Journal of Management Information and Decision Sciences Volume 24, Issue 7, 2021 THE DEVELOPMENT OF SPECIAL ECONOMIC ZONES FOR INCREASING MSMES COMPETITIVENESS Bambang Jatmiko, Universitas Muhammadiyah Yogyakarta Titi Laras, Universitas Janabadra Rini Raharti, Universitas Janabadra Jati Kurnia Sandy, Universitas Pembangunan Nasional “Veteran” Yogyakarta Alfi Muthia Anjani, Universitas Muhammadiyah Yogyakarta Kholifah Fil Ardhi, Universitas Muhammadiyah Yogyakarta ABSTRACT The purposes of the research are to find out: 1) the Industrial center in Kulon Progo, Indonesia; 2) the trigger factor for Kulon Progo's economic growth; 3) the total number of tourists came to Kulon Progo; 4) the total population of Micro, Small, and Medium Enterprises (MSMEs) in Kulon Progo; 5) the potential mine in Kulon Progo; 6) the development of technology in MSME Kulon Progo; and 7) the Kulon Progo’s export growth. The problem raised is that the Special Economic Zone of Kulon Progo Regency has not been mapped yet to support the competitiveness of Kulon Progo Regency towards the competitiveness of The Jewel of Java. The data used are primary data, both quantitative and qualitative. Observation, interview, and questionnaire were conducted in this research. The results showed that 1) The operation of Yogyakarta International Airport or YIA in Kulon Progo is estimated become the trigger in developing the logistics services sector apart from tourism and manufacturing; 2) The highest number of tourist visited in Glagah Beach, around 58%; 3) The population of Micro Business MSMEs in Kulon Progo, around 97.75%; 4) The potential mine in Kulon Progo, they are iron sand, cement raw material, andesite stone, limestone, and marble rock.; 5) The MSMEs development technology in Kulon Progo based on Geographic Information System (GIS); 6) Kulon Progo’s export commodity dominated by wig business. Keywords: Special economic zone; Economic growth; Competitiveness. INTRODUCTION Based on Law No. 39 of 2009 on Special Economic Zones, then called by KEK (Kawasan Ekonomi Khusus- KEK in Indonesian) in Indonesian), is about an area with the certain limit within the jurisdiction of the Republic of Indonesia which is determined to conduct the economic functions and obtain the certain facilities. According to Law 39/2009, article 3, zoning aspects in Special Economic Zone (SEZ) can be classified into 7 (seven) zones, they are: (a) Export Processing; (b). Logistic; (c). Industry; (d). Technology development; (e). Tourism; (f). Energy, (g). Another economy. SEZs are areas where companies operate in a clear geographic area. Then, 1 1532-5806-24-7-296 Citation Information: Jatmiko, B., Laras, T., Raharti, R., Sandy, J. K., Anjani, A. M., & Ardhi, K. F. (2021). The development of special economic zones for increasing msmes competitiveness. Journal of Management Information and Decision Sciences, 24(7), 1-8. Journal of Management Information and Decision Sciences Volume 24, Issue 7, 2021 the certain economic activities are promoted by policy that are generally not applicable across the countries (Zia, 2007). Overall, SEZ is about the logical consequences in the era in the special economic zones which have privileges established by the state to attract foreign entrepreneurs to invest in the country (Pakdeenurit, 2014). That privilege may include policy, rules, or special investment regulations and also special support in infrastructure, such as tax breaks, financial support, or issuance of work permits for foreign workers. The term “Special Economic Zone” becomes more encompass than the “Free Zone”, which no longer represent the various kinds of new zones, especially the zone which oriented to certain technology and the new service (for instance are about health, tourism, security) and also the sustainable development (Bost, 2019). International Growth Centre (2019) found that most countries have not had many successful SEZ, except for China. Placing in a group can benefit the company, but this benefit depends on the flexibility of the company, while, the government should do better at stimulating the clusters that have developed organically. The effects of KEK make employment mixed, while wages in SEZ are lower and increase over time. China and India showed that the SEZ had helped increase trade flows, but the evidence continues the attractiveness of FDI is inconclusive but emphasizes the importance of improving the business. Lastly, SEZ established in non-urban areas often lead to rapid urbanization, while existing cities have an ambiguous effect. Maulana and Nurhadi (2016) stated that Kulon Progo Regency is one of the areas that need to be developed in order to increase the regional competitiveness. In developing the area, Kulon Progo Regency has 12 sub-districts, where each district has different potential. If the sub-districts are well developed, it will increase the competitiveness of the district, province, national, even in international levels. Locally, Kulon Progo Regency has an advantageous position. It is located on the South Java transportation route which is connected to cities in Java by land transportation networks. The southern route of Java has a good prospect for development. These prospects are also supported by the wealth of regional resources in agriculture, livestock, fisheries, maritime affairs, tourism and mining in each district. The northern and western parts of Kulon Progo Regency are the hilly areas with beautiful views, also has a wealth in agriculture, plantation and tourism (RPJPD Kulon Progo Regency 2005-2025, 2005). In addition, there are plans to build mega projects in Kulon Progo Regency such as Iron Sand Mining, Steel Industrial Estate in Galur District, Panjatan and Lendah, the International Airport in the District of Temon and Sentolo Industrial Area. These kinds of wealth will mutually support the competitiveness of Kulon Progo Regency (Pemkab Kulon Progo, 2011). Kulon Progo Regency has a varied topography, with an altitude between 0-1000 meters above sea level, then divides into three regions: a. North. The northern part is about plateau/hill with an altitude between 500-1000 meters above sea level. These areas include Girimulyo, Kokap, Kalibawang, Nanggulan and Samigaluh Districts. B. Middle part. The middle part is about the hilly area with an altitude between 100–500 meters above sea level. These areas include Sentolo, Pengasih, dan Kokap Districts. C. The southern part is a lowland with an altitude of 0-100 meters above sea level, covering the Districts of Temon, Wates, Panjatan, Galur, and Lendah (BPS, 2020). From the observations results, the following problems were found:1) the infrastructure related to business in the logistics sector has not been organized by investors; 2) uneven tourist visits in the Kulon Progo area; 3) Micro, Small and Medium Business (MSMEs) are still focused on micro businesses because they are capital; 4) technology development is still focused on the Geographic Information System (GIS); 5) Kulon Progo has mineral resources that have the 2 1532-5806-24-7-296 Citation Information: Jatmiko, B., Laras, T., Raharti, R., Sandy, J. K., Anjani, A. M., & Ardhi, K. F. (2021). The development of special economic zones for increasing msmes competitiveness. Journal of Management Information and Decision Sciences, 24(7), 1-8. Journal of Management Information and Decision Sciences Volume 24, Issue 7, 2021 potential to support Regional Original Income (PAD) and even the State Budget (APBN); and 6) Kulon Progo industry still having trouble in marketing its products. LITERATURE REVIEW Special Economic Zone The main policy taken by the government is to issue the Law Number 39 of 2009, contain about the Special Economic Zone (KEK in Indonesian) Law Number 39/2009. The appearance of Law no. 39/2009 is based on the need to speed up the development area and maintain a balance of progress in a region (as a national economic unit). The SEZ Terminology: “an area with the certain limit within the jurisdiction of the Republic of Indonesia which is determined to conduct the economic functions and obtain the certain facilities”. Walsh (2013) stated that SEZ (Kawasan Ekonomi Khusus in Indonesian) is a limited geographic area which is regulated by specific rules and laws. A similar opinion is also stated by Shah (2009) that SEZ is a geographical area whose economic law is more liberal than the existing economic law in that country. Nazia and Varshney (2012) also defined that SEZ as a geographical area where the economic law is different from the economic law. It applied in that country with the main objective being to attract Foreign Direct Investment (FDI). SEZs or industrial areas are very prolific around the world. Zones can be an effective instrument to encourage industrialization if implemented in the right context (Zhihua Zeng, 2019). SEZ is legal, logistical and tax arrangements, which is intended to assist developing countries in attracting export-oriented manufacturing investment (especially foreign) in order not to occur (Warr & Menon, 2016). To build a SEZ, it must meet these following four criteria (Law 39/2009: Article 4): It is in accordance with the Regional Spatial Plan and does not have the potential to disturb the protected areas. b. The local government concerned the SEZ. C. close to international trade routes or international shipping lanes or located in areas that have excellent resource potential. d. Have clear boundaries. While, the requirements that must be fulfilled by SEZ are (Law 39/2009: Article 6): a. a. Map of development locations and the proposed area are two separate things from human settlements. B. The proposed SEZ spatial plan is complemented by zoning regulations. Meanwhile, the requirements that must be met by a SEZ are (Law 39/2009: Article 6): a. Map of the development location as well as the proposed area separate from residential areas. b. The proposed SEZ spatial plan is complemented by zoning regulations. c. Plans and sources of financing. d. Analysis of environmental impacts in accordance with the provisions of laws and regulations. e. Results of economic and financial feasibility studies. f.