Internationalization of Small and Medium Enterprises in Indonesia: Towards Integrative Policy Approach of Competitiveness and Connectivity

The paper focuses on the policy analysis influencing the internationalization of small and medium sized enterprises (SMEs) engaged in cultural and creative industries (CCIs) in Indonesia. Three approaches of internationalization are explored in this study: the market knowledge approach, the network approach and the international entrepreneurship approach. This article attempts to figure out internationalization as a process starting from the creating of favorable preconditions to the strengthening stage based on the interrelationship among those approaches. The purpose of this article tries to combine the important dimensions proposed by each approach towards an integrative policy approach based on the concept of competitiveness and connectivity. The conceptual model of integrated policy in this study contributes to resolve inefficiency issue as the main gap in the existing strategic policy on SME internationalization in Indonesia; enhance integrative policy analysis literature and propose a more integrated strategic policy for promoting internationalization.


Introduction
Small and medium enterprises (SMEs) are very crucial in improving national GDP and contribute significantly to the increase of employment rate of a country. In Indonesia, creative economy contribution to GDP increased from 525.96 trillion to 852.24 trillion (an average increase of 10.14% per year) in the period of 2010-2015. This value contributes to the national economy ranging from 7.38% to 7.66%, which is dominated by three sub sectors, namely culinary with 41.69%, fashion 18.15%, and craft 15.70%. The three largest export destination states of the creative economy commodity in the year 2015 YURIDIKA FAKULTAS HUKUM UNIVERSITAS AIRLANGGA The low level of GCI is partly due to various determinants such as human resources, institutional framework, infrastructure and technology, raw material, industry, finance and marketing. This low competitiveness of SMEs in creative economy is mostly due to the various restraints faced. In general, the constraints faced by SMEs engaged in CCIs due to several factors: (1) weakness in access to finance; (2) weakness in the institutional structure; (3) weakness in infrastructure and technology; (4) the lack of access to international market due to limitation in building network/linkage; (5) lack of creative human resources; (6) the lack of raw material; (7)   Following the introduction, this paper is structure as follows: section two concerns with several existing research and theories related to internationalization policy. Section three is concerned with the research methodology to analyze research questions and demonstrating the systematic analysis process. Section four involves in the research findings. Section five is dealing with the analysis and discussion of research findings. Finally, section six and seven are conclusion and recommendations.

Interrelationship Among the Internationalization Theories
Internationalization of SMEs is basically based on three theories, which include: (1) Uppsala model; (2) Network approach and (3) entrepreneurship behavior. 4 The 'uppsala' model is a form of theory that explains how a company gradually strengthens its participation in the global market. 5 This is also known as a stage model. The fundamental assumption of the Uppsala model is that there is a reciprocal affect of market knowledge and market commitment. This also means that the amount of knowledge of foreign markets and operations is influenced by the amount of commitments of resources in foreign market and vice versa 6 Based on the network theory, export-oriented of SMEs will be achieved through the creation of linkage between MNEs and SMEs such as joint venture, licensing (licensing) or franchise. 'Network approach' theory emphasizes on the importance of network creation in an effort to realize internationalization. Despite the fact that to a certain extent the network theory attempts to challenge the uppsala model, both theories are inherently related to one another. All firms in a market are considered to be embedded in one or more network through linkages to their suppliers, subcontractors, customers and other market actors. 7 The international entrepreneurship theory is another important theory that strongly correlates with actions that are entrepreneurial such as risk taking, innovativeness, pro-activeness, competitive aggressiveness and autonomy. International entrepreneurship has been confined to a combination of innovative, proactive and risk seeking behavior that crosses national borders and is intended to create value in organization.
This study does not look at those theories separately from each other, but rather refers to how to integrate those three approaches in the internationalization process.
These three theories strongly influence the internationalization behavior of SMEs.
These three theories are interrelated with each other. The integrative approach to the three theories of internationalization has not received major attention from various 5 J Johanson and G Mattson, 'Internationalization in Industrial Systems-A Network Approach in Global Competition', Prince Bertil Symposium at the Institute of International Business, Stockholm School of Economics, London: Croom Helm, cop (1988). In Pervez N Ghauri and Peter J Buckley, The Internationalization of the Firm: A Reader (Academic Press 1993). In Loretta Battaglia, Daniela Corsaro and Alessandra Tzannis, 'The Role of Networks in the Internationalisation of a SME: The Case of an Italian Company ', 22nd Industrial Marketing and Purchasing Group Conference, Milano, September (2006). 6 Battaglia, Corsaro and Tzannis (n 5). 7 ibid. studies related to the internationalization of SMEs. 8 Market knowledge and market commitment need a strong local and foreign business relationship or linkage. This business relationship also embedded a strong international entrepreneurial behavior/ activities and experience. 9 SMEs can reach international market opportunity if they are supported by strong international entrepreneurship. On the other hand, international entrepreneurship also needs to be backed by local and foreign business relationship (network/linkage) in order to get access to international market opportunities.

Figure 1. Interrelated of internationalization theories
One of the greatest complexities within these theories in supporting internationalization of SMEs is its fragmented character. Therefore, since the proposed integrated policy model attempts to look at internationalization of SMEs as a process, it detaches from its fragmented character. In this context, it argues that the internationalization of SMEs should be examined in a broader sense and on the basis of the complementary and interrelated basis of these three theories. is exemplified from the international entrepreneurship and connectivity that is demonstrated from the network theory and Uppsala theory. At the implementation level, the value of competitiveness and connectivity must be adopted in strategic policy at the macro level, meso level and micro level. This relates to the integrated approach to policy analysis that will be explored in the next section.

The Need of Integrated Approach to Policy Analysis in the Internationalization of SMEs in CCIs
While the proliferation of various approaches is used as the underlying theories of the SMEs internationalization, some studies advocates to implement an integrative framework. 10 The integrated framework for policy analysis is very influential to the formulation of sound policy strategies in the internationalization of SME. This approach can fill gap by providing a comprehensive approach to policy change and reforms processes and may equip crucial guidance to figure out how and why policy choice are made and implemented. The proliferation of political economy analysis which is considered as paramount to the formulation of sound policy strategies leads to this study. The forcible intention to conduct this study is mainly because of the proliferation of research on the political economy analysis. 11 The enhancement of competitiveness and connectivity or network is significantly influenced by economic policies. 12 This research will increase the level of efficiency, competitiveness and connectivity as the fundamental driving force behind the internationalization of

Competitiveness and Connectivity: Towards an Integrative Approach
The integrative approach to the concept of competitiveness and connectivity is fundamentally based on the integrated approach to the three internationalization theory (stage theory, network theory and international entrepreneurship theory). In other words, the concept of competitiveness and connectivity is built on the foundations of these three theories as a unity. This study does not detach from the three major approaches of the internationalization of SMEs, namely the stage theory, the network theory and the international entrepreneurship theory. Despite the fact that those theories remain embedded some limitations, their contributions are still prominent.
The integrated approach to those three approaches can build a solid foundation of the SME internationalization. The integrated approach to those three prevalent theories essentially point out two basic values on internationalization process: competitiveness and connectivity. These concepts have not yet been explored by many researchers.
Many studies mostly view those three theories of internationalization in a separate way and they do not figure out the basic underlying concept upon those approaches as a whole. Therefore, it shall be worthwhile to find an integrated framework combining the contributions of those three theories by taking into account specifically the basic underlying values such as competitiveness and connectivity. From the perspective of enriching the previous research on the SMEs internationalization, it will provide in this article to integrate the essential concept of the internationalization theories towards an integrative approach to the concept of competitiveness and connectivity.

The Concept of Competitiveness and Connectivity
The basic notion of competitive and connectivity can be traced its origin from the ADB report (2015). 19 Not many of researchers undertake study by combining these two concepts of competitiveness and connectivity in an integrative way. This out that competitiveness is mostly driven by the rate of productivity growth.
Majority of the research, however, strongly provoke the paramount importance of the integrative approach to competitiveness and connectivity. 23  as two essential notions of internationalization of SMEs, the competitiveness and connectivity are actually indispensable for each SMEs. 24 The notion of competitiveness also closely link to the concept of competitive advantage which is very crucial in strategic management studies. 25 Its concept confines to that of comparison and rivalry because it is usually viewed as the level of asymmetry or differential among enterprises based on any comparable determinants that lead one enterprise to compete better than its rivals. In this context, a competitive advantage confines to the level of competition within enterprises. The level of competitiveness can be measured from the competence of the enterprises compare to other competitors. 26 The level of competitiveness of the enterprise can be revealed from its competence to design, produce and market products superior to those offered by competitors, in which case the superiority position can be measured from various elements such as price, quality, technology innovation, etc. 27 Another study confines competitiveness to firm competitiveness based on its efficiency and effectiveness, whereas others refer it to product competititveness, production efficiency, financial position and organization effectiveness. 28 Similarly, Altenburg et.al. (1998) claims that "enterprise competitiveness is the ability to sustain a market position by, inter alia, supplying quality products on time and at competitive prices through acquiring the flexibility to respond quickly to changes in demand and through successfully managing product differentiation by building up innovative capacity and an effective marketing system". as private public partnership. 29 The physical connectivity includes infrastructures.
The software connectivity covers government policies, institutions, procedures, capacities and systems. 30 The concept of connectivity also comprises any economic integration in the form of Free Trade Agreements (FTA), International Investment Agreement and regional or international cooperation in order to promote production network or linkage between SMEs and MNEs as well as Global Value Chain (GVC). 31 The connectivity also confines to the network approach providing that the internationalization of enterprises is driven by establishing relationship with partners in foreign networks and international integration. 32 The concept of connectivity also includes social network which has a significant contribution to the internationalization process. 33 Other researcher describes the concept of connectivity to both inward (level of import) and outward (level of export) since they can cultivate linkage between firms in international market sphere. 34 Other author define the notion of connectivity as business network which has a great impact on the firm's internationalization process. 35

Approach
Basically, SMEs internationalization is a process involving competitiveness which also include the concept of 'systemic competitiveness' (UNCTAD and 29 Stephen P Groff, 'Strengthening Connectivity for Enhanced Competitiveness in Southeast Asia, Presented at the OECD Southeast Asia Regional Forum: Fostering Regional Competitiveness and Sharing the Benefit of Sustained Growth' (2014) <https://www.adb.org/news/speeches/ strengthening-connectivity-enhanced-competitiveness-southeast-asia-stephen-p-groff.>. 30 ibid. 31 Hank Lim and Fukunari Kimura, 'The Internationalization of Small and Medium Enterprises in Regional and Global Value Chains' (2010). 32 Battaglia, Corsaro and Tzannis (n 5 connectivity. Internationalization of SMEs involves a set of elements such as access to finance, capability, productivity, networks, etc. However, the linkage between competitiveness and connectivity in the SMEs internationalization process is rarely formally defined. Therefore, a more integrative policy approach to competitiveness and connectivity is urgently needed to accelerate SME internationalization as well as increasing business performance. In this study, the value of competitiveness confines to strategic policy to increase capacity building, physical infrastructure, creative business incubation and access to finance. The notion of connectivity associated with series of factors such as how to create strategic alliances institutional framework, awareness raising information services, strategic policies measures and network or clusters. The approach based on the integrated concept of competitiveness and connectivity promotes an integrative view on internationalization of SMEs engaged in CCIs by taking into account the most influential elements in various approaches above. The integrative approach to competitiveness and connectivity through integrated policy analysis establishes a more efficient and effective strategic policy at macro, meso and micro level on the SME internationalization. The SMEs empowering strategic capability and knowledge in international market could not pass through global market without the arrangement of strategic favorable environment on cultivating or establishing connectivity in global market. The linkage arranged in network could promote and cultivate production network between SMEs and large firms (MNEs). The strong capability associated with the establishment of connectivity will help SMEs to foster their competitiveness in order to internationalize their economic activities. The level of connectivity, especially the financial connectivity to financial institution is also dominant for SMEs to increase their competitiveness in foreign market. Other form of connectivity such as economic integration through the establishment regional or international trade/investment agreement are of Free Trade Agreement or International Investment Agreement reduce the market distance between SMEs and large firms (MNEs)in the process of internationalization. This connectivity will increase the linkage between SMEs and MNEs in the form of production network and export level. An integrated policy approach to competitiveness and connectivity values may identify and eliminate potential tensions/gap or conflicts of policy between local and international level in the internationalization process. Both the competitiveness and connectivity are a prominent element in describing the internationalization. Basically, SMEs in network need highly specialized capability as a competitive value that are necessary for its existence in the production network or level of export.
In spite of its competence, SMEs may not be able to actively participate in foreign market if it is not supported by favorable environment or conducive precondition that open up large opportunity for building network/linkage with foreign enterprises or production network globally. The connectivity factor or network relationship in the SME's internationalization has become the most influential strategy for cultivating international market. 36 This is reasonable since the SMEs have many limitations in terms of capital, market knowledge, etc. The international entrepreneurship theory describes the importance of competitive value of the enterprises associated with its market competence or capability of the entrepreneur. 37 Identified some determinants sources for SME internationalization including connectivity such as network intensity, and competitiveness in the form of managerial and manufacturing contexts. The Global Value Chains through international subcontracting is mostly impacted by the integrated value of competitiveness and networking (connectivity). SME will not be able to play a role in the international and regional market if it does not have competitive value/ advantage. The notion of connectivity and competitiveness basically concerns three nature of the SMEs: the environment, organizational and the enterprise.
The SME's internationalization is not a simple process since it involves a process of integrating both competitive value -such as product competitiveness, production efficiency, financial position and organization effectiveness -and interconnected sources of networking (connectivity) consisting of government institutions, business partners and personal/social networking. 38 The strong interrelationship between the organizational/productive capability (competitive value) and international networking will facilitate SMEs internationalization in global market.

Research Design: Integrated Approach to Policy Analysis
This research uses a descriptive study. This study attempts to integrate the level of competitiveness and connectivity in SME internationalization process. Integrative conceptual model based on these two concepts are proposed The objective of internalization policy based on the integrative approach of competitiveness and connectivity is to provide supportive measures or policies to increase the number of SME involved in export and production network (global value chains). Government policies are then differentiated by unit of analysis, that is micro and macro level. At micro level, government programs as the impact of policy reform will be identified. In this level, SME is categorized as an individual in which case each SME needs certain circumstances for internationalization, such as access to finance, capacity building, technology skill. The internationalization policy at the micro level encompasses programs to increase the SMEs skills and capability such as programs related to market access, access to finance and programs related to an incubator and mentorship. At the meso level, the policy implementation will be explored. In this level, SME is categorized as an enterprises or structural organizational who cultivate competitive advantage and involve in global economic chains through internationalization process. The    Not only does this model encompasses the importance of international market access, but it also emphasize the need of enterprise competitiveness. Accordingly, the fundamental basis of hypothesis: the level of competitiveness and connectivity impact on the degree of internationalization since it involves firm's performance or productivity, product quality, market knowledge and commitments. Production network has a significant correlation to the establishment of global value chains as part of internationalization process. The global value chains have increased the linkage between SMEs and MNEs through subcontracting process or outsourcing mechanism. The production network can also build strong position in the market with large enterprises to gain technology transfer and market knowledge. This also means that the increase of internationalization through production network can also maximize business performance of the enterprise through the process of transfer of technology and knowledge.
The significant correlation between competitive advantage -product and enterprise competitiveness -and network on creating international linkage between SMEs and MNEs through export, licensing, franchise, outsourcing, etc.
The proliferation of information technology and the establishment of economic integration strategy through trade and investment liberalization significantly contribute to create strong incentive to productive process. Globerman affirms that a modern corporate model is an interconnectedness between 'network based' and 'core competencies' associated with strategic sourcing and partnering. 41 The relationship between high level of competitiveness, strong commitment to international market, and integration to various economic integration opportunities has a dramatic contribution to the acceleration of SMEs internationalization. OECD study (2013) shows a significant correlation between competitiveness and connectivity in the global value chain. In this research, competitiveness value is characterized as core capacities comprising dynamic capability, higher innovation capability, design and marketing capability, technology capability and higher efficiency processing ability.
Not only does dynamic capability concern with organizational structure and firm specific skills, but it also refers to network or connectivity factor. This construction exemplifies the strong correlation between competitiveness and connectivity in building firm's capacities leading to internationalization speed. which sufficient evidence that the degree of there is an intense linkage between core capacities or competitiveness -dynamic capability, innovation capability, design and marketing, technology capability, efficiency process capability -and network and business performance leading to the achievement of internationalization speed.
The approach of competitiveness and connectivity not only depend on the firm's internal competence but also take into consideration the external favorable or conducive environment. In this context, SMEs internationalization process relies on both the level of enterprise's competitiveness and the strategic alliances including strategies policy and measures in order to create favorable environment. Exporting and Foreign Direct Investment (FDI) has become the two major strategic measures to increase internationalization. 42 The major hypothesis in this study is that both the degree of competitiveness and connectivity have significant impact on the level of internationalization. Further, the level of internationalization affects the business performance of SMEs.

Research Findings
The the formulation and implementation stages that can be identified from products of regulation and related ministries programs. Some government programs at micro level supporting the five determinants as proposed above are shown as follows (table 2). At the meso level, policy interaction and policy implementation creating conducive or favorable environment to the SMEs internationalization are identified and categorized based on those five variables. This includes various policy measures and incentives intended for increasing the SMEs internationalization. In the process of SMEs internationalization, the meso level confines to the interaction between macro level and micro level, to what extent they interact in order to promote and achieve the basic policy objectives. Therefore, not only does meso level interact with the level of the organization, but it also has interplay with the structure and culture.
In this context, to what extent the national government respond and supportive to the macro level and micro level of the SMEs internationalization will become the major policy analysis at meso level. Accordingly, this includes government policies on how to create a favorable or conducive environment in the process of SMEs internationalization. For example, the establishment of policy measures focusing on the establishment of linkage between MNEs and SMEs at local, regional and international spheres. The establishment of policy measures focusing on the establishment of linkage between MNEs and SMEs at local, regional, and international demonstrates the policy implementation at meso level. The promotion of 'economic integration' through the creation of international/regional investment major analysis of this study is the integration of micro, meso and macro-levels in the SMEs internationalization process which is also known as 'systematic internationalization'.
The policies are filtered and determined based on the variables of internationalization policy and target. This can be noted from table 4 below. increase Indonesia's regional competitiveness and encourage greater foreign direct investment, whilst maintaining protections for domestic businesses of a certain size

Discussion
In this study, there is still gap in government policies and legislation with regard to the internationalization of SMEs at macro, meso and micro levels. First, the existing fragmented policy measures have made them inefficient. One of which is that the policy measures established at the top level of stage -macro level -cannot be implemented by the SMEs due to the lack of finance and capacity (skills). 45

Unsuccessful policies and strategies for developing SMEs engaged in CCIs in
Indonesia is also caused by the absence of clear understanding of the specific characteristics of the CCIs in the regions. In this context, the absence of mapping studies has led to the gap between political strategies and the appropriate strategy supporting CCIs due to the lack of awareness among policy makers. Institutional strengthening programs of cooperatives and business climate development programs that can strengthen the SME market structure and change the behavior of Second, the fragmented and sectoral regulations demonstrate the lack of strategic alliances and institutional framework. The lack of interaction (strategies alliances) between policies -meso level -has led to inconsistency or even inconflict policies. There must be an integrated strategy and coordination from all different strategy from the government, business community and non-governmental sectors because SMEs in CCIs are by nature inter-disciplinary which combine culture and economy and many other connected areas such as innovation, education etc. 47 Awareness raising strategy has not yet been established due to the absence of networking association or national umbrella program for all CCI related awareness raising activities among policy makers. In other words, the strategic policy incorporated in many regulation has not been able to raise awareness of the importance of SMEs in boosting economic development.
The data above shows that policy which so far only solves the SMEs problems partially, but not implemented cross-field so that there is overlap and burden SME business activities. Further, government policy in the empowerment of SMEs tends to be a short-term oriented, so the true root cause of SMEs is rare unsolved. Some other regulatory policies are also directed to have direct impact on the development of SMEs businesses. The policy measures that create positive impact required by the Indonesian SMEs includes prohibition of export of raw materials such as rattan, reduction or elimination of tariffs, extensive performance requirement measures in order to promote linkage between MNEs and SMEs. 48 This includes policy measures with regard to supporting the development of local entrepreneurs, seeking to enhance productive capacity, increasing employment, increasing human resource capacity and training, research and development, including of new technologies, technology transfer and other benefits of investment through the use of specified requirements on investor made at the time of the establishment or acquisition of the Investment and applied during its operation. 47 European Union (n 3). 48 Battaglia, Corsaro and Tzannis (n 5).

Conclusion
From this study, it can be concluded that the proposed conceptual model internationalization of SMEs provides a comprehensive integrated policy framework.
This model highlighted two important variables competitiveness and connectivity levels in the basic notion of 'systematic internationalization' aimed at increasing the degree of SMEs internationalization. The concept of 'systemic integration' in the SMEs internationalization needs an integrated approach to macro, meso and macro level of policy. In the case of Indonesia, the study found that most of variables is accomplished by the government policies and regulation. However, integrated approach to competitiveness and connectivity has not yet been adopted in macro, meso and micro levels interdependently. Consequently, SME in Indonesia is still undergoing typical obstacle both organizational (internal factor) as well as external factor i.e. less conducive business environment.