An Empirical Analysis of Firm Innovation
Capability and Performance of Indonesian ICT
SMEs
A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy
Dian Tauriana Siahaan
Bachelor of Business Management
Master of Science in International Business
School of Management
College of Business
RMIT University
March 2017
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STATEMENT OF AUTHORSHIP
I certify that except where due acknowledgement has been made, the work is that of the author
alone, the work has not been submitted previously, in whole or in part, to qualify for any other
academic award; the content of the thesis is the result of work which has been carried out since
the official commencement date of the approved research program; any editorial work, paid or
unpaid, carried out by a third party is acknowledged; and, ethic procedures and guidelines have
been followed.
Dian Tauriana Siahaan
29 March 2017
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ACKNOWLEDGEMENTS
This thesis would not have the soul that it has without the valuable academic, moral support
and confidence in me as a researcher, provided by scholars, spouse, and friends. As always,
God guided me through the process with help from my research supervisors, husband, and
friends.
First of all, I would like to thank you to my primary supervisor, Associate Professor David
Gilbert. His knowledge and experience are beyond question and his guidance have transformed
me into a dedicated researcher. I regard him not only as a research supervisor but also a mentor
in developing academic skills required to be a good scholar.
I offer special thanks to Dr. Caroline Tan, who has been my supervisor and a good friend. She
helped me to endure hardships and make this journey enjoyable. Her ability to build networks
with people with diverse backgrounds provides me with good lessons to learn for my next
endeavors.
My sincere appreciation goes to Australia Awards Scholarships Program (AusAID) who have
given me an opportunity with full support to undertake my research. I am grateful to be selected
as one of the AusAid recipients.
Last but not least, I am grateful for the support given by Reinhard Parulian Siagian, my spouse.
His substantially devoted love, care, and patience throughout this journey have enabled me to
complete this study. My sincere thanks to my best friend, Diana Widiawati who always gives
her support during my study. Finally, to all of my friends and Ph.D. colleagues in RMIT
University whose names I cannot mention one by one, I would like to thank them for our
friendship and good times we ever cherish together.
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TABLE OF CONTENTS
STATEMENT OF AUTHORSHIP ....................................................................................... i
ACKNOWLEDGEMENTS .................................................................................................. ii
TABLE OF CONTENTS ..................................................................................................... iii
CONFERENCE PROCEEDINGS ..................................................................................... viii
LIST OF ABBREVIATIONS .............................................................................................. ix
LIST OF TABLES ............................................................................................................... xi
LIST OF FIGURES ............................................................................................................. xii
LIST OF APPENDICES ..................................................................................................... xiii
ABSTRACT ........................................................................................................................ xiv
CHAPTER 1: INTRODUCTION .......................................................................................... 1
1.1 Research Background ................................................................................................... 1
1.2 Rationale of the Study ................................................................................................. 2
1.3 Research Problem ........................................................................................................ 3
1.4 Research Objectives & Research Questions ................................................................ 5
1.5 Research Significance ................................................................................................. 6
1.6 Structure of Thesis ....................................................................................................... 7
CHAPTER 2: INDONESIAN CONTEXT .......................................................................... 10
2.1 Introduction ................................................................................................................ 10
2.2 Overview of Indonesia ............................................................................................... 10
2.3 Information and Telecommunication Industry in Indonesia ...................................... 15
2.4 The Significance of SMEs in the Indonesian Economy ............................................. 19
2.5 Barriers and Solutions for Indonesian SMEs to Foster Innovation ............................ 21
2.6 An Overview of Innovation in Indonesia ................................................................... 23
2.6.1 Core of the Innovation System in Indonesia ....................................................... 25
2.6.2 Indonesia’s Global Innovation Index and R&D Funding .................................... 28
2.6.3 Attempts to Foster Innovation among Indonesian SMEs .................................... 30
2.10 Concluding Remarks ................................................................................................ 32
CHAPTER 3: CONCEPTUAL FRAMEWORK ................................................................ 33
3.1 Introduction ................................................................................................................ 33
3.2 The Underpinning Theories ....................................................................................... 33
3.2.1 Resource-Based View.......................................................................................... 33
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3.2.2 Dynamic Capabilities .......................................................................................... 37
3.2.3 Agglomeration Theory ........................................................................................ 40
3.3 The Emergence of Innovation and Innovation Capability Studies ............................ 42
3.4 Conceptual Definition of Innovation Capability ........................................................ 46
3.5 Firm Performance ....................................................................................................... 47
3.6 Intellectual Capital ..................................................................................................... 49
3.6.1. Human Capital .................................................................................................... 52
3.6.2 Social Capital ....................................................................................................... 53
3.6.3 Organisational Capital ......................................................................................... 54
3.4 Learning Capability .................................................................................................... 55
3.5 Technological Orientation .......................................................................................... 59
3.6 Innovative Milieu ....................................................................................................... 61
3.7 The Conceptual Model and Hypotheses..................................................................... 67
3.7.1 Intellectual Capital, Innovation Capability and Firm Performance ..................... 67
3.7.2 Organisational Learning Capability, Innovation Capability and Firm Performance
........................................................................................................................ 69
3.7.3 Technology Orientation, Innovation Capability, and Firm Performance ............ 72
3.7.4 Innovative Milieu, Innovation Capability and Firm Performance ...................... 74
3.7.5 Firm Innovation Capability and Firm Performance ............................................ 75
3.8 Concluding Remarks .................................................................................................. 77
CHAPTER 4: RESEARCH METHODOLOGY ................................................................. 78
4.1 Introduction ................................................................................................................ 78
4.2 Research Paradigms and Research Design................................................................. 78
4.3 Research Methods ...................................................................................................... 81
4.3.1 Questionnaire Design .......................................................................................... 82
4.3.2 Sampling and Survey Data Collection................................................................. 83
4.4 Measurement Scales ................................................................................................... 83
4.4.1 Measurements of Innovation Capability.............................................................. 84
4.4.2 Measures of Intellectual Capital .......................................................................... 85
4.4.3 Measures of Learning Capability ........................................................................ 86
4.4.4 Measures of Technological Orientation .............................................................. 88
4.4.5 Measures of Innovative Milieu ............................................................................ 89
4.4.6 Measures of Firm Performance ........................................................................... 90
4.5 Data Analysis Procedures .......................................................................................... 91