Strategy to Enhance ’s Leading Industrial Centers Competitiveness

STRATEGY TO ENHANCE INDONESIA’S LEADING INDUSTRIAL CENTERS COMPETITIVENESS

Rila Anggraeni JAM Risca Fitri Ayuni 18, 1 M. Abdi Dzil I. Management Department, Universitas Brawijaya, Indonesia Received, November 2019 Revised, December 2019 February 2020 Accepted, February 2020 Abstract: The industrial centerhas a significant role in supporting the national economy through its ability to absorb labor, technology transfer, and add value to products. The strength of industrial centers is its resilience in facing unstable economic conditions. Govern- ment through Nawa Cita has included industrial elements as part of the priority agenda to improve welfare through independence in the economic field. is the second-largest city in which has numerous industrial centers as an economic basis. The indus- trial centers in Malang City to be mentioned are the Sanan tempe chips, the Blimbing furniture industry, the Arjosari rattan industry, and the Dinoyo ceramics industry. The centers of the industry need to develop so that they can compete with products from other regions and countries. This study aims to map existing industrial centers in Malang and determine the best industrial centers or leading industrial centers by using 12 criteria of regionally superior products according to Minister of Home Affairs Regulation of Indone- sia Republic Number 9 of 2014 concerning Guidelines for Regional Superior Product Devel- opment. Furthermore, this study will analyze the weaknesses, strengths, opportunities, and threats of the leading industrial centers. Then the results of the analysis are mapped into a matrix of internal and external factors as a basis for determining strategies to improve the competitiveness of leading industrial centers. The research used the Analytical Hierarchy Process (AHP) and SWOT Analysis as the research method. The information explored through Focus Group Discussion (FGD) and in-depth interviews. The results showed that Malang City has 4 (four) leading industrial centers, namely tempe chips, ceramics, furniture, and rattan. On the IE matrix, the position of Malang’s leading industrial centers is in cell V which is maintaining and defending. In this cell, the strategy that must be carried out by the superior industrial centers of Malang City is an intensive strategyby conducting market development and product development. The market development strategy is to introduce existing products or services to a geographical area or a new market segment. Based on the Journal of Applied Management (JAM) QSPM matrix, the alternative strategy that has the highest TAS score is to increase demand Volume 18 Number 1, by using social media and supporting clusters (tourism destination) as a marketing channel March 2020 supported by the superiority of the products and services offered. Indexed in Google Scholar Keywords: Industrial Centers, Leading Products, Analytical Hierarchy Process (AHP), SWOT Analysis

Cite this article as: Anggraeni,R., R. F. Ayuni, and M. A. D. Ikhram. 2020. Strategy to Corresponding Author: Rila Anggraeni, Management Enhance Indonesia’s Leading Industrial Centers Competitiveness. Jurnal Aplikasi Department, Universitas Manajemen, Volume 18, Number 1, Pages 159–167. Malang: Universitas Brawijaya. http:// Brawijaya, Indonesia, E-mail: rila. [email protected], DOI: dx.doi.org/10.21776/ub.jam.2020.018.01.16 http://dx.doi.org/10.21776/ ub.jam.2020.018.01.16

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Indonesia’s government launched a priority basis for Malang City Government to create gov- agenda, Nawa Cita, which aimed at encouraging ernmental programs. The program is expected to progress in the political, economic, and cultural fields focus more on support and develop leading indus- in Indonesia.The industry got a particular concern trial centers and gain awareness for the industry in because some economic agendas in Nawa Cita particular. So, it will encourage the emergence of sought to develop the industrial sector as stated in supporting clusters (industrial networks that inter- point 6, namely “increasing people’s productivity and connected in the process of increasing the value competitiveness in the international market” and in chain) of leading industrial centers. Superior indus- point 7, namely “creating economic independence trial centers expected to play a role in absorbing by driving the strategic sector of domestic economy more labor and improving people’s living standards “(Cahyono, 2015). These two points need to pre- and boost the economic growth of Malang City. pare so that Indonesia can more develop and equal This study uses 12 criteria for regional superior to other developed countries in Asia (Wihadhi, 2016). products in ranking to identify leading industrial cen- Related to industrial development, Nawa Cita ters and evaluating internal factors (Internal Factor put a commitment to (1) the development of natu- Evaluation / IFE) and external factors (External ral-resource manufacturing; (2) reduction of the Factor Evaluation / EFE) and SWOT Analysis at import content in the manufacturing industry; (3) leading industrial centers in developing power strat- development of new industrial centers outside Java; egies industrial center competitiveness, which has (4) protection of intellectual property rights; (5) pro- never been studied by studies beforehand. The se- motion of national manufacturing products and de- lection of the right competitiveness strategy is velopment of SME and Cooperatives; (6) partner- needed by leading industry centers so that the lead- ships with higher education in terms of innovation; ing industrial centers gain optimal benefits from com- (7) fiscal and non-fiscal facilities to promote national petition at the local, regional, national, and global intellectual property rights in the global market levels and have high growth and business (Presidenri.go.id, 2016).One of the strategic sec- sustainability. Based on this background, this study tors that are the pillars of the domestic economy is raises the title of the Strategy for Increasing Com- industrial centers. Cities in Indonesia have superior petitiveness of Superior Industry Centers in Malang industrial centers and have the potential to improve City. people’s welfare through their ability to produce products, create added value, use available re- Research purposes sources, open employment opportunities, increase Based on the problems described, the objec- people’s incomes and attract investors (Hayun, tives of this study are: 2007).Malang has a several industrial centers, 1. To map the industrial center of Malang City namely the furniture in Blimbing District, pottery and 2. Evaluating the industrial centers of Malang City ceramics in Sukun and Subdistricts, car- by using 12 criteria of superior products. body repairing in Blimbing and Klojen Districts, 3. Determine the main industrial centers of Malang handcraft in Blimbing and Sukun Districts, the City based on AHP ranking chemical in Blimbing and Sukun Districts, metal in 4. Evaluating internal factors (Internal Factor Sukun and Klojen Districts, the food and beverage Evaluation / IFE) and external factors (Exter- in Klojen and Sukun Subdistricts, textile printing in nal Factor Evaluation / EFE) at the leading in- Blimbing and Klojen Districts, and tobacco in dustrial centers in Malang City. Kedungkandang and Sukun Subdistricts (Nuraini, 5. Determine the competitiveness strategies that 2013). are appropriate for the superior industrial cen- This study aims to identify the most superior ters of Malang City with SWOT Analysis. industrial centers or leading industrial centers as a

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LITERATURE REVIEW have economic value to provide benefits to con- Industrial Centers sumers have a forward and backward relation- ship that gives a multiplier effect of the economy According to the Indonesian Language Dictio- and simultaneously provides economic benefits nary (2008), the center is defined as a place located for all stakeholders and regions that produce in the middle, while the meaning of industry is an these superior products. activity to process goods using facilities or equip- 3. The regional economic base sector is the re- ment. Decree of the Minister of Cooperatives and gional superior product that breaks into the cat- SMEs No: 32 / Kep / M.KUKM / IV / 2002, re- egory of the base sector group in the GDRP garding Guidelines for Growth and Development of and provides the largest contribution in the re- Centers defined centers as business activities in gional economy. certain regions or locations that use the same raw 4. Renewable means that regional superior prod- materials or facilities, producing products and has a ucts are not mining goods and utilize renew- prospect to be developed into an integral part of the able and environmentally friendly raw materi- cluster and as an entry point for cluster develop- als. Mining goods cannot be included as regional ment efforts. Cluster is an industrial network that is superior products even though at that time they interconnected in a value chain improvement pro- gave a large economic contribution to the re- cess (core industry, supplier of raw materials, aux- gion. iliary materials and assessments, and related indus- 5 The socio-cultural element in creating, produc- tries). ing and developing regional superior products To conclude, the industrial center can define as by used community talents and institutions that the center of processing goods that are in a particu- built and developed based on local wisdom de- lar area or location by using the same raw materials rived from distinctive characteristics and cul- and facilities or equipment to produce the same or tural heritage from the local and socio-cultural similar products and prospects to be developed. conditions. 6. Market availability is the ability of regional su- Criteria of Superior Industry Centers perior products to be traded in local, regional, The definition of leading industrial centers national, and global markets. adopts the definition of the Decree of the State 7. The availability of raw materials is guaranteed Minister of Cooperatives and SMEs No: 32 / Kep / with the acquisition of competitive prices, guar- M.KUKM / IV / 2002, concerning Guidelines for anteed continuity and environmentally friendly. Growth and Development of Centers. Leading in- 8. Capital is the availability and adequacy of funds dustrial centers defined as business activities related for investments and working capital needed for to regional superior products. These centers have the continuity of the business. well-developed capacity and productivity, also play 9. Production facilities and infrastructure are fa- a role in employment. To define superior industrial cilities for entrepreneurs to obtain production centers, this study used 12 criteria regional superior facilities and infrastructure at competitive and products as stipulated in the Regulation of Minister easily obtainable price levels. of Home Affairs Republic Indonesia Number 9 of 10. Technology that is relevant, effective, and not the year 2014 concerning Regional Superior Prod- easily imitated. uct Development Guidelines which are: 11. Business management is the ability to manage 1. Employment absorption of regional superior the business professionally by utilizing talents products is produced by utilizing skilled labor in and community institutions. the production area to have an impact on job 12. Price is the ability to provide added value and creation and income for the local community. bring operating profit. 2. Contribution of the economy is products that

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Strategy for Increasing Competitiveness business strategy formulation for the superior busi- The tight competition both in the local market ness centers of Malang City to improve competi- and the global market puts pressure on the leading tiveness. The data used in this study are primary industrial centers to have productivity and competi- data and secondary data. Primary data collection tiveness. Competitiveness is an interaction between was obtained through in-depth interviews and FGDs. input and output factors optimally which will help The research method itself is expected to be able to leading industrial centers in facing competition. Ac- describe a deep understanding of the existing in- cording to Porter (1990), 4 main factors can be used dustrial centers in Malang City. to determine industrial competitiveness, namely 1) This study consists of two stages. The first stage resource factors, 2) demand, 3) supporting indus- is to determine the main industrial centers of Malang tries and related industries, and 4) structure, com- City. The second stage is to determine the strategy petition, and corporate strategy. to increase the competitiveness of the leading in- One determining factor in competitiveness is dustrial centers in Malang City. Data collection the use of appropriate strategies. As a basis for strat- methods were used to determine the superior in- egy setting, leading industrial centers need to carry dustrial centers of Malang City and determine com- out SWOT analysis. SWOT analysis is based on a petitiveness improvement strategies, namely Focus framework of thinking on how to optimize strengths, Group Discussion and In-depth interview. FGD is a minimize weaknesses, take advantage of opportu- special method for organizing discussions or a se- nities, and face threats faced by leading industrial ries of discussions (Budiharsono et al., 2006). The centers (Rangkuti, 2015). FGD participants came from the Industrial Center of Malang City and related agencies. In addition, METHOD researchers will look for other data in the form of secondary data obtained from literature from vari- Research design ous relevant sources. This study uses descriptive research methods, In the first stage, which is determining the su- by studying the problems of the object under study, perior industrial centers of Malang City, the data namely the industrial center of Malang City. The will be analyzed using AHP (Analytical Hierarchy introduction of the problem to the object of research Process). AHP was first introduced by Thomas L is used as the basis for producing the right and best

Malang City

Featured Centers

12 Criteria for Regional Superior Products

(Regulation of the Minister of Internal Affairs of the Republic of Indonesia Number

SI SI SI SI SI SI SI SI SI SI 1 2 3 4 5 6 7 8 9 Xn Source: Researcher (2018)

Figure 1 The Hierarchy Model of Malang City Leading Industrial Centers

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Saaty (1980). AHP is a tool in decision making that Informant useful for a diversity of criteria and complexity in- The informants in this study were the Indus- herent in a situation. The basic principles in AHP trial Centers of Malang City and related agencies are making hierarchical arrangements (problem-cri- such as the Department of Industry. teria-alternatives), weighting criteria, weighing al- ternatives, and synthesizing (Saaty, 2008). AHP is Data Collection Method useful to find out which industry centers are the Information explored through Focus Group Dis- most superior in Malang City based on 12 criteria cussion (FGD) involving the Industrial Centers of of regional superior products stipulated in the Re- Malang City, academics, and related agencies. In- public of Indonesia Minister of Home Affairs Regu- depth Interview with the Industrial Center of Malang lation Number 9 of 2014 concerning Guidelines for City is conducted to obtain information related to Regional Superior Product Development. Weight- internal (IFE) and external (EFE) strategic factors. ing criteria is done by using Expert Choice software. The results of the weighting multiplication average Data analysis method with 12 criteria for regional superior products will produce a ranking. This ranking will be the determi- The research method used is Analytical Hier- nant of the superior industrial center of Malang City archy Process (AHP) assisted by Expert Choice (later called the flagship industrial center). as an analysis tool and SWOT Analysis for the de- In the second stage, FGD participants were termination of the best strategies in improving the Malang industry-leading players who were obtained competitiveness of Malang City Superior Industrial from the first stage. At this stage, efforts were made Centers. to explore information relating to the internal and external environmental conditions faced by Malang’s RESULTS AND DISCUSSION leading industrial center players. Furthermore, in- Stage 1 - Determination of Malang City Fea- formation obtained from FGD participants will be tured Centers identified and grouped into internal (IFE) and exter- The first stage was carried out to determine nal (EFE) strategic factors by conducting in-depth the best (leading) industrial centers in Malang City. interviews with the industrial centers of Malang City. The informant in the first stage is the industrial cen- Weighing of groups of internal (IFE) and external ter in Malang City and related agencies, namely the strategic factors and factors (EFE) is carried out Department of Industry of Malang City. Data was through pairwise comparison methods. In develop- collected through the implementation of Focus Group ing a strategic alternative, a SWOT matrix is used Discussion (FGD). (David, 2004) to help match strength and opportu- To determine the superior industrial centers of nity strategies (SO) and strength and threat strate- Malang City, this study uses several stages, namely: gies (strength and threat/ST), weakness and oppor- tunities/ WO strategies ) and weakness and threat 1. Gather information about existing industrial cen- strategies (weakness and threat/ WT). From this ters in Malang City SWOT matrix, a variety of the best alternative strat- In the first stage, information about industrial egies will emerge and will be recommended for the centers in Malang City was obtained from data Malang City Superior Centers. Furthermore, prior- held by the Department of Industry of Malang ity strategies are determined which need to be car- City. Furthermore, the 15 industrial centers are ried out by the industrial centers of Malang City grouped by industry sector to obtain 12 indus- using the Quantitative Strategy Planning Matrix trial centers, a. Tempe Center for Soybean and (QSPM). Tempe Chips; b. Emping Industry Centers and

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Marning Corn; c.Lolipop Industry Center; d. d. 1. Phase Input Footwear Industry Center; e. Racket Industry The input stage summarizes the basic input in- Center; f. Furniture Industry Center; g. Rattan formation needed to formulate a strategy. Input de- Industry Center; h. Wet Cake Industry Center; vices require strategists to calculate subjectively in i. Vehicle Number Plate Industry Center; j. the initial stages of the formulation process. Mak- Ceramics Industry Center; k. Pottery Industry ing small decisions in the input matrix concerns the Center; and l. Sanitair Industrial Center relative importance of external and internal factors 2. Establish 4 leading industrial centers in Malang that produce and evaluate strategies more effec- City tively. Good intuitive assessment is always needed From the data obtained, the next step is to de- in applying appropriate weighting and judgment. The termine the superior industrial centers of External Factor Evaluation Matrix (EFE) and In- Malang City. To establish a superior industrial ternal Factor Evaluation Matrix (IFE) are one way center in Malang City, this study used Borda. to formulating strategies at the input stage. Borda method is a voting method that can com- plete group decision making, wherein each ap- 1) External Factor Evaluation Matrix (EFE Ma- plication the decision-maker gives a rating based trix) on the existing choices, the selection process in The EFE matrix is used to evaluate the cen- the Borda method, each voter is given a choice. ters’ external factors. External data is collected to Suppose there are n selected candidates, the analyze issues relating to economic, social, cultural, first candidate or alternative is given n points demographic, environmental, political, governmen- by the voter or decision-maker. The second tal, legal, technological, competition in the industrial candidate is given point n-1 and so on. Deter- market and other relevant external data. This is mining the winner or the best alternative based important because external factors have a direct or on the highest points. The alternative with the indirect influence on the company (Umar, 2003). highest score is the consideration to be chosen. 3. Exploring information about leading industrial 2) Internal Factor Evaluation Matrix (IFE Matrix) centers is assessed from 12 criteria of leading The IFE matrix is used to determine the cen- industrial centers in Malang City ters’ internal factors related to the strengths and After obtaining 4 leading industrial centers (the weaknesses that are considered important. Data and most superior industrial centers), the next step information on the internal aspects of the company is to make criteria ranking derived from the 12 can be extracted from several functional compa- most important criteria for industrial centers to nies such as management, finance, human resources, be called superior by using the AHP method marketing, information systems and production or which is then processed using Expert Choice operations (Umar 2003). software. 2. Matching Steps Second Phase - Strategy for Increasing Com- The matching stage is the second stage which petitiveness of Superior Industry Centers in focused on producing viable alternative strategies Malang City by combining external and internal factors. Infor- The second stage is determining the strategy mation obtained from the input stage is used at this of increasing the competitiveness of the leading in- stage. The SWOT matrix (Strengths, Weaknesses, dustrial centers in Malang City, there are several Opportunities, and Threats) and the Internal-Exter- steps taken : nal (IE) matrix are included in the matching phase.

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2,0 4,0 Strong 3,0 Average 1,0 Weak 4,0 I II III Strong

3,0 IV V VI

Average

2,0 VIII IX EFE’s Total Score Total EFE’s VII

Weak

1,0 Source: Data processed (2018)

Figure 2 IE Matrix IFE’s Total Score

In this cell, the strategy that must be carried prioritized. QSPM techniques require good intuitive out by the centers is an intensive strategy by con- judgment. QSPM uses input from the EFE SWOT ducting market development and product develop- Matrix analysis and matching results from the IFE ment. Market development strategies are introduc- SWOT matrix. The selection of alternative strate- ing existing products or services into new geographi- gies with the QSPM method uses the value of at- cal areas or market segments. Product development traction (Attractiveness Scores or (US)) and the strategy is to make efforts to increase sales by im- total value of attraction (Total Attractiveness Scores proving existing products or services or developing or (TAS)). Based on the SWOT analysis, an alter- new ones. native strategy was obtained to improve the com- petitiveness of Malang City’s shipping centers, 1) SWOT Matrix namely eleven alternative strategies. To determine This matrix is an important matching tool to the appropriate alternative strategy, QSPM analy- help managers develop four types of strategies. The sis is a priority. results of the analysis of the external and internal Based on the results of the questionnaire about environments that have been carried out in the form the selection of alternative strategies shows the most of strengths, weaknesses, opportunities, and threats preferred alternative strategies by respondents. Al- aim to form a SWOT matrix. ternative strategies with the highest TAS value are strategies that need to be implemented first by the 2) Decision Phase company. The results of the questionnaire show that The Decision stage is the last step in formulat- the highest TAS value is an alternative strategy 1, ing a company’s strategy. Information obtained at namely increasing demand by using social media the input stage and the matching stage is used at and supporting clusters as marketing channels sup- this stage.The next analysis used is Quantitative ported by the superiority of the products and ser- Strategic Planning Matrix (QSPM), a technique that vices offered. can objectively establish priority strategies that are

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CONCLUSIONS AND RECOMMENDA- a. increase demand by using social media and TIONS supporting clusters as marketing channels Conclusions supported by the superiority of products and services offered 1. Malang City has 4 leading industrial centers, b. increase managerial knowledge to over- namely tempe chips, ceramics industry centers, come weaknesses and take advantage of furniture industry centers, and rattan industry opportunities centers. c. make a strong brand to increase aware- 2. The strengths of the superior industrial centers ness, difficult to imitate, and stable price of Malang City are the availability of raw ma- d. improve and maintain the superiority of terials, cheaper price, high product innovation, products and services offered in anticipa- fast processing time, reliable and trustworthy, tion of intense competition loyal customers, high product variety, ability to e. improve the competencies possessed by fulfill orders, and better quality products. the workforce, so that productivity and 3. The weaknesses of the superior industrial cen- product quality will increase to face com- ters of Malang City are lack of technology, lack petition and changing preferences of managerial knowledge, lack of facilities and f. Coordinate and standardize prices among infrastructure, difficulty accessing capital, lack business actors to minimize the price play of skilled workforce, easily replicable products, carried out by collectors prices played by collectors, limited marketing g. Based on the QSPM matrix created, the reach because marketing is done traditionally, alternative strategy that has the highest and the high level of employee turnover. TAS score and must be done first is to in- 4. The opportunity of Malang’s leading industrial crease demand by using social media and centers are the market share that is still open, supporting clusters as marketing channels the emergence of social media as a marketing supported by the superiority of the prod- channel, and the supporting clusters (tourist des- ucts and services offered. tinations) 5. The threats faced by the superior industrial Recommendations centers of Malang City are the level of eco- nomic growth, the rise of online competition, The superior industrial centers of Malang City changes in market preferences, and the ab- need to maintain and increase their strengths, by sence of price standardization among business continuing to make high product innovations, speed actors. of work time, maintain reliability and reliability, in- 6. Based on the IE matrix, the Malang superior crease product variety and product quality, and in- industrial center positions are in the cell V which crease the ability to fulfill orders.Malang’s leading is maintaining and maintaining. In this cell, the industrial centers need to minimize their weaknesses strategy that must be carried out is an intensive by increasing managerial knowledge, increasing the strategy, which is doing market development competence and skills of the workforce to over- and product development. The market devel- come the lack of skills and the high level of em- opment strategy is to introduce existing prod- ployee turnover, making brands and uniqueness so ucts or services to new geographical areas or that the products are not easily replicated and prices market segments. cannot be played by collectors, and expand the 7. The SWOT matrix created displays several al- marketing range. ternative strategies that can be chosen by the leading industrial centers of Malang City, namely:

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