AbstractIt 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 SMEs might be facilitated through improved knowledge or technology. The literature on the development of SME clusters in developing countries argues that clusters are an effective means for technology transfer to SMEs and that government can play as the main source of technology transfer to the clusters, especially in regions where production linkages between LEs and SMEs are not yet well developed. This study indeed shows that in Indonesia government agencies are currently the largest providers of training and similar assistance. However, these programmes are marred by a low level of coverage, lack of effective evaluation and assessment, and a supply rather than demand orientation. The case study of the Tegal metalworking industry also shows that the most important channels for the transfer of technology to SME clusters are not only government agencies but also sub-contracting arrangements with LEs.
