The Evolution of the Electronics Industry on Batam Island (Riau Islands Province, Indonesia): an Evolutionary Trajectory Contributing to Regional Resilience?
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GeoJournal DOI 10.1007/s10708-015-9692-9 The evolution of the electronics industry on Batam Island (Riau Islands Province, Indonesia): an evolutionary trajectory contributing to regional resilience? Leo van Grunsven . Francis E. Hutchinson Ó The Author(s) 2015. This article is published with open access at Springerlink.com Abstract While extensively studied in the 1990s, existing sectors, agents privilege the former at the cost research on the electrical and electronics (E&E) of the latter. At the end of the day, regional resilience is industry in Singapore and the proximate areas of undermined, rather than reinforced as evinced by the Indonesia has dwindled. Focusing on the E&E sector in recent atrophy of Batam’s E&E industry. the island of Batam (Riau Islands Province, Indonesia), we examine the industry’s recent evolution, in partic- Keywords Electronics Á Regional resilience Á ular its ‘robustness’—its durability and capacity to Robustness Á Adaptiveness Á Adaptation Á Agency Á adapt to adverse events. As to the explanatory factors Batam Á Singapore accounting for its robustness, we evaluate the role of agency as opposed to conventional approaches that focus on structure. Our findings show that, in Batam, Introduction the E&E industry’s robustness has started to suffer. While there is evidence that structural factors are at In past decades, sub-national regions in Southeast Asia work, we argue that agency in the form of institution- have pursued export-oriented industrialization to diver- ally-embedded perspectives and behaviour of actors at sify their economies and boost growth. As part of this the sub-national level also plays a role. Because the strategy, multinational corporations (MNCs) were promotion of economic diversification through invest- enticed to relocate production to these locations by ment in new sectors is easier and more lucrative than incentives, specialized infrastructure, and lower factor upgrading and deepening of firm capabilities in costs such as land and labour. In many cases, investments were in the electrical and electronics (E&E) industry that, due to its scale and employment needs, became the L. van Grunsven (&) dominant economic activity in these regions. Section Economic Geography, Department of Human While new and technology-intensive activities are Geography and Planning, Faculty of Geosciences, Utrecht always welcomed, the debate on regional economic University, P. O. Box 80115, 3508 TC Utrecht, development in Southeast Asia has evolved. Beyond The Netherlands e-mail: [email protected] simply seeking to attract investment, downturns in the E&E and other export-oriented sectors have generated F. E. Hutchinson an interest in promoting sectoral ‘diversity’ as a means Regional Economic Studies Program, Institute of of maintaining income growth and ensuring economic Southeast Asian Studies, 30 Heng Mui Keng Terrace, Pasir Panjang, Singapore 119614, Singapore resilience at the regional level. Consequently, this has e-mail: [email protected] become a topic of enquiry in regional studies, 123 GeoJournal economic geography and related disciplines. The robustness. In particular, through analysing firm conceptual foundation of the study of diversity and behaviour, we argue that—beyond industrial structure its implications for resilience has been enriched by the and external events—the institutionally-embedded evolutionary approach, which has contributed con- behaviour of decision-makers explains current devel- cepts such as ‘branching’. opments, particularly the attrition of the E&E sector. This article seeks to contribute to the understanding In particular, in focusing on ‘diversity’ at the regional of regional resilience in the Southeast Asian context by level, policy-makers in Batam have not paid sufficient analysing the development of a specific location. We attention to encouraging the E&E industry to adapt consider the export industrialization path of Indone- and acquire deeper capabilities. We argue that this is sia’s Riau Islands Province, especially the island of due to the incentive structure embedded in the local Batam. Situated a mere 20 km from Singapore, the institutional environment, particularly its governance island grew and thrived by attracting spillover activity arrangements, which have recently undergone signif- from the city–state due to its lower labour and land icant shifts. We conclude that, without a significant costs. Our focus is the evolution of the E&E industry emphasis on positive adaptation, in particular encour- over the past quarter-century. Dominating the indus- aging technological deepening, the robustness of the trial structure of the island at the time, this industry was E&E sector is jeopardized and the quality of growth well covered in the literature in the 1990s, due to will remain mediocre at best. interest in: Singapore’s ‘spatial fixes’ for declining The article proceeds as follows. In the second section, competitiveness; industrial regionalization; and the we frame our industry and regional analysis with ‘SiJoRi’ Growth Triangle. The Growth Triangle is a reference to recent theoretical work on the evolutionary concept used by the governments of Singapore, trajectories of industry, as well as economic resilience Malaysia, and Indonesia to market the city–state and and robustness. The third section provides an overview the bordering areas of Johor in Malaysia as well as the of Batam, its economic development, and the E&E Riau Islands as an integrated ‘package’. industry. The fourth section details our methodology In the wake of recent global downturns, attention has and sets out the recent evolution of the E&E industry. shifted from tracking the growth of the E&E industry to The fifth section discusses the determinants of the analysing production network resilience (Obashi 2009) industry’s trajectory. The last section concludes. and industry robustness (Rasiah 2009;Rasiahetal. 2014). However, the analysis has been macro—includ- ing a macro-regional scope—and the perspective lim- Theoretical framework ited to establishing the effects of these downturns. No attempts have been made so far to ‘map’ and interpret A core idea in the literature on regional resilience is the development of the industry in the region, notwith- the ability to adjust to, withstand, or anticipate adverse standing substantial structural change in Singapore. events. Framing the region as a complex adaptive The research reported here attempts to fill this void. system, Boschma (2015) sets out the concept of Set within a view of the sub-national region as a ‘adaptive capacity’. This refers to the ability of a complex adaptive system, this article will explore two region to reconfigure its socio-economic and institu- angles. The first one is the ‘robustness’ of the regional tional structures to develop new industries. This is economy, especially in terms of the evolutionary different from the concept of ‘adaptation’, which trajectory of its dominant industry. Here, robustness refers to the tendency of individual industries to refers to the industry’s durability and positive adap- change in response to changing circumstances. tation in response to—or in anticipation of—adverse The incorporation of ‘robustness’ and ‘agency’ into events. The second one is receiving renewed attention this framing of the region requires shifting the scope of in resilience studies and concerns the role of agency in analysis in three ways. First, from the region to an relation to the institutional environment within which individual industry within it; second, from the initial the industry evolves to explain the trajectory—as ‘creation’ of an industry to its subsequent evolutionary opposed to ‘structure’. trajectory; and third, from merely tracing the indus- We demonstrate that the recent trajectory of the try’s evolution to uncovering its underlying E&E industry in Batam raises questions about its determinants. 123 GeoJournal As to the first two aspects, the principle industry an industry trajectory to be robust if it maintains growth evolution model featuring in resilience, path-depen- for an extended period, and internal change reveals dence, and local innovation systems literature pro- positive adaptation through mutation (involving poses four phases in the development of an industry in renewal, substitution, and deepening of capabilities). a given region (Martin and Simmie 2008; Simmie and An industry trajectory contributes to regional resi- Martin 2010). In the first, ‘pre-formation’ stage, there lience if it shows features of robustness, thus positively are stimuli for a new industry, which constitutes a contributing to diversity. These include durability and window of opportunity. Regional fundamentals such adaptation. For regions, structures that allow positive as its policy environment and labour force, as well as industry trajectory dynamics (adaptation) are impor- the corporate objectives of potential MNC investors, tant, next to opportunities for the creation of new determine whether the opportunity can be grasped. If growth paths/industries (adaptiveness). this succeeds, the industry enters the second phase— As to the third aspect of our conceptual ‘reframing’, called ‘creation’—where a nucleus of firms emerges. namely the underlying determinants of an industry’s With the increase of mass, other firms are formed or evolution, the prevailing consensus privileges the attracted by reputable first-movers and the industry is importance of structural factors. In evolutionary established, entering the third