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It is evident everywhere that levels of productivity are higher in large enterprises (LEs) and foreign-owned enterprises than in small and medium enterprises (SMEs), partly because they have higher levels of technology capacity. Thus increasing the productivity of non-farm SMEs might be facilitated through improved knowledge or technology. This study shows that foreign direct investment (FDI) is an important but limited channel for technology transfer from foreign countries to Indonesia. A case study of Tegal metalworking industry presented in this study shows that the most important channels for the diffusion of knowledge among domestic non-farm SMEs include sub-contracting arrangements. This study also shows that government agencies are currently the largest providers of training and similar assistance. However, these programs are marred by a low level of coverage, a lack of effective evaluation and assessment, and a supply rather than a demand orientation.

DOI: 10.1007/s12130-007-9031-7

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