A SYSTEM DYNAMICS MODEL TO IMPROVE COMPETITIVE ADVANTAGE OF SMELTER INDUSTRY INVESTMENT IN INDONESIA

• Main Author: Hanafi, Muhammad
• Format: Dissertations
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/49704
• Institution: Institut Teknologi Bandung

The issuance of smelter obligation policy in the new mining law of 2009 has prompted many mining companies in Indonesia to prepare for a big challenge to develop domestic smelter industry in 2014. This however, is not a simple task for smelter industry to meet the deadline. The government's role to enact the export ban, fiscal incentives, and independent smelter scheme policy, has caused the policy to be often corrected, which then results in policy resistance for new investment. Smelter industry requires advance technology investment, strong market-demand quality, sufficient mineral resources and reserves, applied mineral price fluctuation, and expertise to ensure investment feasibility to be a long term stable and profitable operation. It contains the complex system with dynamic problematics that can be characterized as interdependent, mutually interactive, feedback, and circular causality. Therefore, a system dynamics model must be considered as an approach to solve the smelter industry in Indonesia. This research applies a mixed-method approach in which the second quantitative phase is building on an initial first qualitative phase. The research focuses on developing a smelter industry investment model in Indonesia that can help the policy makers to design a policy to increase its competitiveness through conceptual framework of competitive advantage of nation (CAN) in diamond model by Michael Porter. This diamond model is enhanced by defining variables and parameters from literature review from CAN model, smelter industry policies between countries, similar industry competitiveness, and system dynamics model for industries. The questionnaire was disseminated to credential respondents in mining and smelter industry to gain insight of the existing problem of competitiveness as well as to analyze its potential solution. The group discussion involving related experts and participants was conducted to elaborate the proposed dynamic hypothesis. To formulate the causal loop diagram of smelter system structure, semi-structured interviews was conducted to collect data from high ranking government officials, associate professors in academics, and board of directors from industries. The model was tested and validated using system i dynamics simulation resulting in new policy scenario, which was evaluated in metallurgy expert conferences and high policy maker discussion forums. The system dynamics model simulation which resulted in the integrated export duty beneficence (EDB) is the best policy scenario to improve the smelter industry competitiveness in Indonesia. This policy gives a significant improvement both in number of smelters and state revenue compared to the current policy. Furthermore, the diamond model's six main factors give a significant contribution to improve smelter industry investment competitiveness in Indonesia. The first three factors are integrated strategy, limited export of excess production and export duty beneficence, while the remaining factors are fluctuation of metal price, domestic demand, and mineral supply which related to the mining conditions uncertainty. This research for academics is an initial effort made to link system dynamics with diamond model in the context of smelter industry in Indonesia that perform new diamond model and policy to improve the smelter competitiveness. This new model is also expected to give input to the practitioners and decision makers (government) in making strategy and policy related to the findings, which will be resulted in the ultimate solution to improve competitive advantage of smelter industry investment in Indonesia. This research is limited to smelter industry representing only four main metal commodities (copper, nickel, iron, and aluminium) which the level of products as stated in the mining law. Even though those commodities are representatives for smelter industry in Indonesia, future research is needed to assess the generality of the developed model in global smelter competitiveness with different mineral commodities. Related to the diamond model framework, the model only involves five out of six determinants of the diamond model. The factor related to supporting industry (RSI) determinant, which is not included in this model, should be analysed for further research such as further investigation by empirically determining social and environmental impact from the smelter industry. Moreover, the model can be implemented in other similar industries that perform in the similar system structure and uncertainty condition by following the methodology suggested in this study. Keywords: smelter industry, Indonesia, competitive advantage of nations, system dynamics