A Technological Capability Assessment of Company in the Crude Palm Oil Industry in Indonesia
Published at : 28 Jul 2023
Volume : IJtech
Vol 14, No 5 (2023)
DOI : https://doi.org/10.14716/ijtech.v14i5.4036
Siallagan, S., Ishak, A., 2023. A Technological Capability Assessment of Company in the Crude Palm Oil Industry in Indonesia. International Journal of Technology. Volume 14(5), pp. 1072-1080
| Sahala Siallagan | Mechanical Engineering Education Department, Faculty of Engineering, Universitas Negeri Medan, Medan 20221, Sumatera Utara, Indonesia |
| Aulia Ishak | Industrial Engineering Department, Faculty of Engineering, Universitas Sumatera Utara, Medan 20155, Sumatera Utara, Indonesia |
Indonesia is the world’s largest producer of Crude Palm Oil (CPO). Accordingly, it
is vital that Indonesian CPO industries diversify and add value to downstream
products. Technological capability is a key component for agricultural-based industries to
retain their global competitiveness and holds immense importance in
facilitating product-based diversification. In terms of technological
capabilities that are specific to agricultural-based industries, unique
indicators and parameters have been identified and include research and
development, human resources, strategic planning, technology infrastructure,
and manufacturing. Having knowledge of organizational technological
capabilities can contribute to expanding the range of available downstream
Crude Palm Oil (CPO) products. However, the income generated from CPO in
Indonesia is currently lower compared to that achieved by its competitors. The
current study was conducted on 11 CPO companies in Sumatera Utara Province,
Indonesia. The purpose of the study is to develop an assessment tool. The tool
is proposed to measure the capability of technology in crude palm oil-based
industries. The device developed is also to obtain empirical data in order to
determine the capability of technology in CPO companies. The descriptive
analysis approach is applied in this study.
Crude Palm Oil (CPO) industries; Downstream products; Technological capability
Introduction
Industries in developing countries must secure their trade for survival. Globalization has not only allowed a reduction in the number of barriers to participation in international commerce, it has also enabled the proliferation of competitors. The global economy has meant that industries have had to modify their system of goods production in order to attain market hegemony. The Food and Agricultural Policy Research Institute has predicted that global Crude Palm Oil (CPO) consumption will increase by 30%, with total anticipated production of 60 million tonnes by 2020 (Robbani, Fahmi, and Suprayitno, 2015). An estimate of CPO global production of 315 million tonnes by 2030 was reported in the study by (Rifai et al., 2014). It was anticipated that Indonesia would produce 30 million tonnes ofm CPO by 2020, of which 23 million tonnes would be assigned to the export market, but the production of 31 million tonnes of CPO was achieved in Indonesia in 2013 (Hoffmann et al., 2015).
Technology is important to the economic development of countries. Technological
developments and managerial capabilities are needed by countries to establish
technological efficiency and stimulate economic growth (Chien,
Wang, and Lin, 2011).
Technology is vital to remaining competitive since the rapid advancement of
technology accelerates global transformation. Technological evolution has meant
that traditional organizational management strategies are no longer
appropriate. Advanced technology is required to optimize productivity, ensure
appropriate quality, reduce costs, and facilitate flexibility. Perpetual
investment in technological developments, as a means of establish energetic
capability, has been identified as a key approach to successfully competing in
the global market in the twenty-first century. Perpetual investment in
technological developments, aimed at establishing an energetic capability, has
been identified as a key approach for achieving success in the global market
during the twenty-first century (Chien, Wang, and
Lin, 2011). There are three basic factors to sustain
development, they are: management, design, and technology. They are very
necessary and play roles for competitive advantage. The quality of products is
solely relied on high patterns and technology (Suwartha et al., 2018).
The technology-related capability of a
country is assessed according to the implementation of new technology,
technology infrastructure, and human development (Archibugi
and Coco, 2004).
Strategic planning, Research and Development (R&D), human resources, and technology infrastructure
influence the technological capabilities of firms in developing countries (Madanmohan, Kumar, and Kumar, 2004). In previous research, the technological capability of Korea’s Random
Access Memory (DRAM) and Thin Film Transistor–Liquid Crystal Display (TFT–LCD)
industries were assessed in terms of R&D, human resources,
and technology infrastructure (Park, Choung,
and Min, 2008). Technology capability is also used to
examine the telecommunication industry in China (Wu
et al., 2014). Manufacturing industries have been evaluated based
on their technology capabilities (Zahra and Nielsen, 2002), and a similar assessment has been
conducted for firms operating in the tourism sector (Figueiredo, Gomes, and Farias, 2010). The
technological capabilities of Finnish multi-industries have been assessed in
terms of the availability of human resources, technology infrastructure, and
manufacturing capacity (Kylaheiko et al., 2011). R&D
and strategic planning have been assessed in research to determine the
technological capabilities of manufacturing industries (Lang, Lin, and Vy, 2012). South
Korea’s semiconductor industry develops new products through technological
advances, such as R&D and technology infrastructure (Tzokas et al., 2015).
Technological capability plays an important role in
accelerating product diversification. The development of the technological
capabilities of an organization is crucial to modernization and increasing its
levels of competitiveness and productivity. At the company level, technological
capabilities simplify innovation and advance productivity.
A survey was used in
the present study to determine the technological capabilities of CPO-based
industries in Sumatera Utara Province, Indonesia. The purpose of the study is
to develop an assessment tool. The tool is proposed to measure the capability
of technology in crude palm oil-based industries. The developed tool is to
quantify and determine the classification of the capability of technology. It
will evoke an awareness to develop plans on how to make the improvements. This
then allows the company to increase some aspects of the capabilities of
technology. The company may improve itself both theoretically and practically.
The technological capabilities of 11 companies in the CPO-based industry (i.e.,
one multinational company and 10 locally owned corporations) were evaluated in
the current research. This Province is very potential for oil palm with 5.07
tonnes/year, which contributes 28.04% to Indonesia National production (Badan Kebijakan Fiskal, 2012).
Indonesia is the
world’s largest producer of CPO. However, the income derived from CPOs in
Indonesia is less than that of its competitors, primarily because of the low
value-added to derivative products.
There is a need to diversify the downstream product range and create
value-added products. Indonesia’s main competitor has more than 100 types of
downstream CPO products. The diversification of assorted downstream products
and the creation of value-added products are needed. To be able to diversify
its product range, the Indonesian CPO industry must first determine its
technological capabilities.
Literature Review
2.1. Technological Capabilities
Technology is an emergence of human creativity and a generator mechanism
for economic growth. According to (Berawi, 2015),
technology is the way how to create, which supported by science from design to
transformation and from prediction to production, model creation, continuous
improvement, enhancement new distinctions are to increase the grade of
technology for competitive advantage. Technology is not for industrial used
only but also useful for business case. Likewise, (Berawi,
2018) proposed that technology may be used as a helpful tool for
generating new designs of innovative business processes. He furthermore said
that technology has been applied to organize society, products, and projects in
over the world. The invention of new technology is crucial to encourage
innovation in various developments of outcomes (Berawi,
2019). Technology cultivation may improve the circumstances economically
that can rectify the life quality of human beings (Berawi,
2021).
Investment in technological
capabilities is considered crucial because the latter is a viable response to
dynamic market demands. Technological capability is a function of the ability
to access, adapt, and manage technologies. (Schoenecker
and Swanson, 2002) used various criteria to assess technological capabilities, such as
R&D, expenditure, statistics for patented products and services, and data
for newly introduced products. They considered the advantages and disadvantages
of each and their validity in the chemicals, electronics, and pharmaceuticals
industries. (Zahra and Nielsen, 2002) proposed that technological capability could be determined using four
characteristics: (1) the frequency with which new products are introduced, (2)
the speed at which new products are introduced compared to competitors, (3) the
ability to create highly innovative novel products, and (4) the knowledge
created by the organization (i.e., reflected in patents).
Three key components of
technological capability have been identified; these are the creation of new
technologies, technology infrastructure, and human skill development (Archibugi and Coco, 2004). These components are vital for the
development of technological capabilities According to (Madanmohan, Kumar, and Kumar, 2004), the transfer of international technologies is considered the preferred
method for acquiring technological capability. The process of technology
transfer is characterized by several stages, including discovery, evaluation,
acquisition, adaptation, and implementation. The ability of companies to
utilize imported technology depends on their technical and organizational
capabilities. In order to disseminate new technology effectively, the recipients must
develop the in-house capacity to perform R&D and carry out training
programs, as well as implement planning and control. Two main external
resources, the government, and the national technology infrastructure, were
identified as having the capacity to impact technological development (Madanmohan, Kumar, and Kumar, 2004).
Technology capability is a
driving force for innovation in a company. It is defined as the ability to
utilize technological knowledge to duplicate and diffuse existing technologies,
make new ones, and develop new processes and products in response to economic
fluctuations (Park, Choung, and Min, 2008). Technological capabilities constitute the ability to execute all
pertinent technical-related activities in a company, encompassing, but not
limited to, the ability to make new products and implement novel processes to
maximize the use of equipment. It has been proposed that technological
capability is compatible with the growth of innovation because it implies that
a wealth of knowledge is available to create and manage technical change.
The technology comprises
substantial knowledge that has been mastered by people and organizations (Figueiredo,
Gomes, and Farias, 2010). According to them that technological capabilities can be defined as an
abundance of knowledge-based resources in four areas, namely, (1)
techno-physical (i.e., capabilities manifested in the equipment, software, and
databases), (2) organizational and managerial systems (i.e., capabilities
developed by the organization through a set of routines that drive
organizational activities, (3) people (i.e., capabilities reflected in formal
education and tacit knowledge, such as experience, skills, and adroitness), and
(4) products and services (i.e., capabilities that are evident in the
organization’s products and services, the latter of which have been designed,
developed, manufactured, supplied, and commercialized by the company).
Zhou and Wu (Zhou and Wu, 2010) suggested that technological capabilities
are evident in a company’s ability to foster a new product and expedite the
speed with which the product is developed. Technological capabilities are
thought to denote the accumulated technological knowledge that a firm develops
by introducing new products or services, making improvements to existing
products, establishing technological expertise, and investing in machinery and
manufacturing systems (Kylaheiko et al.,
2011).
Organizations with sound
technological capabilities are characterized by high performance because they
are able to implement state-of-the-art technologies. It enables them to produce
innovative product emerging to competitive benefit. The organizations are also
more innovative and may reach higher distinction by innovating products in
responding to the fluctuated market atmosphere (Tzokas
et al., 2015). A company seeking
to enhance its technological capabilities needs to invest in R&D to help it
develop innovative products (Tzokas et al.,
2015). In one study, technological capabilities are also a significant
indicator to describe the success of Korea in catching technology (Park,
Choung, and Min, 2008). Similarly, (Khayyat and Lee, 2015) investigated
the role of technological capabilities as a recent tool with which to measure
standards of innovation in developing nations. Unsal and Cetindamar
specifically employed this measure to assess the level of technology
establishment within the information technology, defense, and banking
industries in Turkey (Unsal and Cetindamar, 2015) China has succeeded in cultivating its technological capability by
importing technology from abroad through foreign direct investment, joint
ventures, and foreign-owned businesses. The potential for adaptive new thought
is greater if a company invests in technological capabilities. Technological
capabilities encompass numerous indicators and parameters. There are some
indicators of technological capability in various sectors, such as the
semiconductor, automotive, electronic, and manufacturing industries, are
detailed in Table 1.
Table 1 Indicators of technological capability in various industries and sectors
3.1. Indicators of Technological Capability in
the Crude Palm Oil Industry
Suggested
indicators of technological capability identified in the literature, were
selected in the current study to conform to the palm oil-based industries. The
chosen indicators mostly related to generating innovation aspect and mass
production. Table 2 depicts chosen indicators of technological capability in
the CPO industry. The proposed indicators were compiled to be a check sheet and
utilized as a measurement tool (Table 3) to collect data about technological
capability as indicated in indicators from 11 palm oil industries in Sumatera
Utara Province, Indonesia. The palm oil-based industries are only 11 companies
in this area, all of them were used as research objects. A survey was completed
by company representatives (i.e. members of top or middle management/production
managers). The purpose of the study was clarified by the researcher, who aimed
to measure the capability of technology in order to ensure the acquisition of
accurate and factual information. The participants were assured that the data would
be used for research purposes only.
Descriptive analysis approach is applied in this study. Descriptive
statistics is to calculate and describe the actual characteristics of collected
data in a logical, meaningful, and efficient way.
Table 2 Proposed
Indicators of Technological Capability in the Palm Oil Industry
4.1 Results
Table 3 shows selected indicators were collated in
a survey that was administered to the participants to obtain empirical data on
the technological capabilities of companies in the palm oil industry. A check
sheet was utilized in this study. The check sheet is a structured, prepared
form for collecting and analyzing data. The
indicators of technological capability value from 10 to 40. The empirical data obtained were formulated to
describe the CPO-based industries.
Table 3 Indicators
Selected for Application in the Current Study to Determine Technological Capabilities in the Palm Oil Industry in
Indonesia
The empirical data
obtained by means of the tool were then formulated to describe companies in the
palm oil-based industries related to technological capability. A total score of
151 to 200 is considered a high category, while a score of 101 to 150 is considered
a medium category, and a score of 50 to 100 is considered a low category. The
table above describes the level of technological capability of the palm
oil-based industries.
A
score of 20 to 40 was considered high, while 10 to 19 was a low classification;
it indicated that 7 companies (64%) were in the low category, and four
companies (36%) were in the high category for R&D. Seven and 36% of companies received high and low scores,
respectively, for their technological capability in human resources. Five
companies (45 %) achieved a poor score, and 6 (54%) companies attained a high
score for strategic planning. A low score and a high score were realized by 6
companies (54%) and 5 companies (45%), respectively, for technology
infrastructure. Six companies (54%) did not score highly for technological
capabilities in manufacturing, compared to 5 companies (45%) that did. Based on
the overall ranking of technological capability, 5 companies (45%) scored
highly, and 6 companies (55%) were in the bottom category of technological
capability. Scoring below 150 was deemed to be poor, which demonstrates the
technological capabilities.
4.2. Discussion
Most companies in this study
made an insignificant investment in Research and Development (R & D). R & D includes activities that companies
undertake to innovate and introduce new products. It is often the first stage
in the development process. Technological capability of the palm oil-based
industries is supported by a high of human capital. The human resources are
employees to assist in the process of attaining main objectives of the palm oil
industries. Strategic planning is a little more than half in high category to
espouse the capability of technology in this region. Strategic planning is a process of defining,
directing, and making decisions on allocating the resources to pursue the
strategy. It may also extend to control mechanisms for guiding the
implementation of the strategy to maximize the products of the palm oil-based
industry. Technology infrastructure is one of the most important things to
support the operation in any industry. However, it is more than half of the
palm oil industry in the low category of it. Technological capability is
supported by less than half of the high category in manufacturing in this
study. Actually, manufacturing is a notable thing that functions to transform
goods, including crude palm oil into a raw material to be valuable products.
It is slightly more than half of the CPO industry
in this region was in the low category and never considered modernizing their
technological capabilities. The results of the survey demonstrate that most
companies in the CPO industry rely on existing
technology rather than creating
novel innovations. In this region, the majority of CPO (Crude Palm Oil)
industries focus solely on survival and often neglect the importance of
modernizing and upgrading their infrastructure. In addition, the development of
technological capabilities in Malaysia, which includes those in the CPO
industry, is primarily undertaken by multinational companies. Investment in
technological capabilities is applied to areas such as joint ventures,
subsidiary-parent relationships, machine imports, technology cooperation
agreements, and the acquisition of foreign companies (Hansen
and Lema, 2019). In the past-changing technology era, the company should
update itself to avoid lagging behind the others (Tatiana
and Mikhail, 2020). This study will be the impression that the
capability of technology is pivotal to escalating the value-added products for
competitive advantage in worldwide competition.
In the current study,
it was important to determine the technological capabilities of companies in
the CPO industry because improvements cannot be made if the former cannot be
quantified. Measurement is a milestone for improvement. Historically, over the
past decade, technological capabilities have been recognized as vital for
positioning organizations to compete effectively against other companies within
the industry. Performing a technological assessment helps managerial staff to
make necessary improvements. Conversely, most CPO industries in this region are
arguably assumed to survival basis only because they do not consider
modernizing their technological capabilities since slightly more than half
are in the low category of capability. Currently, the technology capabilities
of the majority of CPO industries in Indonesia are not equivalent to, or
capable of surpassing, those of similar industries in Malaysia. The Indonesian
CPO industry continues to lag behind other countries (i.e. industrial front
runners) due to numerous multinational companies in Malaysia. Accordingly, they
are able to help Malaysia advance its technological capabilities. It enables to
study the assessment tool for other agro-based industries for future research
because the tool can be applied to those industries. The research data in this
study is limited to a region, future research will be more valuable if it
covers a whole region in a country.
The authors are grateful to Assoc. Prof.
Dr. Amir Yazid Ali, Universiti Sains Malaysia for his supervision
of this study. (no grant)
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