indonesia, The Ministry of Cooperation and Small Medium Enterprises (Kemenkop) has the closest relation with the TFP producer. The main duty of Kemenkop is to formulate and determine policies and programs in the field of cooperatives and micro, small and medium enterprises (Depkop, 2017). After the first contact with Herawati, chief of SME department in Kemenkop Bengkulu, I discovered three other government organizations which have good collaboration with SMEs who produce traditional food in Bengkulu. They are The Ministry of Tourism and Creative Economy (Kemenpar), The Ministry of Trade (Kemendag), and The Ministry of Health (Kemenkes). In this research, I interviewed the authorized official from these four ministries due to their relation with traditional food producers. 4. Academic organization The University of Bengkulu (UNIB) is the biggest university in the province that is actively doing a research and community development in various sectors, including traditional food. In average, this organization conducts 70 projects each year; at least one of those project uses SME in traditional food as a subject. UNIB also do various activities that invite TFP producer to collaborate. Hence, I had an interview with the head of Institute for Research and Community Service (LPPM) UNIB and an agribusiness lecturer of UNIB. Both of them have experienced on representing the organization to work with the traditional food producers. 5. Financial provider In 2007, The Ministry of Finance (Kemenkeu) launched a new program to overcome lack of capital problem among SME (KUR, 2017). Kredit Usaha Rakyat (KUR) is a special credit scheme intended for SMEs, where the enterprises could lend a certain amount of money and charged at lower interest rates when compared to the general credit scheme. To fairly distribute the money, the government collaborated with many local and national bank, also some cooperative who meets the requirement. I failed

to interview a representative from a national bank, but managed to get information from a credit manager of one local bank, Bank of Bengkulu (BB). Totally, I conducted 28 interviews with detailed information as written in Table 3 and Appendix 3: List of Interviewees. The collected data then are organized and structured by using a coding method before being analyzed. The documentation of field research activity could be found in Appendix 4.

Table 3. List of Respondents and Topics

Respondent Number of Topics dealt with in the interviews respondent SMEs in Group 1 8  Information about the company (the history, the SMEs in Group 2 3 development, the product, the employee, the way of managing) SMEs in Group 3 5  The distribution channels  The promotion methods  The suppliers of their raw materials  Collaboration activities in horizontal, vertical, and third parties networks  Resources gained from collaboration activities  Companies current innovation  Companies ability to do innovation Supplier 3  Interaction with TFP producers Distributor 2  Business agreement with TFP producers Government 4  Bengkulu's traditional food  Government programs relating to SMEs  Overview of TFP producers in Bengkulu province  Interaction with TFP producers Academic Organization 2  Interaction with TFP producers Financial Company 1  Interaction with TFP producers  Credit schemes for SMEs  General picture relating SME behaviour in credit schemes

3.3.2 Secondary data The secondary data was obtained by means of desk research. During proposal writing, the desk research offers a widespread knowledge of the theories and concepts of network, collaboration, and innovation, especially innovation in the traditional food sector. Those information helped the researcher to understand the connection between concepts and to make a conceptual framework that applied in the research. During the data collection process, the secondary data also important to help the researcher to understand the general situation of TFP in Bengkulu province, and also help to justify the decision only to interview the TFP producers in Bengkulu city. Different documents types are considered as secondary data sources, such as governmental and semi-governmental publications, previous academic research findings, and mass media publications. The researcher got the secondary data directly from the 18 respondents or through their official website. Competent search engines also used for desk research, including Web of Science, Scopus, Google Scholar and the Library Catalogue of WUR.

3.4 Data Analysis

The data that has been gathered through semi-structured interviews are analysed using a comparative analysis. Information from three different group of TFP producers regarding their collaboration activities, the external resources gained from such activities, and their innovation outcomes are compared to find the way those factors enhancing company's innovation competence. In order to have a comprehensive result, the statements from SME's chain partners and third parties also have collaborated in the analysis. In the end, the activities that are resulting the essential resource to enhance company's innovation competence in traditional food sector can be discovered.

3.5 Operationalization

3.5.1 Activities in network collaboration Gellynck and Kühne (2010) stated that there are three networking types in the traditional food sector, which are vertical, horizontal, and third parties. This research explored the collaboration activities within those networks. Moreover, the research went deeper on the explanation from Cao and Zhang (2011) who divides the collaboration activities into seven general activities which are information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing, collaborative communication, and joint knowledge creation. Information sharing refers to the extent to which a company shares a variety of relevant, precise, comprehensive, and private information promptly with its supply chain partners (Angeles and Nath, 2001; Sheu et al., 2006). Goal congruence is the extent to which every firm in the supply chain set their goal based on the common objectives (Angeles and Nath, 2001). Decision synchronization refers to the process by which supply chain partners make decisions in supply chain planning and operations that optimize the supply chain benefits whereas Incentive Alignment refers to the process of sharing costs, risks, and benefits among supply chain partners (Simatupang and Sridharan, 2005). Resource sharing refers to the process of leveraging and investing the capabilities and assets with supply chain partners (Harland et al., 2004). Collaborative communication is the process of transferring message among supply chain partners regarding frequency, direction, mode, and influence strategy (Goffin et al., 2006). Joint knowledge creation, refers to the extent to which company and its partners develop a better understanding of and response to the market and competitive environment by working together (Cao and Zhang, 2011). In order to get information about collaboration activities between TFP producers and their vertical and horizontal networks, the research will explore and list any collaborative actions that happened between them. Then, those actions will be gathered based on the relation with the definition of seven activities above. For activities in horizontal network, the concrete actions usually related to marketing and purchasing matters.

However, collaboration with third parties consist of different activities. Most of the time, the third parties become the one who give a support to companies who need it. The interview with third parties will explore the collaboration by taking into account the provisions provided by SMEs’ third parties network. The example is an advice, financial source, new access to new technology, market, and relationship, inspiration for idea generation, and business development training (Pittaway et al., 2004).

3.5.2 The implementation of innovation Kühne et al. (2010) used particular innovation activities (quality improvement, packaging, new market, marketing actions, and convenience) in order to study whether innovation in traditional food sector matched with European consumer’s acceptance. In this research, the study will also focus on specific activities on each type of innovation. The researcher will explore the activities to create innovation outcomes of companies for the last five years. Product innovation includes all changed happened to ‘the things’, meaning that the product or service provided by producers (Baregheh, 2012). For product innovation, this research will note every changing related composition, packaging, physical appearance, and convenience. Process innovation refers to any modification through how the things are created and flowed to the consumer’s hand (Baregheh, 2012). Thus, during the interview, the activities related quality improvement, new technologies used, the size of batches, and the traceability of the product would be asking for the term of process innovation. Market innovation is related to a new concept used by the producer to introduce the things (Francis and Bessant, 2005; Baregheh, 2012). The market innovation in this research includes activities such as distribution, promotion, approaching new consumer groups, and online selling. Organization innovation covered the changes in the strategy used to running the organization (Baregheh, 2012). This research will discover the new structure, new collaboration and new employees that applied by TFP producers.

3.5.3 Enhancing innovation competence Many literature describe competence as a resources (Lemon and Sahota, 2004) when competence has been defined also as a process of actions or activities (Pant, 2012). Incorporating both point of views for the concept of competence, it could be said that the competence means having the necessary resources as well as using them effectively. In this research, the term innovation competence is used to mean not only having required resources to innovate, but also able to perform some activities; using those resources to create innovation. The process of innovation is driven by both internal and external resources that working as complementary (Cassiman and Veugelers, 2002), meaning that internal resources can be improved through incorporation of external resources, and in the end drawn together to potentially affect the innovation competence. Thus, this research will assess the innovation competence of companies by exploring their internal and external resource for innovation process. First, the company’s internal resource will be discovered by asking the producers about their resource allocation for innovation purpose. The example of questions are whether the company provide a certain percentage of money for doing innovation, whether the company actively join trainings and knowledge sharing activities, and also whether the company has special workers who in charge in innovation development. Secondly, the additional 20 resources from company’s partners will be discovered by knowing the innovation obstacles and exploring what kind of resource that the company needs from external parties in order to overcome those obstacles. In the end, regarding the enhancement of innovation competence, the research compared innovation competence of three different group of TFP producers. Through the differences, the researcher will draws possible factors which can be the reasons behind innovation competence enhancement.

4. EMPIRICAL FINDINGS

This chapter focuses on analyzing the finding which divided into some parts. The first part concerns an overview about actors in the traditional food sector in Bengkulu province. The next part provides comparison analysis on collaboration activities between three group of TFP producers and their networks (RQ 1). Then, resources gained from those activities will be compared to the third part (RQ 2), where the relation to innovation competence will follow after (RQ 4). Also, an analysis related product, process, market, and organization innovation outcomes are added (RQ 3).

4.1 Actors in Traditional Food Sector in Bengkulu Province

A business in any sector will never survive if only depending on its own. Every company needs partners to survive and develop. In the traditional food sector, some parties such as supplier, distributor, local government, academic organization, and financial provider are discovered to have a connection with TFP producers. Their interactions help the sector to keep growing time by time. This part of the chapter will provide the context of the research so that the role of each actor in the traditional food sector is discovered. Generally, this section will describe the information related to the producers (their products and general management practices), the suppliers (their supply and interaction with TFP producers), the distributors (their location and their relation with TFP companies), the local government (their programs and their support for SMEs in traditional food sector), and other parties.

4.1.1 TFP producers In Bengkulu's traditional food sector, the SME owner is dominated by women. Among 16 respondents in this research, there is not even a single man involved. Majority of the employees is also a woman. The business owner recruits man worker only for particular position, such as waiters, and sales whose jobs require a high amount of physical energy. Woman owned business usually runs the company to help her husband fulfil the household needs by creating additional salary input to the family. In this case, the company is a side job for them, when being a housewife is the main responsibility. They do not recruit a permanent workforce because they also do not produce on a daily basis. The production occurs in random time; when there is an order, near new school period, around Ramadan, or when they want to buy something expensive for family or relative. Due to that reason, finding above-micro-level companies who produce TFP is quite challenging. There are a lot of tasks that should be done by the SME's owner, such as managing the external relationship, keeping enough inventory, making decisions, working in finance and administration, and also monitoring the whole processes. Those duties make it impossible for a business owner to leave the production site for more than a couple of days. Thus, having one 'manager' among the workers is really helpful for SME owner in the traditional food sector. The manager is the most trusted employee who has the closest relationship with the owner. She is the one who takes over owner's responsibility when the owner is not available, and her advice is valuable for owner's decision. For example, if the owner has to attend an exhibition outside the province, or even outside the country, she could replace the

22 business owner's duties. She could also take care of the business if the owner becomes sick abruptly. As mentioned on the previous part, TFP producers consist of three different groups. Group one consists of the producers that produce traditional snack with a long saving life (the products usually sold as food souvenirs for tourists). Group two are formed by the producers that make the traditional snack with a short saving life (mostly sold in a particular time, such as Ramadhan). Group three includes the producers of Bengkulu’s traditional side dish. The detail information about each group will be explained below. Group One The products provided by this group vary widely. Based on interviews with producers and local government, as well as browsing on the Internet, at least twelve type of traditional snack from Bengkulu which has a long shelf life were detected. They are perut punai, bay tat, manisan terong, kue siput, cucur, kue satu, kembang goyang, lempuk durian, marning, kacang disco, gelamai, and kue penyaram. This amount may be less than it should be because there are some Bengkulu's typical snacks that cannot be found again and no longer known by the people of Bengkulu itself. In Figure 4, some examples of products produced by group one are shown. As an illustration, the description of the food is available after the figure.

Figure 4. Traditional Food Products by Group One a) Perut punai, b) Bay tat, c) Lempuk durian (Documentation of field data collection, 2016) Perut punai is made from flour dough that was first roasted with a little salt. There are two choices of flavors, tasty salted and caramel palm sugar. The cookie is named perut punai because of its shape that resembles the shape of the punai bird's stomach, twisted and circular. People in Bengkulu usually makes the cookie during Ramadhan and serve it for the sugar feast occasion. Bay tat is made from wheat flour dough, sugar, chicken egg, and butter which is smeared with pineapple jam on it. The texture is like pie, but the shape is rectangular. This cake has been known since the royal era. Until now, bay tat is still consumed by the people of Bengkulu, particularly in a wedding ceremony. Lempuk durian is a snack that is shaped similar to dodol, but uses durian fruit as its base material. To make a lempuk durian, the meat of durian fruit is mixed with sugar and a little salt, then stirred in a cauldron over low heat stove for at least 4 hours, and cooled for 18 hours. Since centuries, in every durian harvesting period, people in

Bengkulu make lempuk durian for a stock. The shelf life of lempuk durian is quite long, can be up to 8 months with proper storage conditions. Most of the firms in group one are producing more than one type of traditional snack. But, they only have one, maximum two products, as a signature. For example, the buyers know that the company A provides the best bay tat and beledang crispy in Bengkulu while also produces other traditional snacks, Lempuk Durian, which are best produced by company B. However, there is also a companies who decided to only focus on producing one type of traditional snack and being the best producer of it. In this case, the company only makes variation on one product. The SMEs are doing the production process on a daily basis, from Monday to Friday, 8 am to 5 pm. However, there is no strict schedule every day. The producers could make lempuk durian for the whole first week, but not make any lempuk for the next two months. The producer could also produce different kind of product every day. The decision is coming from the owner, based on supply and demand condition. Group Two The number of product types that can be produced by the producer of group two are ten products, which are apam bekuah, lepek binti, bolu koja, lemang tapai, kue talam, juanda korau, bonggol, emping basah, kue basung, and wajik sumatra. Figure 5 shows some images of foods from this group and the brief explanation regarding those foods are provided after the images.

Figure 5. Traditional Food Products by Group Two a) Apam bekuah, b) Lepek binti, c) Lemang tapai (Documentation of field data collection, 2016) Apam bekuah has a pancake-like shape but is slightly smaller. This cake is made from rice flour or wheat flour which is then burned or steamed. Basically, apam is a traditional cake from various regions in Indonesia. The differences of Apam in Bengkulu comes from the sauce which made from a mixture of palm sugar and coconut milk added with durian fruit. People consume apam bekuah regularly, but the consumption is increasing in Ramadhan, when Muslim community is breaking their fasting. Lepek binti is a snack made from glutinous rice, stuffed with beef grinding, then wrapped in banana leaves. Since old time, lepek binti is easily found in Bengkulu's traditional markets. This snack also usually served in the wedding ceremony. Lemang tapai is a blend of lemang made from white sticky rice which is burned in young bamboo, and tapai made from the fermentation of black sticky rice. In the

cooking process, bamboo is burned over medium heat and flipped back and forth for 6 hours. This traditional snack is usually served during the sugar feast ceremony. Besides producing Bengkulu's typical snack, producers in group two also produces ordinary snacks such as fries and wet pastries. Indonesian people usually consume that food as a daily snack. However, traditional food acts as a flagship product for producers in group two. The amount of traditional food produced every day is more than the amount of ordinary snack production. Orders outside the daily production also more often aimed at traditional food. When compared to other groups, group two produces the least amount of traditional food every day. Therefore, producers tend to make purchases of raw materials independently. Fresh raw materials obtained from the closest traditional market. Basic ingredients are bought periodically, once a week, at the nearest grocery store. However, for rare materials, the suppliers is the one who will deliver the material to the production house. Due to the short saving life of the product, the production process is done every day, and the product must be sold out on the same day (except for the lemang tapai which could last up to three days at room temperature). The production routines highly depend on how the production process of the product. In general, the producers do half the production process in the afternoon, from 3 pm to 5 pm. The next day, before sunrise, at about 3 am, fresh raw materials will be purchased so that the production process can continue until 5 am. SME in the group two sells its products in traditional markets from 5 am to 9 am, or entrusts the products with consignment scheme to speciality restaurants who only open at breakfast time, or open a stall around crowded places. The sales process lasts until the lunch time, or around 11 am. In Ramadhan, when most people do fasting, the selling time is moving to the afternoon, nearing the breaking time around 3 pm to 6 pm.

Group Three This group produces the most product variations, comparing to the previous two groups. The reason is, we could make ten derivative products only from one product alone. The example is Lema and Pendap in Figure 6. For Lema, the highlight of the meal is fermented bamboo shoots with fish. In the Pendap, the highlight comes from the flavored fish which are wrapped in thick taro leaves. The type of fish for these two foods may be any fish; fish from fresh water for Lema products, and fish from the sea for Pendap products. The same case can also be applied to the Tempoyak. Tempoyak name refers to the durian sauce and the cooking spice, while the ingredients of the mixture can be changed according to consumer preferences (can be mixed with chicken, meat, shrimp, shellfish, fish, etc). The people in Bengkulu, similar with the Indonesian people in general, consuming rice as their main food. The consumption of rice is done every day, even up to three times a day. The products provided by group three are various traditional side dishes which are consumed as a rice companion.

Figure 6. Traditional Food Products by Group Three a) Lema, b) Pendap, c) Tempoyak (Documentation of field data collection, 2016) Lema is made from shredded bamboo shoots and freshwater fish mixed and fermented. The mixture is wrapped in banana leaves and left for several days. Pendap is a spicy food consisting of fish, mixed with some main ingredients, such as garlic, kencur, milled chilli, and young coconut which wrapped together in taro leaves. The characteristic of pendap is a thick wrap of taro leaves which makes the cooking process is long enough; it needs at least 12 hours to remove the itchy effect of taro leaves. Tempoyak is made of durian fermentation. It tends to be acidic and is usually used as a sambal or cooking spice. Generally, SMEs in group three sells their products in two ways. One chooses to sell only in a restaurant, while others choose to also come to consumers to offer their products. The first type usually has a large-sized restaurant located in a strategic location that is densely populated or in popular locations which frequently visited by tourists. The second type does not have enough capital to make a large-sized restaurant; the shop is smaller and located in unstrategic place, around or in front of the owner's house. Hence, this type of producer also makes the sale by coming directly to consumers, door to door. The production process is occurring every day, as well as the purchase of raw materials. Products produced by group three will have a better taste when using raw materials that are processed when still in a fresh condition. The cooking process begins before sunrise, around 4 am, and will finish before 9 am. The food should be ready at 10 am, along with restaurant opening time. The peak hours occur during the lunch time, between 12 am to 2 pm, and before the dinner time, around 5 pm. The closing time of the restaurant is around 7 pm. Food that does not sold on that day can still be served for the next two days, only if the food is stored in the refrigerator temperature. The SME owner does not always intervene in the process of cooking food. However, the owner becomes the one who controls the taste quality of each menu made; the decision related to today's menu is also in the owner's hand. The cooking process will not be done before the owner is satisfied with the taste of the food produced. Every cook already has a good cooking ability; the owner does not need to train her workers directly. If there is a new employee, an old worker has a responsibility to teach the new worker how to make each menu, gradually.

4.1.2 Suppliers TFP companies get the ingredients to produce traditional food from three groups of sellers. The first supplier provides fresh ingredients that are easy to find but cannot be stored for too

26 long at room temperature. This seller is then called a 'supplier of fresh ingredients'. The second seller, called the 'supplier of basic ingredients', sells main materials in both wholesale and retail scheme. These materials have a long shelf life. The last supplier sells materials that are quite difficult to find in everyday life. Product sold by 'suppliers of rare ingredients' is only available in a particular harvest season or is located in the area that far enough from producers. A further explanation of the three types of suppliers is as follows: Supplier of fresh ingredients This type of supplier sells products such as vegetables, temulawak, various animal meat, cooking spices, banana leaves, coconut milk, and other fresh ingredients. The seller of fresh ingredients could be a supermarket that provides fresh products, independent sellers in traditional markets, or home-based sellers who bought products in traditional markets and then re-sell their products by opening a stall in front of the house or at the edge of crossroads. However, the producer of traditional food never buys their fresh ingredients in the supermarket. The reason is that, besides the higher price of materials there, producers also have to spend more effort to come to the supermarket. Most of the time, SME comes to individual sellers in traditional market or pays other people to buy the necessary materials in the traditional market, on a regular period. Purchasing to home-based sellers are only made when producers need fresh products right away, in small quantities.

Figure 7. One of traditional market in Bengkulu Province (Documentation of field data collection, 2016) SMEs in groups one and two do not need too many ingredients from this kind of supplier. When purchasing from supplier of fresh ingredients, SME in group one and two also buying materials for their household needs. Producers who need it the most is the producer of group three, because fresh ingredients dominate the materials that they need for producing. Traditional food that provided by companies in group three is better served freshly; after the cooking process in the morning, the food can immediately be eaten by the buyer in the brunch time. A short shelf time, as the nature of the group three food product, makes SME in group three unable to store product for long period of time without ruin the taste. Thus, the producer should do daily production activities. Supplier of basic ingredients The second type of supplier is consist of a seller from supermarkets, local grocery stores who are serving both wholesale and retail, also grocery stores in traditional markets that only serve retail purchases. Goods sold by these suppliers are basic ingredients to produce food, which has a long shelf life. Examples of such ingredients are sugar, salt, flour, sticky rice, butter, eggs, and plastic packaging. 27

All types of producers, from groups one to three, no one regularly makes purchases to supermarkets. They are buying basic materials from supermarkets only when the supermarket provides a significant discount for certain products. SMEs of groups one and two prefer to buy materials at the closest grocery store, while group three tends to buy in traditional market's grocery store, because of the same location as where they buy fresh products.

Figure 8. Grocery store (Documentation of field data collection, 2016) Even though the materials have a long shelf life, the producers prefer not to keep it on a stock at the production site. The reason behind this action is because the absence of a special place at the site to accommodate large amounts of storage, as well as the absence of required money that must be paid at once if the producers are buying ingredients directly in large quantities. The maximum number of product purchased at once is a triple of the production requirement. However, around special dates such as Ramadhan, Christmas and New Year, the price of basic materials tends to increase, so at that time, the producers usually decide to stack the ingredients before the increase occurs. Supplier of rare ingredients The last type of supplier sells materials that are hard to find, or have a high selling price outside of their harvest season. The examples of the ingredients are durian, young bamboo, pineapple, and luxury packaging. The Supplier provides the materials on an irregular basis, because of the availability of such materials.

Figure 9. Pineapple from South Sumatera plantation (Documentation of field data collection, 2016) 28

For example, the supplier of pineapple, the main ingredients of bay tat for the producer in group two. Since Bengkulu province does not have a large scale pineapple plantation, the SME needs a pineapple ingredient from the plantation in other provinces like Jambi and South Sumatera. Hence, the distributor builds a warehouse in Bengkulu city. However, traditional food producers never coming to the warehouse and purchase the pineapple by themselves because the suppliers will deliver it directly to the SME's production house, using a truck (Figure 9).

Figure 10. Durian supply during the great harvest season (Documentation of field data collection, 2016) Another example is durian supplier; durian is the main ingredient for making lempuk, apam's sauce, and tempoyak. The availability of durian is anytime throughout the year, but the great harvest season only takes place twice in a year. Durian price during high harvest season could be half priced than the usual price. Producer of group one requiring durian for making lempuk, who have months of shelf life. The great harvest season is a highly awaited moment because lempuk's massive production will be done at that time. For apam from group two and tempoyak from group three, the great harvest is also a time that they are waiting. At that moment, the cost of production can be suppressed. However, because those products do not have a long shelf life, the producers of these group still purchased the ingredients outside the great harvest time. Communication between SME and supplier of rare ingredients is usually done directly over a telephone line. The seller will inform the availability of goods and offer it to the producers, then the process of bargaining will take place in the phone conversation. Once an agreement is reached, the supplier will deliver the agreed amount and price materials directly to the production house. Sometimes, the SME who is a regular buyer can pay the ingredients in installments (pay half, then pay off in the next purchasing).

4.1.3 Distributors/Buyers Before arriving on the end consumer's hand, TFP is moving through various ways. Because when selling its products, the SME is not always offering the products directly to an end consumer. In Bengkulu city, Soekarno Hatta Street is a well-known place where people can find dozens of shops that selling various souvenirs of Bengkulu. Most of Bengkulu's people called the place 'Anggut' because the street is located in Anggut area. The shops there sell not only functional goods that have cultural elements of Bengkulu but also sell Bengkulu's traditional food, produced by various companies. For TFP producers, these stores act as intermediary 29 buyers who connect them with the end consumers. The purchasing system is consignment, where payment is made after the product successfully sold by the store. SME also makes sales to various organizations such as catering providers, education providers, local governments, and commercial companies. These agencies often conduct activities that invite people from outside Bengkulu. To fulfil their consumption needs and introduce Bengkulu culture at once, the organization makes the order to TFP producers. Sometimes, SME takes the initiative to sell its food products directly to end consumers. With 'pick up the ball' concept, the producers initiatively come to a place filled with potential consumers and selling their product there. For instance, the producers sell their products on the fringes of traditional markets or going around by visiting consumers door to door. The producers could also entrust their products with a consignment system to various stores scattered in Bengkulu city. In the other times, the initiative comes from consumers. They are visiting the production sites and making a direct purchase there. Nowadays, most producers also receive direct purchases by consumers at production sites.

Figure 11. The example of online selling of TFP from tokopedia.com (tokopedia.com, 2016) Recently, SME in traditional food also starts to do an online selling. Along with the increasing number of online platforms in Indonesia, online product sales are also increased. Indonesian online platforms such as bukalapak.com, tokopedia.com and tokobagus.com are easy to operate and extremely user-friendly which make it easy for producers to transact online with their customers. Additionally, the presence of this online platform can expand the SME's market because everyone across the country has same opportunity to access it.

4.1.4 Local Government Traditional food producer in Bengkulu has a close relationship with the local government. Basically, every ministry should have a program which directly or indirectly related to SME. However, for SME in the traditional food sector, the local government which has the closest relationship are Kemenkop, Kemendag, Kemenpar, and Kemenkes. Kemenpar (The Ministry of Tourism and Creative Economy) In 2013, Kemenpar Bengkulu launched its new tourism strategy with a branding slogan ‘Discover Bengkulu, the Land of Rafflesia’ (Kemenpar, 2013). Along with the launching,

Bengkulu province also announced its three big festivals which will be held annually; Bumi Rafflesia Festival, Rafflesia Beach Festival, and Tabot Festival. The date of each festival could be found on Indonesian Tourism Calendar of Events.

Figure 12. The crowd during Bumi Rafflesia Festival (Documentation of field data collection, 2016) The background of those big festivals are different; the main purpose also varies. The first event, Bumi Rafflesia Festival, was made based on the historical fact that Rafflesia Arnoldi, the biggest flower in the world, was discovered by Sir Thomas Stamford Raffles for the first time in Bengkulu, on 20th of May 1818. The purpose of this event is to introduce Bengkulu’s natural wealth and biodiversity. Rafflesia Beach Festival, as the second event, was made based on Bengkulu’s big potential of marine; with small islands, white sand beaches, and sea pine vegetation with the exotic atmosphere of the sunset. The last and also the oldest festival in Bengkulu province is Tabot Festival. Since 1685, Bengkulu’s government always conduct the event for ten days, from date 1 to 10 Muharram on Muslim calendar. The purpose of this event is to commemorate the death of the Prophet Muhammad's grandson (one of important Muslim figure) in the Padang Karbela war. Along with the ritual procession which happened on the festival, Kemenpar also provides additional activities based on local wisdom, in order to attract more tourist (Disbudpar, 2015). In addition to those annual events, Kemenpar Bengkulu, with the help of other organizations, also held various irregular festivals which successfully stealing the attention of visitors. The example of those events is International Dol Festival, Tempo Dulu Festival, Cultural and Ethnics Festival, Bengkulu Art Festival, etc (Disbudpar, 2015). The events invited local, national, and international tourist to come and visit Bengkulu province. However, sometimes, Kemenpar Bengkulu organize the event at another province.

Figure 13. Promotion area within the festival zone (Documentation of field data collection, 2016)

The similarity of the mentioned festivals is Kemenpar always provides a special area, within the festival zone, for companies who produce Bengkulu’s iconic product, including traditional food producers to sell their products to the visitors. Through this policy, Kemenpar wants to promote Bengkulu's culture and heritage to as many people as possible. Kemendag (The Ministry of Trade) Every year, Kemendag of Bengkulu Province provides a free business equipment to high achievement SME. The purpose is to support business owner to grow their company while also spread a positive impact on the community around the firm's location. Usually, the initiative to provide this grant is based on personal assessment of Kemendag; there is no cross-checking to the business actors. As a result, the equipment provided sometimes does not meet the needs of the SME. In 2010, one of the owners of traditional food business from group one received a durian stirrer machine from Kemendag, for free. The capacity of the toll is at least 50kg of durian meat in one processing. Conceptually, the process of making lempuk durian will be more efficient and quicker, compared to manual production using a pot. However, in practice, lempuk durian produced by this tool has a different taste than lempuk that manually processed. In the end, the equipment is not used anymore.

Figure 14. Manual process of making lempuk durian (Documentation of field data collection, 2016) Free equipment is also provided to SMEs who previously proposed for the grant. If the proposal is made on behalf of the group or community, the chance to be granted by Kemendag is higher. Unfortunately, there are not many TFP producers in Bengkulu who are members of an official cooperative or business community. Communication between SME and Kemendag also takes place concerning to business license. To be able to operate in accordance with applied regulations, a business should have at least two licenses; Business and Trade License (SIUP) and Certificate of Company Registration (TDP). The licensing process could be done at the nearest Kemendag office, by attaching the required documents. SIUP is an essential document which must be owned by everyone who wants to carry out the trade business activities. Each company, cooperative, or individual firm who is conducting business activities must allocate their time to make a SIUP. There are three types of SIUP applicable in Indonesia, namely small, medium, and large SIUP. SME usually applied for small SIUP which is designed for companies with net assets ranged from 50 million to 500 million. TDP is a list of official records, which is acting as evidence that a

32 business entity has been registered and authorized by an authorized official. Just like SIUP, TDP should be owned by SME who carry out trade activities.

Figure 15. Website for online licensing system (sipo.kemendag.go.id, 2016) Since 2016, based on Regulation of the Ministry of Trade No. 14 / M-DAG / PER / 3/2016, Kemendag has inaugurated the online licensing system through its website 'sipo.kemendag.go.id'. However, in the implementation, SME, especially those who operated outside Java Island, does not yet know of this program. The business owner still does the licensing process manually. The same condition occurred when SMEs have to arrange the extension of their SIUP and TDP. They are applying offline by coming to the nearest office of Kemendag. Kemenkes (The Ministry of Health) To be able to sell its products more freely, SMEs in traditional food sector should include the Household Food Industry License (PIRT) number on their food packaging. The number indicates that their products are produced using healthy ingredients and through good production processes. Food products that must include PIRT licenses are products that have a shelf life of more than seven days. However, products which consisting dairy ingredients, containing animal flesh that requires low-temperature storage, baby food, canned food, and alcoholic drinks cannot get PIRT numbers because they need more complex licensing (Merina, 2017).

Figure 16. Household Food Industry License (PIRT) certificate (Documentation of field data collection, 2016) Before obtaining PIRT permit, SMEs must get an extension certificate from Kemenkes and must pass the production process supervision. Extension certificate can be obtained by following healthy food training by Kemenkes on a district level. PIRT license has a validity period of 5 years and is required for each product type. If SME produces five types of food products, then the company must make five different PIRT numbers. TFP producers who come from group one should arrange PIRT number for their products. The existence of PIRT number on their packaging is one of the requirements from souvenir shops in Soekarno Hatta Street. The retailer will reject companies’ products if the PIRT license is not valid. The Ministry of Cooperation and Small Medium Enterprises (Kemenkop) Kemenkop employees never restrict anyone to come and have a consultation with them. Business actors can come in working hours to tell every problem they face to get directions and advice from Kemenkop officers. The issues could be relating obstacles on making a license, getting a new source of capital, finding a cheaper supplier, etc. Kemenkop has links with various business actors so that Kemenkop can connect one entrepreneur with other entrepreneurs to solve the problem. If there is a tendency that they can improve their business by work together, Kemenkop will connect them. For example, when the producer does not know where to find a good packaging company, Kemenkop can connect them with the packaging maker.

Figure 17. Training activity conducted by Kemenkop (Documentation of field data collection, 2016) One of Kemenkop's function is to do an empowerment for cooperative and SME (Depkop, 2017). Hence, Kemenkop holds frequent training for SMEs. The most common training is related to production technical skills and managerial skills. The examples of training on production technical skills are training on choosing healthy materials, doing hygienist production, creating good packaging, etc. Meanwhile, the examples of training on managerial skills are entrepreneurship training, financial management, human resource management, marketing strategies, etc. When conducting training, Kemenkop works with other parties. For instance, on December 2016, Kemenkop of Bengkulu invited the owner of Bukalapak.com, an online platform in Indonesia, to educate SMEs about an online sales system. Additionally, Kemenkop also periodically organize exhibitions, where business actors can bring and introduce their products to prospective new customers.

4.1.5 Academic Organization There is an obligation for any universities in Indonesia to organize education, research, and community service (Diknas, 2010). The obligation called Tridharma of Higher Education, which is further explained by Law No. 12 of 2012, Article 1 Paragraph 9 (Ristek, 2017). The first responsibility, an education, refers to a conscious and well-planned effort to create an atmosphere of learning and learning process so that learners actively develop their potential as well as skills needed by him, society, nation and state. The second, a research, is an activity carried out according to scientific principles and methods systematically to obtain information, data, and information relating to the understanding and testing of a branch of science and technology. The last responsibility, which is Devotion to the Community, is the activity of academic civitas utilizing Science and Technology to advance the welfare of society and the intellectual life of the nation. In order to fulfil Tridharma, especially for point two and three, UNIB created an organization called LPPM which responsible to arrange the whole research and community service in the university. LPPM was born on June 7th, 2013, based on the regulation of the Minister of Education and Culture No. 63 of 2013 (UNIB, 2014). Both the research and the community development activities are covering Bengkulu province area and wrapping varies sectors, including traditional food. Table 4 shows that from 2010 to the middle of 2015, UNIB conducted almost a thousand research and community service activities, where traditional food producers became a part of it. Table 4. Total Number of Research and Community Development Projects at University of Bengkulu in 2010-2015

Year Research Community Development Total project Project Total project Project related to TFP related to TFP producer producer 2010 92 2 49 1 2011 66 1 43 7 2012 39 2 42 2 2013 130 1 87 4 2014 92 3 100 7 2015 76 6 15 0 Source: Documentation of field data collection (2016) UNIB has eight faculties that alternately hold local and national events where are other universities from all over Indonesia comes and doing activities together. The events are announced on school's official website (unib.ac.id). For example, last year, the student from a faculty of technic held a national meeting called Regation, Rafflesia Electrical Great Action, where university students from ten different campus gathered, doing some competitions and discussions for the whole three days (UNIB, 2017). From that kind of events, TFP producers gain an advantage because UNIB often buys their products either for guest souvenirs or guest consumption during the event. Additionally, the event usually provided a stand where business owners, including producers of TFP, can peddle their products. Moreover, Agribusiness department from the faculty of agriculture regularly conducts entrepreneurship seminar for its prospective graduates (Faperta, 2017). In this event, the

35 campus invites business actors to motivate students in order to have the spirit of an entrepreneur. The purpose is to increase the interest of prospective students to open their own company and empowering people in the surrounding, right after their graduation from university. After the seminar, sometimes some students decide to undergo a few months internship at the TFP production house to be able to get an experience of doing business operations.

4.1.6 Financial Providers BB is one of the Regional Owned Enterprises (BUMD) in Bengkulu Province which is incorporated as a Limited Liability Company who engaged in banking services. One area of its business is to channel credit to the community. The bank has committed itself to be a highly competitive and reliable bank who can contribute significantly to the development and equitable distribution of regional economy (BB, 2014a). Regarding credit scheme, BB has the Government Bonds (SUP) funding credit which is addressed to individuals, groups, or micro and small medium sized enterprises that have a productive business (BB, 2017b). The purpose of the program is to empowering and fostering pre-prosperous family, or low-income families who already have a productive business. The employee who is responsible for running the scheme is BB's loan officer. When executing the job, the loan officer from BB actively visits business owners, especially SME, to offers credit to them. The bank employee comes to talk directly and try to convince the business owners to bravely choose bank loan as a solution for their lack of capital problem. Most of SME owners are reluctant to bank credit due to their fear that they will not be able to repay the loan and fulfil the bank requirements, especially regarding interest rate and collateral. In addition, the officer said: SME owners prefer to seek additional capital through informal funding agencies or through family and relatives. They have a negative expectation about bank loan; it is a complicated and convoluted process. That is why a bank should be the one who takes the initiative by sending its officers to the SMEs and offer a business loan to them. The officer is usually starting the offer with a small amount of money and a short period of credit. The reason behind this action is that he wants to increase the confidence of small entrepreneurs and shows them that repay a bank loan is not a hard thing to do. If the owners succeed to settle the loan, the officer will offer a higher amount of money with a longer credit period. Along with the process, bank officer also establishes personal relationship with the SME by regularly visiting them. The purpose of this action is to overcome the fear of business owners through a formal financial organization, such as a Bank of Bengkulu. There is one government program issued by the Ministry of Finance that related to the provision of credit which nationally applicable. The program called KUR and could be accessed since 2007 (KUR, 2017). When it applied, KUR can be done in two ways; directly or indirectly. Direct distribution of KUR happened when SMEs start the application itself by accessing or visiting KUR at branch office of executing bank. In order to get closer service to micro business, the distribution of KUR should be implemented indirectly. This means that in the channeling, a micro business can access KUR through Micro Finance Institution or other linkage program activities in cooperation with executing bank (TNP2K, 2017). As

36 one of the executing bank, BB conducts KUR program using their SUP procedure. The purpose is still the same; to increase the confidence of the producer to take a loan risk.

4.2 Collaboration Activities within Networks

4.2.1 Vertical Collaboration In this subchapter, the findings related to producer's collaboration activities in the vertical network will be presented and compared. Table 5 shows an overview of the collaboration. SMEs from the whole group doing an information sharing with their chain partner, especially with the supplier. As a provider of raw materials for companies, the role of a supplier is essential. For suppliers of rare ingredients which selling seasonal goods, informing the producers about product's price and availability is an obligation. The nature of seasonal ingredient is the fluctuation of its stock and price. Therefore, producers tent to purchase the goods in large quantities, once the stock is abundant and the price is lower. Respondent 1C stated her reason: Outside the harvest season, durian price can be twice higher. I prefer to buy it at once when the price is low, then directly process the durian before it rotten. I usually spend the whole week only for making lempuk durian when the ingredient is available. Due to the product's characteristic, only producer from group one who conducts an information sharing with its distributor. Products from group two and three have a short shelf life. Hence, if the producers put the product in the morning, they have to take it back from the distributor on the same day or on the next morning. The information from distributor relating the condition of the product is unimportant. Different story applied for producers in group one. Their product could be sold out in three days, a week, or even a month. Checking the stock regularly is not an efficient decision. Hence, the updates from distributor become a crucial information. The suppliers, producers, and distributors indeed have their economic motive when running the business, but they also have a social motive. Actors in the traditional food chain have a common goal which is preserving Bengkulu's culture. They are working together to promote traditional food of Bengkulu province so that the consumption is long lasting till forever. Considering the congruent goal, producer in group one always apply a supply quota for its distributor during Ramadhan period. The reason is, the company wants to make sure that every distributor gets a fair number of products and the products can reach as many consumers as possible. Then, more people could recognize Bengkulu's traditional food product. In order to increase the efficiency of the supply chain while also manage good relation with chain partner, the supplier provides free delivery order for every bulk purchasing. The materials will be sent directly by the supplier to SME's production site. There is no extra price for the service. Producer in group three also provides the same service for its buyer. Respondent 3B said that: I am delivering their order for free. Well, I have to spend some of my time for the service, but for me it is worth it. The buyer thank me.

Table 5. An Overview of Collaboration Activities in Vertical Network

Activities Group 1 Group 2 Group 3 Information Supplier of rare materials tells Supplier of rare materials tells Supplier of rare materials tells Sharing the producer when the price is the producer when the price the producer when the price decreasing is decreasing is decreasing Supplier of rare materials tells Supplier of rare materials tells - the producer if there is an the producer if there is an abundant ingredient available abundant ingredient available The distributor inform the - - producer once the product sold out The distributor delivering - - comments and critics from consumers The end consumers giving their The end consumers giving The end consumers giving feedback directly to producers their feedback directly to their feedback directly to producers producers Goal The producers and distributors The producers and The producers and Congruence want to preserve Bengkulu's distributors want to preserve distributors want to preserve culture Bengkulu's culture Bengkulu's culture An agreement related supply - - quota during Ramadhan Decision Supplier of rare materials Supplier of rare materials Supplier gives free delivery synchronization delivers the required delivers the required cost when the producer ingredients directly to the ingredients directly to the ordered bulk materials production site production site - - Producers give free delivery cost when the buyer ordered high quantity of TFP Incentive The producer could paying in The producer could paying in The producer could paying in alignment installments installments installments Supplier gives a discount and Supplier gives a discount and Supplier gives a discount and free delivery cost when the free delivery cost when the free delivery cost when the producer ordered bulk producer ordered bulk producer ordered bulk materials materials materials The producer gives a discount The producer gives a The producer gives a for consumer with high quantity discount for consumer with discount for consumer with order high quantity order high quantity order - Facilitate a special order Facilitate a special order (different size and or flavour) (different size and or flavour) Getting retail product with - - wholesaler price from supplier of basic ingredients Giving a free product for Giving a free product for - frequent buyer frequent buyer Giving a sample product for - - distributor Resource The supplier providing free The supplier providing free The supplier providing free sharing delivery order for high quantity delivery order for high delivery order for high order quantity order quantity order Supplier of rare materials Supplier of rare materials delivering the ingredients for delivering the ingredients for different producers at the same different producers at the time same time Collaborative Using phone call for Using phone call for Using phone call for communication communication with distributor communication with frequent communication with and supplier buyer distributor and supplier The distributor inform the - - producer about the current stock of the products (three times a week)

Activities Group 1 Group 2 Group 3 Joint knowledge The distributor delivering - - creation comments and critics from consumers The end consumers giving their The end consumers giving The end consumers giving feedback directly to producers their feedback directly to their feedback directly to producers producers

Within the vertical network, the actors are doing a process of sharing cost, risk, and benefits. The supplier applies an instalment system for the transaction of raw materials. Additionally, the supplier gives a discount and free delivery cost when the producer ordered bulk materials. Then, the producer does the same thing; she gives a discount for the consumer with high quantity order. The producer from group one and two even provide a free product for their frequent buyer, where producer in group two and three facilitate a special order for consumers; they can request a special size and flavour for the products. Producer in group one gets another benefit from the supplier of basic ingredient because the supplier is selling the retail goods with wholesale price. Free delivery service also shows a resource sharing activities between chain members. The one who performs delivery order without taking any fee is sharing his or her time, energy, and also transportation cost with others. For the supplier, the delivery time usually arranged which means that supplier will deliver the materials to many producers at once. The communication among actor in the traditional food chain in Bengkulu province is frequent and active. Supplier, distributor, and producer are keeping each other phone number and having a two-way communication through phone message or phone call. There is a take and give relationship where everyone is actively approaching each other. The example comes from a distributor in Anggut, R2, who said that she is regularly informed producer in group one about the current condition of the products in the store. Whether it is sold out, almost sold out, decent, or only slightly sold. The consumers are the best source of critics and input to improve the products and increase the producer’s knowledge on consumer preference. In Bengkulu's traditional food sector, the consumers are quite active delivering her and his comments or requests regarding the products. Sometimes they deliver it through the distributor, in the other time they send a message to producer number which is stated on the packaging, and most of the time, they say it directly to the owner or workers when buying the product in the production site.

4.2.2 Horizontal Collaboration The collaboration activities are not only occurred among the actors in the chain but also happened between a producer and its competitors. The producers of Bengkulu traditional food sector have frequent interaction by forming a collaboration among them. Table 6 shows the activities that indicate the existence of collaboration. Through the table, it is noticeable that producer in group one doing more collaboration activities than other producers. Producers in group three are the one who is doing the least. The information about a grant from the government, discount in license arrangement, stall availability in a festival or exhibition, and the existence of new supplier are the example of precious information for SMEs in the traditional food sector. However, if one producer knows the information, she will, without hesitation spreading the news to other producers. They have a healthy competition, and they believe that sharing the information is not caused any loss for them. Besides, it will strengthen the relationship among producers. When having a 39 face to face meeting, both producers from group one and two usually share their experience regarding the fluctuation in doing business, including the experience on joined a credit scheme.

Table 6. An Overview of Collaboration Activities in Horizontal Network

Activities Group 1 Group 2 Group 3 Information Spreading information regarding Spreading information Spreading information Sharing training, exhibition, event, regarding training, exhibition, regarding training, exhibition, government grant, and discount event, and government grant event, and government grant on licensing letters to other to other producer to other producer producers

Telling the other producers if Telling the other producers if - there is a new supplier there is a new supplier Exchanging credit experiences Exchanging credit - experiences Goal The producers from any group The producers from any group The producers from any group Congruence want to preserve Bengkulu's want to preserve Bengkulu's want to preserve Bengkulu's culture culture culture - Working together when - applying for government grant (making a proposal and gathering identities) Incentive Completing each other products Completing each other - alignment (selling products in other products (combining their producer's production site) products and sell it as a package) Recommending other producer - Recommending other to the consumer when she does producer to the consumer not produce the requested food when she cannot fulfil the order Resource Re-packing the products of Re-selling the products of - sharing other producers when she does other producers to the not have time to produce consumer when she cannot fulfil the order or does not have time to produce

Renting a place at the exhibition - - together (sharing cost) Collaborative Two way communication by Two way communication by - communication phone phone Joint knowledge Sharing experience about Sharing experience about - creation relationships with consumers relationships with consumers

Similar to a common goal between the producer and its vertical network, producers and the competitors also have a social motive to preserve Bengkulu's culture by actively promoting traditional food of Bengkulu province. Another common goal is coming from producers in group two. A group of lemang tapai producer in Sungai Rupat Street was gathered and asked the government to grant them with new canopies for selling the products. Respondent 2A mentioned that: The canopies that we used four years ago were ugly and unattractive. Today, when every seller along the street is using the same canopy, more consumers coming since the street becomes more beautiful than before.

Regarding the incentive alignment activities, the producers are doing an indirect promotion for their competitors. The example from group one is when the company is allowed to put their products in another company’s production site to be sold in consignment system. In return, the company is also permitting others companies to put their products in its production house. Sometimes, when the producer does not have a stock for certain product, she recommends the consumers to buy the product in their competitors. Similar with producers in group one, the producers in group three also recommending another producer to the consumer when they cannot fulfil the order due to the full production capacity. SMEs in group two share the benefit where they are selling their products in the same area. They are combining their products and selling it as a package so that the consumers will be more attracted. Through the incentive alignment activities above, the producers shared their resources with others. Additionally, the resource sharing activities were done by SMEs in group one and two. When the producers do not have time to do production process or cannot fulfil the required number of order, producers in group one and two will re-selling the products of other producers and acknowledge the products as its own. The unique action in sharing the resource also occurred when two producers from group one united and rent a place at the exhibition together. The collaborative communication only occurs in group one and two. The producers within that groups regularly meet on various occasions and being close because of a frequent meeting. They have each other’s phone number and become a partner not only in business matters but also in personal matters. They are also creating a market knowledge together by actively discuss their problem and share each other experiences with consumers. The producers in group three are more individualist so that they do not have an opportunity to create a close relationship within the group.

4.2.3 Third Parties Collaboration SMEs in the traditional food sector also collaborate with their supporting organizations. However, the collaboration in this network is quite different because most of the benefit flows to the producers. The third parties organization acts as the one who is giving their resources to each group of producers. The overview of collaboration activities between TFP producers and its supporting partner is provided in Table 7. Third parties actors who are advising SME are local government and financial provider. As a part of its responsibilities, Kemenkop should provide a special time to hear entrepreneur's problems and then give them many options to solve that. The business owner has to come by herself to the office so that the discussion could occur. Bank as a financial organization also needs to advise business owner to take credit. Most of the TFP producers are afraid to loan money from the formal organization. Thus, the bank takes the initiative to encourage the producers by explaining the benefit of bank loans and advise them to take a credit risk on the shake of business development. Providing financial support for SME is also a collaboration activity between the producer and third parties. All producers, from group one to three had an experience on borrowing money, either from the formal provider or the informal one. Sometimes the producer is the one who initiatively coming to the financial provider, but other times, the bank officer is the one who visits the producer and offers the credit scheme. Another financial support is coming from local government. It gives money grant for SMEs through community bases. Thus, only producer in group one and two who can access the

41 grant. Moreover, special for group one, the government arranged a PIRT document creation for free at a particular time. The program helps the producer to detract their spending.

Table 7. An Overview of Collaboration Activities with Third Parties

Activities Group 1 Group 2 Group 3 Giving advice Local government welcomes Local government welcomes Local government welcomes every SME who comes and every SME who comes and every SME who comes and asks for business advice asks for business advice asks for business advice Bank officer encourages the Bank officer encourages the Bank officer encourages the producer to apply for bank loan producer to apply for bank loan producer to apply for bank loan Financial Bank officer offering a loan or Bank officer offering a loan or Bank officer offering a loan or support the producer initiatively the producer initiatively the producer initiatively borrowing money from bank borrowing money from bank borrowing money from bank Grant from local government Grant from local government - The government sometimes arranging a PIRT creation for - - free Access to Free equipment from local Free equipment from local Free equipment from local technology government government government University introducing a new - - machine to producer Access to Third parties organization Third parties organization Third parties organization market purchase the products for their purchase the products for their purchase the products for their events events events The government provides free The government provides free The government provides free stalls for producers in festival's stalls for producers in festival's stalls for producers in festival's area area area The government invites SMEs The government invites SMEs The government invites SMEs to join an online marketing to join an online marketing to join an online marketing training training training SMEs exhibition days by local SMEs exhibition days by local - government government University offers a stall (rent) - - during campus events The government brings SMEs to exhibition in different - - province and even abroad Introducing Local government introduces Local government introduces Local government introduces new relation the producers to relevant the producers to relevant the producers to relevant suppliers suppliers suppliers Facilitating The government brings SMEs idea to exhibition in different - - generation province and even abroad

University connects the SMEs - - with its new graduation students

Business Training and monitoring Training and monitoring Training and monitoring Development program by local government program by local government program by local government Business incubation through Business incubation through Business incubation through university's community university's community university's community development programs development programs development programs

In some occasions, the local government giving free equipment for TFP producers. The activity is part of government program, and every company is allowed to propose their

42 needs. Similar activity is presented by UNIB as the biggest academic organization in Bengkulu. Sometimes, the campus conducts training where the producers could gain information about the newest machine in the sector. Respondent 1H said that: I love attending that kind of training. I get permission to operate the equipment and feel its effect to production process Third parties organizations become a consumer for the SME. They are periodically purchasing the products from group one, two, and three, for their events necessity. Regarding access to the market, the government also provides free stalls for producers in festival's area and invites SMEs to join an online marketing training. Additionally, when there is an exhibition outside Bengkulu province, the government brings one to three business owner with them, to help them introduce Bengkulu's culture. University, on some occasions, offers a stall that can be rent by the producers during campus events. Through the interaction with local government, the producer knows new partner such as a new supplier. The government just introduce them to the new partner to give the producer some options. As HR from Kemenkop said: Small companies only own a small amount of money. They need as much partner as possible to keep their existence in the competitive business. There is also activity relating the facilitation of idea generation. The local government of Bengkulu province periodically get an invitation to attend an exhibition in different places. The government always bring along TFP producers to such exhibition, so that Bengkulu can promote their traditional food to others. Through the exhibitions, the SMEs got the opportunity to engage with a new organization and inspired by them. The idea generation activity also occurred when a new individual joins the production team. Graduation students from UNIB are regularly registering themselves to the company in group one. During the internship period, they learnt business management while the company also gained a fresh idea. Moreover, interaction with local government and academic institution also create business development activities. For example training and monitoring program by local authorities, then business incubation through University's community development programs.

4.3 Additional Resources

From the collaboration activities that are formed among actors in the traditional food sector, the producers get many extra resources that help them to develop business.

4.3.1 Resources from Vertical Collaboration From information sharing, collaborative communication, and joint knowledge creation activities in the vertical network, the SMEs get additional resources which are new information and knowledge. Through some feedbacks and comments from the consumer, the producers formed knowledge which particularly relates to product improvement and consumer’s preference. New information that the SMEs conquered in this collaboration is information when the price of raw materials decreased, when the availability of required ingredients is abundance, and when the stock of TFP in distributor’s shop is empty. That information leads to probability to get cheaper materials and a more effective delivery schedule for producers.

Then, the producers get the next resource, which is assets. In this case, their chain partners are not literary giving the asset to the producers, but they give the producers a permission to ‘use’ their asset. In the other word, the chain partners are sharing the asset indirectly. For example, the suppliers even share their transportation asset. They provide free delivery for the producers so that the effective allocation of employee’s time and energy could be reached; the producers do not need to ask their worker and use their transportation to buy the ingredients from suppliers. The SMEs and its chain partners have a common goal which makes them united to reach that objective. Running to the same direction is making them supportive through each other problem, the actors within the chain become a supportive partner to one and another. The TFP producers also gain financial resources from their vertical network. The financial benefit is indirect such as a discount for purchasing in large quantity, free delivery, getting a wholesale price for bulk purchase, and permission to pay in installments. Those indirect financial advantages make the producer eliminate their transportation in purchasing cost, paying less for a certain number of materials, and avoid a huge payment at once.

4.3.2 Resources from Horizontal Collaboration The collaboration activities between the producer and other producers bring additional resources such as information, assets, financial, and knowledge. The information is covering a schedule of upcoming training, event, and exhibition that arranged by external parties. The information also relates to the availability of government grant, the existence of new supplier, competitor’s experience in bank loan, and discount on licensing letters. That kind of information increases the SME’s opportunity to gain other sources such as ideas for innovation, new skills and knowledge, new customers, a new place to sell the product, new technologies, and financial support. An asset is also part of the resources that the SME gain (indirectly) from collaboration activities in the horizontal network. Similar to the actors in the chain network, all TFP producers from group one to three also have a common goal which makes them united to reach that objective. Thus, SMEs get supportive partners from the interaction. To fulfil the consumer’s order, the producer is promoting, using, and completing each other products. For example, respondent 2A put her product on respondent 2E’s production site and vice versa. That actions help them to create an opportunity to gain new consumer and new distribution channel. Horizontal collaboration also brings additional financial resource for the SMEs. The TFP producers usually united and share a cost when renting a stall in an exhibition. They are paying together to get a cheaper facility. Another resource gained through the horizontal network is knowledge on consumer preference and consumer group.

4.3.3 Resources from Third Parties Collaboration The extra resource that certainly comes from collaboration with third parties is information. The information could be any pieces of advice related company’s problems. Along with the advice, SME gets opportunity to engage with a new partner (supplier, distributor, supporting stakeholders, and consumer), also conquer new skill or new capital. The next resource is financial support. This source comes from the bank loan and community-based of a capital grant from the local government. Additionally, there is also a

44 financial support in the form of a free spot on exhibition. The company does need to pay some money for the rental cost, and it helps them to maintain their capital. SMEs get additional assets such as free tools and equipment from the local government. They also get access to a new place where they can sell the TFP from the local government and educational organization. That new location can lead to new consumer and new promotion channel. Direct interaction with end consumers in such place also brings advantages; producer can collect feedback from them to product improvement. Another asset gained from third party collaboration is new skilled employee; the internship worker from university’s graduation which brings fresh idea and possibility to gain new consumer. The last resource is knowledge and skill. Through training for using an advanced machinery by the University, producers gain new insights about processing technologies and a new skill to operate the machine. There is also an online market training which brings an online selling skill and knowledge to SMEs. Activities such as festival and exhibition give a knowledge related an unforeseen innovation. The producers can learn from other producers about innovation idea that they never imagined before; they get inspiration through other SME’s actions.

4.4 The Producers’ Implementation of Innovation

Table 8. The Innovation Outcome of TFP Producers

Innovation Type Group 1 Group 2 Group 3 Product Innovation Composition yes yes* yes* (by request) (by request) Appearance yes yes yes Packaging yes yes yes Convenience yes yes yes NPD yes yes yes

Process Innovation Quality improvement yes yes yes Size of batches yes yes* no (only during Ramadhan or by prior notification) New technology yes yes yes Traceability yes no yes* (only in the specific packaging type)

Market Innovation Distribution channel yes yes yes Promotion yes yes yes New consumer group yes no yes Electronic marketing yes no no

Innovation Type Group 1 Group 2 Group 3 Organizational Innovation New structure yes no no New collaboration yes yes* yes (with the previous partner, but in the new shape of collaboration) New employee yes Yes yes Source: Documentation of field data collection (2016)

In order to answer the third research question (What innovations are implemented by traditional food producers?), the SMEs’ innovation outcomes which are related to product, process, market, and organisational innovation for the past five years, will be described below. Table 8 provides the resume of such information. The comparison between each group of producers are also captured there.

4.4.1 Product Innovation Composition The consumers prefer the original taste of traditional snack. Thus, the producers are only doing product innovation in composition by giving additional ingredient, not fully changing the component. Despite the addition of new ingredients, the taste of the main ingredient of the food should not be overtaken by the new material. In that case, the consumer can still tolerate some level of composition changing. As the statement given by respondent 1D below: I once added a variety of flavours in my bay tat product, such as strawberry jam and mango jam. At that time, my innovation only attracted a few consumers. There is always some bay tat left, not sold, at the distributor. Since then, I only produce bay tat with usual flavour, pineapple jam. I also gave extra toppings such as chocolate or cheese, but the pineapple jam never changes. Producers in group two and three are more hesitant regarding composition changing. Respondent 2B stated that: I personally do not dare to change the core ingredients of the traditional foods that I produce. I am afraid that no one wants to buy it. Additionally, respondent 3A said: It is strange, even in my imagination. There must be no one who wants to purchase the product. Tempoyak should be made with fermented durian meat mixed with another seasoning. Other fruits cannot replace the durian. However, TFP producers in group two and three still produce the requested flavour through a special order by consumers. The price of that requested product is more expensive, and a minimum order is applied.

Appearance Majority of SMEs in group one produces its product in varying sizes, weights, and shapes. The example comes from bay tat product. It is available in rafflesia shape and rectangular shape. The option of weight variation is 400 gram and 700 gram. Then, the consumer could choose two different sizes, the small size (15x15cm) and large size (25x25cm). Applying an attractive colour can be one of the strategies to invite consumers. SME in group two innovates the physical appearance of its product by creating different colours on traditional food snack. For example, the colour of apam berkuah which is usually white can be changed to a green with a mixture of pandanus leaf extract. Producers in the group of three used to serve their food in one portion size. However, if there is demand from consumers, the food can be served in its intact form. For example, tempoyak fish which serves with the condition of fish that is not cut at all.

Packaging Entrepreneurs in group one creates a different packaging for a different purpose. For a regular consumer who consumes the snack on a daily basis, the packaging is simple; only using a thin plastic labelled with brand information. For consumers who buy the snack for food souvenir, the packaging is fancier. It has a double layer; the first one is using plastic, then the second layer is a box with an eye catching design. In some cases, the producer applied some technology, such as vacuum, to make sure the snack has a longer saving time. Producers in group two and three are also taking into account an innovation in packaging. The producer provides some choices and lets the consumer decide which packaging that they preferred. However, high-quality packaging means that the consumer has to pay more than the usual packaging. As mentioned by respondent 2A below: I have prepared plastic wrap, mica wrap, and box carton wrap. If you want to use mika, you have to pay additional 500 rupiah, it can be enough for six pieces of cakes. If you want to use carton box, you have to pay 1000 rupiah higher, the box is fit for up to 12 cakes. However, if you do not want to pay more, I will use an ordinary plastic wrap.

Convenience Producers in group one increases consumer's convenience to the product with the changing of the packaging. For example, the application of zipper in the packaging. It helps the consumer to keep the food in good condition even after he or she opened the cover. Food can be completely closed again, thus minimizing contamination from the outside. For group two, the convenience correlates to the physical appearance of the product. Since the consumer prefers a healthy and natural product, producers always try to use natural dyes when producing food. For example, the green colour of pandan leaves, purple colour from dragon fruit, and red colour from strawberry. Group three applies convenience factor in product innovation by separating rice and side dishes for take away packaging. The goal is so that rice does not absorb the sauce, and consumers can pre heat the food before consumption. Respondent 3E mentioned that: At first, I always mixed the rice with the side dishes, but sometimes, the consumers ask the separation, due to various reasons. Since then, I always ask the preferences of buyers, before wrapping the order. I will do whatever is more convenient for them. 47

Also, when selling in Ramadan, consumers often buy for take away. Most of the consumers will doing the purchasing around the time of break fasting. Hence, the producer should perform an accelerate service. SMEs in group three already wrap each side dish, in a single- sized plastic packaging. When the consumer comes, they just need to pick and gather the chosen dishes.

New product development Regardless product innovation as explained before, there is also a massive trend among the producers in developing a new product. The new product here refers to other traditional food and ordinary food products that are known by Bengkulu's people, but the production is new for the company. For group one, the example coming from respondent 1G. At first, she only provides lempuk durian and bay tat on its product list. Then, for the next step, the company prefer to develop other product, such as perut punai, rather than apply too much innovation to the lempuk and bay tat. Moreover, in the particular time of the year, usually near sugar feast, the owner prefers to develop and produce seasonal cookies. Developing new product is also a preferred choice for SMEs in group two. The more traditional types of cakes that can be made by producers, the better the company's ability to handle consumer orders. The example is coming from one of the respondents from group two, respondent 2C. Every day, she produces four types of traditional cakes (A, B, C, D) and two types of common cakes (AB, BC). However, in fact, she has an ability to produce ten types of traditional cakes, and ten types of ordinary cakes. The producer uses her skill for making variations in production. In addition, when there are potential customers who order traditional cakes E, F, and G, the producer can fulfill it with her ability. Producers in group three have the same reasons as group two regarding their activities in developing a new product: creating a variation on daily production.

4.4.2 Process Innovation Quality Improvement The producers are always making a quality improvement of the product which related to the manufacturing process. The improvement is gradual; most of the time the consumer is the one who inspires SME to improve. Respondent 1F, one of the producers in group one, said that: Every seller wants to provide the best product for its consumers. Personally, I would be very embarrassed if I was selling untasty products. Therefore, I will not sell my product to the whole distribution lines when I am not satisfied enough with the product. It takes at least six months trial and error before I launch the product and distribute it widely. Respondent 2B from group two stated that: I am open to any input given by the consumer. As long as the input gives a positive effect on the quality of the product, I will definitely accommodate it. Additionally, Respondent 3D from group three mentioned: People's preference for food is different and subjective. Hence, in the restaurant, I always provide sambal, sugar, salt, soy sauce and pepper on every table. So that buyers can add the spices based on their preferred taste. 48

Size of batches All producers in group one and two will increase their production capacity near the month of Ramadhan. The increase could be doubled, due to the increasing demand for traditional foods in that period. The highest increase occurred in group one, especially for the sale of its signature product. In the month of Ramadhan, the producer should apply a maximum number of products to each agent, and apply maximum purchase rates to consumers who buy directly to the production house. The purpose is to make sure that the products spread to as many consumers as possible. However, the nature of production in group one is basically fluctuated. It is really depends on the recent demand. Respondent 1H said: Every month of Ramadhan, the production is at its maximum, and it cannot be improved yet. Next year, the company will enlarge the production house and buy some additional tools, so that the production capacity, especially during the next Ramadhan, can be improved. For producers in group two, the increased production also happened when the consumer makes a huge order through a special request. In this case, the company can execute the order only if the buyer gives prior notification, at least three days before the product is taking away. The reason is producer needs to arrange the ingredients and prepare the employee to accommodate the unusual order. Other stories comes from SMEs in group one. Their production capacity is remain the same throughout the year. Different from the other group, the size of batches is actually reduced during Ramadhan. The restaurant only open half day, from 4 pm to 9 pm, because only small number of consumers coming during lunch time.

New technology For TFP producers, the use of advanced equipment does not always have a positive impact on products and business. New technology will only be used by SME if the taste, texture, and aroma of traditional food products are unchanged after the application. As a statement from respondent 1C (groups one) and respondent 2B (group two) below: I used to use a fire oven for making a bay tat, but now I prefer using a gas oven. The changing on the type of oven has not influenced the taste of food, so I left the fire oven behind. The gas oven makes the process of production easier and faster. The tools for making a pattern on snack is improving. Originally the tools are all made of wood, but now I use the tools which made of plastic. The material makes the tool easier to clean. However, if the new machine or technology changes the authenticity of the traditional food, the producer will not use it. Respondent 1E (group one) and respondent 3D (group three) stated that: Around six years ago, I got a free machine for the government, which is durian stirrer engine. The engine is very advanced; I can save a significant workforce by using it. However, the taste of lempuk is changed because of the machine, so I prefer to go back and use a normal production process. Years ago, I used a wood burning stove to cook all kinds of traditional food. Nowadays, I use a gas stove to cook the majority of products. The wood stove is only used to make pendap; the aroma of pendap is changing if it cooked with a gas stove. 49

Traceability In group one's food packaging, the address of the SME is stated, so the buyer can easily find the production site. By mentioning the address, the companies hopes to gain the trust from consumers. When the consumer finds a defect in the product, they can return it to the distributor where they bought the product or to the production site. The producer will replace the product with the new one. Respond from the consumer is quite good. As stated by informant 1F below: There was an incident, the packaging of one of my beledang crispy product perforated, so the snack was not crispy anymore. The consumer came to the production site to complain; then I gave them the new product. Since that incident, the consumer frequently comes to the production house to do the direct purchase, not through the distributors. SMEs in group two do not act in the same way. On their packaging, they only stated the brand and the general address, without mentioning the full address. The producers of group three wrote the address only on their carton box packaging types. For another packaging, they only put their brand.

4.4.3 Market Innovation Distribution channel Traditional food products from group one are sold through various distribution channels such as souvenir shops in Anggut, producer’s production site, other producer’s production sites, third parties events, exhibitions, direct order from the end consumer, and online selling. The newest distribution channel is through online selling which was started a year ago. SMEs in group two also distribute their products through souvenir shops in Anggut and third parties event. They also sell the products in the traditional market, breakfast shop, Ramadhan food stall, and door to door selling. Moreover, the producer in group two has its uniqueness in distributing its products. For example, the groups of lemang tapai producers which has been worked together since decades ago to create a special area for selling their products. They simultaneously opened a stall and sold lemang tapai along the side of Sungai Rupat Street. Consequently, until now, the area is famous as a place of lemang tapai seller. The producers of lepek binti product want to imitate the success. Hence, four years ago, many sellers of lepek binti could be found on the side of Tanjung Agung Street. Today, the place is well-known as a lepek binti area. The distribution channels of producers in group three are their own restaurant, Ramadhan food stall, and door to door selling. The SME in this group also facilitates a delivery for a consumer who ordered the food in large quantities. The newest way to sell the products is through the catering for wedding provider. In this channel, the producers will produce traditional side dishes for wedding necessity, but they only communicate with the caterer, not the real buyer.

Promotion Producers in group one promote their business through many strategies. They put a big direction sign around the production site, giving a free sample for their distributors, actively join a festival and exhibition, attending entrepreneurship training and seminar, and accepting anyone who is coming to the production sites. SMEs in group one also alternately invited by

Kemenpar of Bengkulu province to joining a culture and tourism exhibition in the other provinces around Indonesia, or even overseas. The last activity is the favourite way to promote their product; the producers do not only introduce their products to new people and show them Bengkulu’s traditional food but also learning from the other companies who are joining the same event. Respondent 1F said that: I am super happy if Kemenpar invited me to join the exhibitions outside Bengkulu area. I do not have to spend any money because the whole costs are covered by them. The best thing is I can promote my product as well as learning from the other producers there. SME in group two rarely doing the promotion activities, because most of the time, they are the ones who are coming to the consumers. However, sometime the producer also selling and promoting their products in the exhibition. The unique promotion strategy of this group is facilitating a workshop to make a traditional snack. In this workshop, the producers teach the visitors how to produce a traditional snack by themselves. Respondent 2A describes how the workshop help her to promote the product: The workshop is conducted in the production houses. By participating in the workshop, the participants understand how we produce and maintain the quality of our products. Since then, they will put their trust on us and start to do a frequent order even though they already know how to make the food from the workshop that is taught. The promotion strategy of the producers in group one is quite different from others. They are also joining festival and exhibition, but the ultimate strategy is through newspaper advertising and brochure delivering. The producers actively come to office buildings and giving their brochure there. From such activity, they get a lot of new orders from organizations.

New consumer group Last year, some SMEs in group one started their online selling. They also start collaborating with a delivery company. Through those actions, the producers conquer a new consumer group which is people who live outside Bengkulu province. The consumer group for the producer in group two remains the same for decades. Most of the consumers are women who are usually coming to producer’s distribution channel. They come to traditional market while buying their household necessity, go to breakfast shop while buying breakfast for the family, and visit the Ramadhan stall to buy some snacks for break fasting. When the producers sell the product door to door, they are offering the products mostly to women; coming to the kindergarten where the housewife is picking up their children, or coming to offices building before lunch time where the workers are usually craving for some snacks. Traditional side dishes that sold by producers in group three have a higher price than the ordinary side dish. Hence, the consumer usually comes from people who already have a job and their own salary. The majority of buyers are coming from the middle and upper level of society. A student, who is still fully depending to his/her parents can barely afford it. Based on the phenomena, the SME launched a student package two years ago. Through this program, a new consumer group was successfully covered. Respondent 3A explained: I feel sorry for the students who live independently, far from their parents. When they want to eat traditional food, surely they have no money to buy. That is why I decided to provide a special package for them.

Electronic Marketing So far, only SMEs from group one apply electronic marketing. Group two and group three have not made their product sales online. Respondent 1G gave her statement below: Actually, I have known the online sales since a few years ago. I have also been participating in online sales training for several time. However, I just started to apply the theories into practice last year. Fortunately, the results are quite good. Producer in group three (respondent 3D) also gave her statement related why she does not sell their product online: Traditional dishes like these are hard to sell online, I am also not ready yet for the delivery order, nor to manage the order. Maybe one day it could be possible, but I indeed need a long time to prepare it.

4.4.4 Organizational Innovation New structure In the early days of business, almost all activities within the company are handled directly by the owner. However, as time passes, the new divisions begin to form and the division of labor is increasingly clear among employees. Respondent 1F shared her experience below: Since three years ago, I hardly ever deliver the products to the distributors. I have hired an employee that specializes in the distribution of products from production houses to our partner stores. He is responsible for delivering the products, checking the availability, collecting the payment, and managing good relationship with buyers. I call them logistics divisions. The case for respondent 2A is as follow: For the next few years, the company only needs the cooks and the sellers in the employee structure. I am still capable of handling the other works left, and the business situation does not require too many divisions yet. Maybe later, when the company is bigger, and when my workforce has doubled from now, I can hire a manager who replaces me to do my responsibilities. For respondent 3D, the new structure applied is: Changes in the structure of the company in the last five years do not exist. However, ten years ago, I decided to move my restaurant from the area around the house to the tourism site. The decision leads to higher number of visitors and higher level of familiarity. Since then, I hired additional two workers who are in charge managing the waiters and the cooks.

New collaboration Producers in the group one cooperate with the delivery agent to facilitate the consumer request to deliver the products outside the province. With the new collaboration, the native Bengkulu residents who have not returned to Bengkulu for years have a responsibility to purchase and feel the taste of traditional food without having to be in Bengkulu. Respondent 1C stated that: 52

If there is a request to send the products outside Bengkulu, I only need to contact the JnT (one of delivery agents in Indonesia) courier by phone. They will come to pick up the products at the production site, then deliver it to the destination address. For group two, the collaboration formed with their old partner, but in the new shape. SMEs from group two began to establish long-term cooperation with organizations around the production site. As respondent 2C mentioned that: In the past, the kindergarten near my house only made orders when there were special occasions in the school such as parent gathering or farewell party. But, since two years ago, my company becomes a regular supplier of snacks for students in that kindergarten. I am delivering the products every day, and get the money once a week. New collaboration conducted by producer in group three is a cooperation with catering business for a wedding. Usually, SME accepts the order from the bride, and arrange the negotiation with individuals. Since the cooperation with catering business four years ago, the SME only need to communicate with the employee of the catering company. The price is already stated, meaning that additional negotiation is not necessary. Respondent 3E explained that: Food production for wedding necessities is easier after the collaboration. I only need to make the food according to the amount requested by the caterer, no direct communication with the buyer who usually has many additional requests.

New employee The traditional food demand for SME in groups one and two tend to increase during Ramadan. The rising demand is also due to higher interest for sugar feast cookies, which is also produced by TFP producers in Ramadhan time. To accommodate the demand, the producers have to increase their workforce so that the SME can produce optimally. The additional labour usually comes from family, relatives, and neighbours. Fortunately, before sugar feast, schools from elementary to college level are closed for holiday, which making it very easy for producers to get an additional employee. Respondent 1C stated that: It is not difficult to get extra labour from the family, relatives and people around my residence. They must be willing to assist the production process temporarily. Although there is no increasing demand during Ramadhan, producers in group three also quite often accept a new employee. Even the turnover rate of the employee in group three is higher than other groups, especially for the waiter's position. Respondent 3A stated that: Workers do not need special skills to be a waiter. The most important skill is to be friendly with the buyer and quick in setting the table. Well, the salary is indeed not as big as the salary for the cook. Maybe that is why the turnover rate is higher for waiter's position.

4.5 Enhancing Innovation Competence

This subchapter describes the process of enhancing company’s innovation competence through three parts. The first part consists of the information from respondent regarding companies’ internal resources for doing innovation. The second part describes some barriers that the SMEs face when conducting innovation if they only depending to the internal resources. The last part explains the way network helps a traditional food company to enhance their ability to innovate by eliminating the barriers explained in the second part.

4.5.1 SME’s Resources for Innovation SMEs use their internal resources for innovation purposes. The resources consist of company’s capital, knowledge, skills, employees, and physical assets. The company earns income from every product that is sold in the market. The owner uses that earning for funding the next production process, including the cost of ingredients, employee payment, and operational cost. The owner also uses financial resources for a development purpose, such as doing innovation within the company. The amount of money which is allocated for that matter is not static, meaning that the owner does not use a certain percentage of company’s turnover for innovation purpose. The amount of money provided depends on the innovation necessity at that time. Respondent 1C stated that: It is hard to say. Sometimes I use one million from twenty million, and sometimes I use less. The allocation highly depends on company’s situation at the certain time. I am quite flexible. Additionally, respondent 1F said: Before introducing a new product to the market, the team spend at least six months period of trial and error. I use company’s turnover to fund that process. However, the percentage of turnover that I used is uncertain. SMEs in Bengkulu’s traditional food sector have been in the business for at least five years. From those periods of time, the companies gained knowledge in many areas, including supply chain actors, consumer demand of TFP, the technology used, and also market preference. The companies also owned various assets which gathered from the first day of the establishment to the present, such as the production site, production machinery, and transportation. That existed assets and knowledge are beneficial for a basis for creating innovation. Skill is the next resource. It explains company’s ability to choose the ingredients, perform the production process, reach the market, and do the sales. Basically, the employees already have the skill to produce TFP even though they still need a person to control the quality and make sure the product is matched with the company’s standard. Regarding innovation process, the owner of traditional food company is regularly (at least twice a year) following training from various parties to increase her skill. The training could be related to quality improvement, healthy production practices, managing employee, marketing online, and etcetera. When the owner is unable to attend such training, she will delegate it to one of the workers. After the training, the one who participated in the training should share her experience with others, and conduct a mini training inside the company. Through the activity, the overall skill of company is increasing. As already explained before, traditional food firms in Bengkulu do not have a formal division of labors. The companies do not have workers who specialize in innovation. As the statement from respondent 1E below: The company does not have a special worker who in charge in innovation. We discuss together, then we do the innovation together. However, as company’s resource, the employee has an essential role in innovation generation. Most of the SMEs have supportive workers who owned positive mindset through innovation. They are discussing the possible innovation together, and the owner always considers the employee’s opinion when deciding something in the company. The relationship between them is close and does not stiff. Respondent 3A stated that: 54

The relationship between me, as an owner, and the employees are like a family. During the work, we usually talk about the future of the company, about what we can do to make it bigger.

4.5.2 Obstacles to Innovate If the TFP producers only depend on their internal resources when doing an innovation process, many problems will pop up along the process. On this part, the problems will be described. This section will also explain the reasons behind companies’ inability to do some innovation. Traditional food is a frequently consumed food which is distinguished and known because of its sensory properties and associated to a certain local area, region or country. When talking about product innovation, the SMEs cannot freely express their idea and inspiration on changing the TFP because of the characteristic of TFP itself. For the indigenous people, before consuming the TFP, they already expect the smell, the taste, and the texture of the food. If the expectation were not meet, they would not re-purchase the product from the same producer. Therefore, a good understanding of consumer expectation and preference toward traditional food is a must-have knowledge for SMEs. Another problem regarding product innovation is correlated with the availability of luxury or custom-printed packaging. Finding the supplier of such packaging is very difficult in Bengkulu province. If any, the price is way more expensive, and the SMEs have to order at least 2000 pieces of packaging at once. Moreover, there is a month waiting time between the order and the arrival of the packaging. As a result, the producer prefers to order the packaging from the supplier in the other province. Respondent 1H mentioned that: Finding the supplier of eye-catching packaging is quite hard in Bengkulu province, the price is also really expensive. I am always ordering the packaging from the supplier in West Java province through online communication. However, the information about the existence of such supplier is not freely available. The SMEs have to put some effort to get it. Respondent 3E explained that: I got a contact of packaging supplier in Palembang from Kemenkop officer. As you can see, the quality is better even though the price is five hundred rupiahs lower than packaging from the supplier in Bengkulu.

The problem regarding process innovation is coming from the expensive price of production tools. Additionally, that high price does not guarantee the better quality of TFP. To overcome the problem, the producers need information sharing from the other produces which already use such machinery before. The SMEs could also request one time trial to the seller before officially buy the tools. The other way is, the companies can simply waiting for free equipment program from the government so that they do not have to pay some money. Another obstacle is the lack of capital for accomplishing a custom order. The custom order from the consumer could arrive anytime. Hence, the SMEs need a paperless financial source which can be accessed in the short time, without complicated requirements. Fortunately, the producers do not need to depend on one financial provider such as a bank. Besides, they could get additional capital from their social network, most of the time without re-payment deadline and interest. The producers also gain a capital benefit from the supplier and the buyer, because sometimes the producers could pay the materials in instalment and or the buyer make the payment in advance. 55

Moreover, the lack of capital does not only appear when the producers get a custom order. The companies indeed need another source of capital when they have to develop or buy a new asset such as the purchasing of a new operational car or enlarging the production house. The company’s capital and additional capital from the social network usually do not enough to cover such necessity. Due to this matter, the producers have to be brave to take a risk and apply for a formal credit scheme. Sometimes, the barrier comes simply because the producers do not get any inspiration to do innovation. As mentioned by respondent 2B below: I just do not have any idea about what kind of change that I should perform. This problem could be solved by attending as much festival and exhibition as possible. Through those activities, the producers could discover unforeseen innovation which could generate an idea to do innovation. The SMEs can imitate and modify the innovation that has been done by other producers.

4.5.3 Creating Ability to Innovate To produce innovation that was explained in subchapter 4.4 and other innovation, the TFP producers should use the combination of their internal and external resources. The internal resources, which already described in part 4.5.1, consist anything owned by the company to help the innovation generation. The external resources are obtained from company’s external parties which come from various networks such as vertical, horizontal, third parties, and also social networks. Besides having those resources, to generate innovation, the producers also have to own the willingness to innovate. As already mentioned on the previous part, the SMEs could overcome the obstacles to innovate, using the additional resources from their networks. However, the producers have to be pro-active when conquering the resources. The innovation goal should be set first, then the producers could act and move gradually toward the successful innovation outcome by conducting a series of activities, using resources combination. Respondent 1F said that: I know my consumers. Sometimes they make the purchase impulsively, in high quantity, without giving enough time for me, as a producer, to prepare everything needed. That is why the resources have to be ready anytime. The SMEs have to manage a good relationship with their partners so that they could know for sure which parties that they have to contact if they need something immediately. The example comes from process innovation, size of batches. When the unexpected order comes, the producers should increase their production capacity. In order to fulfil the order, the producers could make use of their good relationship with various partners. Firstly, they could directly ask the supplier to deliver required ingredients to the production house. That supplier accepts an instalment paying system so that the producers could pay the materials later on, after the buyers paying their order. Then, the production processes occur. The producers could contact their social network partner to provide extra workers so that the production could be done in a shorter time, and the order could be fulfilled. From the field interviews, the researcher discover the crucial role of owner characteristics in determining whether the company will perform some activities, using the combination of internal and external resource, to create the innovation or not. The explanations from some respondents below are confirming the statement. The first third respondents did less innovation than the last two.

1. This company employs 12 people and produce at least 200 bay tat every day. We are busy enough to handle the daily operation, and I satisfied enough with the result. 2. I prefer to borrow money from relatives when I need additional capital. The total amount is of course less than if I borrow it from the bank, but I feel more secure. I will never risk the company by taking credit from a bank. 3. I have to be careful in making a decision. There is no guarantee that the change that I do to the company will bring a positive effect. 4. As an entrepreneur, I will never stop developing the business. The bigger company that I have, the bigger benefit that I can give to the society. That is why I always consider every opportunity and does not hesitate to take a risk. 5. I believe that we can always learn from the failure. I also believe that I am surrounded by kind people who will help me to survive if something bad happens to the company.

4.5.4 Enhancement factors Comparing the TFP producers in group one, two, and three, the first group seems to have a better ability to conduct innovation than the others. The SMEs in group one produced more varies innovation, did a regular trial and error for producing a new product, provided special capital for innovation purposed, and employed supportive workers who help them to develop innovation idea. They also built a relationship with more partners, conducted more collaboration with them, and pro-actively approach them to conquer additional resources for innovation matters. Based on the innovation competence of each group, several factors were detected as the cause of the enhancement. Those factors are highly related to the business owner as the one who takes the important decision in the company. Overall, to enhance the innovation competence, the producers should: 1. Having the courage and desire to use the resources for innovation Producers in group one showed their initiative to innovate by allocate a portion of their turnover to do innovation on the company’s products and processes. They also make their workers involved on the innovation practice. Regarding those matters, producers in group two and three are more dependent on their consumers. They have changed the product once the consumer requests them to do it; there is no regular allocation for innovation purposes. 2. Producing flexible products This factor is an advantage for SMEs in group one. From the beginning, their products already have a longer shelf life compared with the others. Thus they are more easy to conduct collaboration with various distributors in any areas. SMEs in group two and three have to apply certain techniques to make their products have a longer expired time. Then, they will also expand their access to distributors in various areas. 3. Conducting as much collaboration as possible with external parties The external parties provide an enormous amount of resources that the TFP producers do not have. Conducting as much collaboration as possible with external parties will broadening the possibility to conquer such resources. The point is, through the collaboration, the producers have an understanding of the resources provided by each party and the required steps to reach it. Thus, they will know for sure which parties that they have to approach when they need a specific extra resource. 4. Being pro-active to conquer the resources from other parties

Most of the TFP producers prefer to wait for the information coming to them rather than being the one who is searching for that information. For example is information regarding free equipment from the local government. The producers know the existence of such program, but they do not know it in detail; what are the required steps to get that. Producers in group one are more pro-active in this matter. They ask directly to the official and perform real actions to execute the opportunity. Another example comes from producers’ attitude toward bank loan. TFP producers in group two show the greatest resistance to bank loan; if they need extra money, they prefer to get it from their social network or informal credit provider. They never try to approach the bank loan because of their fear regarding their capability to fulfil the credit requirement and to repay the loan. Producers in group one have a better attitude. To increase their confidence, the SMEs start with a small amount of bank loan. Once the credit is succeeded, they apply for the higher loan so that they could continuously develop their business. 5. Joining various development activities such as business trainings Kemenkop conducts various training for SMEs at least once a month. Sometimes the topic is related to something new in the sector, but in the other times, the government only repeat the old topic. Comparing the attitude of SMEs through the programs, there are two types of producers; the first type always follows any free training provided by third parties, whereas the second type only joins training with a new topic. Producers who are in the second type perform better innovation in their company because they always apply the knowledge that they get from the training to their business. They even share it to their workers so that the overall skill of company is increased. Producers who are of the first type, most of the time, only use the training activities for their way to approach other producers or to make the government notice their existence.

5. ANALYSIS OF FINDINGS AND DISCUSSION

Figure 18 is the updated version of Figure 2 (conceptual framework) which virtually explains the correlation between network collaboration, company's internal and external resources, innovation outcomes, and innovation competence. The use of red colour on the variables indicates the new position of those variables on the framework. The dotted line describes that the connected variable has a particular effect on the relation process. From the figure, it could be seen that the SMEs in traditional food sector collaborate within their networks. The existence of vertical, horizontal, and third parties network that mentioned in the literature review is approved by the information from the respondents. However, the research discovers an additional network called ‘social network’ which also collaborated with TFP producers. The social network consists of actors such as families, relatives, friends, and acquaintances (Premaratne, 2001). The companies collaborate with their networks through several interactions. The suppliers, buyers, and the end consumers from vertical network provide relevant information for SMEs as a producer. They give a discount and free delivery for every high quantity order and apply an instalment paying system for the producers who conduct a frequent buying. The communication between them is two-way communication, where the consumers can freely giving feedbacks to the companies. Similar to vertical network, the actors from the horizontal network also conduct information sharing. They are regularly gathered to have a talk and exchange their experience regarding credit application or relationship with the consumer. Moreover, they have a common goal to preserve Bengkulu’s traditional food. This goal congruence creates the willingness to recommending each other and becoming re-seller of each other TFP. The producers even share a rental cost when they are attending an exhibition. The next collaboration is with third parties network. The interaction with third parties happened when the organization is conducting business development program, giving business advice, and providing access to the new market, technology, and financial sources to the producers. The collaboration also occurs when the organization is introducing new relation and facilitating idea generation. The social network provides SMEs with easy access to additional capital, without stiff payback schedule and formal requirements. This network also provides skilled employees when the SMEs needs additional workers on the particular period of time, such as Ramadhan. The collaboration with the social network also occurred among SMEs in Sri Lanka. Research by Premaratne (2001) shows that the SME not only receive financial support from formal sources but also from their social network. The additional capital provided by the social network is more likely to improve the performance of SME in Sri Lanka rather than financial support provided by formal sources. From the collaboration with external parties, the SMEs gain additional resources. Then, those resources, combined with the internal resources that are already owned by the company, will increase the ability of SMEs to do innovation. In the other word, the combination will enhance company’s innovation competence. However, since innovation competence is not only about having a resource but also able to create innovation using those resource, the character of the owner becomes uncontested important. In this case, the TFP producer who is bravery takes a high risk tend to produce more innovation than the one who plays safe. For example, the producers in group one who borrowed money from the bank are able to enlarge their production site, buy more advanced machinery, higher more employees, thus produce a greater amount of TFPs. The producers in the same group who only borrow money from their friends and relatives only able to do less enlargement on the business.

Figure 18. Relationship between Concepts (Documentation of field data collection, 2016) 60

Research by Çakar and Ertürk (2010) discover that the companies whose decision-makers are rather capable and risk-taking are very likely to conduct more intense innovation process than companies with incompetent and risk-averse owners. As a result, two firms with the same resources will not have the same level of innovation competence, the firms’ ability to do innovation is different. The firm with better innovation competence is more likely to do a business changing related to many aspects including product, process, market and organization change. However, in the traditional food sector, in order to make a successful innovation, the producers should consider the consumer acceptance on the changing of TFP. Every changing is allowed as long as the main characteristic of TFP has remained. For example, the producers could modify the composition by added new ingredients, but the new ingredient cannot overtake the original flavor. The producers could also use more modern machinery to produce the food, but the taste, texture, and aroma of TFP should be the same. The condition is correlated with Guerrero et al. (2009) who stated four main core dimensions for the concept of TFP: habit and natural, origin and locality, processing and elaboration, also sensory properties.

6. CONCLUSION

This research aims to explore the collaboration between traditional food producers and their partners within networks, and investigate the way the network is helping the producers to enhance innovation competence. Moreover, since there are three different group of producers in Bengkulu’s traditional food sector, the research also describes the differences in collaboration activities and innovation outcomes between three groups of traditional food producers in Bengkulu which lead to the additional resource that supports company’s innovation competence.

 How do traditional food producers collaborate within networks? Traditional food producers interact with various actors from their vertical, horizontal, third parties, and social networks. In line with the explanation in the literature review, collaboration in the vertical network is happening around seven different activities which are information sharing, goal congruence, decision synchronization, incentive alignment, resources sharing, collaborative communication, and joint knowledge creation. Producers in group one conduct more collaboration with other actors in the chain network, whereas producers in group three conduct the least collaboration. This ranking is created because the characteristic of the products which sold by each group. TFP produced by group one has a long saving life. This character of the products creates a possibility to SMEs in group one to sell their product to more distributors, in a more far away area, comparing to SMEs in group two and three. The communication and interaction happened are also more intense because the distributors have to regularly inform the producers about the current stock of TFP on the store. However, the collaboration with suppliers is similar among groups. Regarding collaboration with the horizontal network, the activities occurred mostly for marketing purpose. The collaboration for purchasing purpose is only happening when the producers share information about their suppliers, they never really collaborate when doing the purchasing. In this network, producers in group three also conduct less collaboration comparing with other producers. The way producers sell their products is the reason behind it. Each SME in group three has their own place to sell the TFP. Thus, the opportunity to meet other SMEs from the same group and collaborate is low. For collaboration with third parties, the activities occur when the producers get advice, financial support, access to new technology, market, and relation, also facility to idea generation and business development from other organizations. Again, considering the characteristic of the TFP which sold by the producers, SMEs in group one is the one who conducts the most collaboration with their third parties. For example, when there is an opportunity to join exhibition in far away place, the local government prefer to offer that opportunity to SMEs in group one because group one's products are more flexible and match with the occasion. The product does not need complicated tools to keep it in good quality. Collaboration with social network occurs when the producers get additional capital and the additional employee from their relatives, friends, and acquaintances. There is no noticeable differences among the group of producers. In the other word, the producer in group one, two, and three are created similar collaboration with their social network.

 What external resources do the companies get from network collaboration? From the network collaboration, the SMEs gain extra resources for the company. Overall they get financial support, a new source of employee, wider knowledge, better skill, and additional assets. The financial resources from networks can be a short-term loan from the 62 social network, formal credit scheme from a bank, a new capital grant from the local government, and varies indirect financial benefit obtained through various interaction. The new source of the employee comes mostly from the social network. The producers hire additional workers during the high-demand season based on the recommendation from existed workers, or the availability of people around them. Then, the SMEs conquer wider knowledge regarding consumer preferences and product improvement through information sharing and joint knowledge creation activities which are happening in the vertical and horizontal network. The better skill can be obtained from any training conducted by actors in third parties network. After the training, the producers are able to operate new tools, expand the network, and enrich the marketing ability. The SMEs also get additional physical assets such as machinery, transportation, and the new place for selling their TFP. However, considering the intensity of collaboration which is happening in each group, producers in group one collect more external resources than other producers.

 What innovations are implemented by traditional food producers? The innovation is occurring in the form of product, process, market, and organization. Regarding product innovation, the whole group of producers are applied changing on composition, physical appearance, packaging, convenience level, and new product development. However, the producers in group two and three only do the composition changing if they get the request from the consumers. In process innovation, the whole group applied quality improvement and used new technology over the last five years. However, the process innovation related to the size of batches does not occur in group three of producers, and the process innovation associated with traceability does not occur in group two of producers. Concerning market innovation, the producers in group one, two, and three are created new distribution channels and new promotion strategies. The producers in group one even started to do the electronic marketing since a year ago. The market innovation regarding new consumer group only occurred in group one and three, whereas in group two, the consumer group remains the same for decades. In organizational innovation, the whole groups created new collaboration and hired new employee. However, a new structure only appears on the producers in group one. Since three years ago, the workload of the owner in group one’s company is decreased because she hired an employee that specializes in the distribution of products. An important note applied for innovation in traditional food sector: every innovation has to match the level of acceptance of consumer for traditional food. In this case, the consumers only tolerate incremental innovation which not bring any dramatic changing on the product, process, market, and organization. The producers could give extra ingredients on the product, but the original flavour should remain. They could use the different machine and different packaging for the product as long as the taste, texture, and smell of the TFP is not changing. They also allowed to use various distribution channel and conduct collaboration with various actors as long as they bring along the identity of traditional food anywhere.

 How do the combination of company’s internal and external resources gained from network collaboration facilitate traditional food producers to enhance innovation competence? Theoretically, the more business is collaborating with its networks, the more external resources that can be obtained by the firm. Those external resources, combining with company’s internal resources will increase the company's innovation competence, which leads to the easiness for the company to create innovations. 63

From the research, we discovered that besides having those resources, to generate innovation, the producers also have to own the willingness to innovate. The producers have to be pro-active when conquering the resources. The innovation goal should be set first, and then the producers could act and move gradually toward the successful innovation outcome by conducting a series of activities, using resource combination. In this case, the owner’s characteristic plays a crucial role in determining whether the company will perform some activities, using the combination of internal and external resource, to create the innovation or not. The risk-taker producers will conduct more initiative to perform innovation compared with the risk-averse producers. A company has a better innovation competence if it produced more innovation, regularly provided special resources for innovation purposed, built a relation with more partners, and conducted more collaboration with them. Hence, the companies can increase their innovation competence by doing several things related to the business owner as the one who takes the important decision in the company. Overall, in order to enhance the innovation competence, the producers should have the courage and desire to use the resources for innovation, produce flexible products, conduct as much collaboration as possible, be proactive to reach resources from other parties, and join various development activities.

7. LIMITATION AND RECOMMENDATION

7.1 Limitation

This research was conducted qualitatively by choosing a specific issue (network collaboration of traditional food producers and their innovation competence) for a case of a particular region (Bengkulu province, Indonesia). The characteristic of case studies is an intense and comprehensive study of a certain phenomenon. Therefore, the presented data in this research contain in-depth information about the chosen specific issues in the specific region, but are insufficient for generalizing to a larger population. Furthermore, as the main data collection method used in this study is interview, the collected data are profoundly influenced by my interpretation as the researcher. However, although researcher biases and subjectivities cannot be avoided, data source triangulations have been taken to enrich and strengthen the findings.

7.2 Recommendations

From the findings, the researcher also proposes recommendations for the policymaker. The first is to facilitate TFP producers to increase their bravery to take a risk because behind the high risks there is usually a high advantage too. The facilitation could be in the form of training or discussion sessions. The courage to take risks will open up new opportunities for interaction between SMEs and other actors. The second recommendation is the local government should create a platform where the producers, especially producers in group three can regularly meet face to face and share their business problems. With the increased interaction, a trust will begin to grow among them so that the resources sharing activities can be started. The findings also discovered an important note for innovation in the traditional food sector: every innovation has to match the level of acceptance of consumer for traditional food. In this case, the consumers only tolerate incremental innovation which not bring any dramatic changing on the product and process. Hence, before deciding to apply any changing, the producers should consider the consumer preferences, and make sure that the changing do not affect TFP tastes, texture, and smell. Regarding the character of the products, SMEs in groups two and three should start focusing on investing in creating more durable products, with a longer shelf life. If the investing success, the opportunity to sell products to more distant and more varies places are opened. The example of innovation that can be done by the companies is changing the way production, the equipment, or the form of packaging. However, producers should still consider consumers' tolerance of innovation in TFP.

7.3 Suggestion for further research

The findings from the field research show that the SMEs’ innovation competence could be enhanced through the combination of internal resources owned by the company and the external resources gained from collaborative activities with networks. However, this research also discovers the important role of SMEs’ owner characters in company’s ability 65 to continuously innovate. The presence of internal and external resources becomes meaningless if there is no courage or willingness from the owner to use and change those resources to innovation purpose. Hence, in order to perform better enhancement in innovation competence among SMEs in the traditional food sector, further research in studying the best method to create an innovative and risk taker mindset to TFP producers is needed. The possible questions that could be performed are; How to create an innovative mindset among entrepreneurs? What factors which make an entrepreneur braver to take a risk than other entrepreneurs? What is the best training method for creating the feeling of importance in innovation among SMEs?

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APPENDIXES

Appendix 1. Gantt Chart of The Research Study

Work Sep Oct Nov Dec Jan Feb Mar Apr Mei-July Aug Sep Description Research proposal Desk Research Preparation to the field Research in the field Data analysis ACT course Writing report Internship Final report *September – December 2016 *January – September 2017

Appendix 2. Research Method

RQ Information Data required on: Sources How to collect How to Gathered on: analyze 1 Network Collaboration in Producers  Semi-structured Collaboration horizontal network interview Collaboration in Suppliers,  Companies vertical network producers private records Comparative and retailers  Third parties content Collaboration with Producers documentations analysis third parties and supporting stakeholders 2 External Resources gained resources from from collaboration network activities Comparative collaboration External resources Semi-structured Producers content that related to the interview analysis creation of innovation competence 3 Current Product innovation innovations Process innovation Comparative Semi-structured Producers content Market innovation interview analysis Organizational innovation 4 Enhancing Required resource Innovation for innovation competence The obstacles that Semi-structured Content makes producer Producers interview analysis unable to innovate Creating ability to innovate

Appendix 3. List of Interviewees

Respondent Date of No Name Affiliation Code Interview 1 Herawati HR The Ministry of Cooperative and 4-Nov-16 Small and Medium Enterprises 2 Sri Rezeki 1A Bima (Group 1) 7-Nov-16 3 Lena Nurlela 3A Warung R2 (Group 3) 7-Nov-16 4 Halian Sabdani HS The Ministry of Health 9-Nov-16 5 Hanifah HN The Ministry of Tourism and 11-Nov-16 Creative Economy 6 Siti 2A Lemang Rupat (Group 2) 12-Nov-16 7 Iyat 2B Jajanan Tanjung Agung (Group 2) 13-Nov-16 8 Irma R1 Toko Sabila (Retailer) 15-Nov-16 9 Jannatul Aini 1B Ricka (Group 1) 16-Nov-16 10 Tima 3B Enci Tima (Group 3) 18-Nov-16 11 Gadis 1C Ende (Group 1) 21-Nov-16 12 Almarika Yunita 1D Akilla 2R (Group 1) 23-Nov-16 13 Wulan 1E Ratu Samban (Group 1) 23-Nov-16 14 Jasmin Nurlita S1 Ibu Jas (Supplier) 28-Nov-16 15 Nanto Sunandar S2 Toko Nanto (Supplier) 29-Nov-16 16 Dr. Sal Primayuda, SP LPPM (Research institutions and 1-Dec-16 S.Si.,M.Si community service) University of Bengkulu 17 Yudha Yuliana 3C Pendap Agung (Group 3) 5-Dec-16 18 Fadiawati 1F Pelangi Food (Group 1) 6-Dec-16 19 Darnita R2 Toko Cita Rasa (Retailer) 8-Dec-16 20 Eli Yuliana S3 Liza Nanas (Supplier) 10-Dec-16 21 Zuliana 1G Yana (Group 1) 12-Dec-16 22 Rosa Mufida 3D Marola (Group 3) 12-Dec-16 23 Juliawati 2C Japas Panorama (Group 2) 15-Dec-16 24 Dr. Putri Suci PS Department Agribusiness, 20-Dec-16 Asriani, SP,MP. University of Bengkulu 25 Destiana 1H Cemara Indah (Group 1) 22-Dec-16 26 Ema 3E Saung Putri (Group 3) 23-Dec-16 27 Dewi Dharma DD The Ministry of Industry and Trade 28-Dec-16 28 Frasdianto FR Bank Bengkulu 2-Jan-17 Ramadhan

Appendix 4. Field Research Documentation