Subcontracting to the informal economy in East Java, Indonesia

Abstract

This article examines the subcontracting arrangements that apply to microenterprises operating in the informal economy in East Java, Indonesia. A qualitative study was carried out in which the snowball technique made it possible to obtain the details of both the formal and informal company owners, who were then interviewed with the purpose of gaining a deeper understanding of the subcontracting relations. Formal export companies outsource to micro family businesses in the subcontracting market as a way to optimise production. Our study highlights the fact that formal and informal companies are located in the same communities. Subcontracting relations are hence based on trust and cooperation, which are key to minimising production costs.

Keywords:

• Cooperation
• dependency
• microenterprises
• subcontracting
• trust

Acknowledgements

We thank Marija Dragasevic and Rowland Hill for their invaluable advice and expert review.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Choosing a maximum of four companies can be explained by the limited funding available for the research project.

2 For more detailed information, see Coleman (1958). This technique allows the researcher to gain access to populations which are otherwise inaccessible (often very poor or very wealthy populations) because it is on the recommendation of peers. It is important to point out that the technique is limited in terms of diversity in the opinions expressed.

3 This is virtually the case for all business sectors (statues, sculptures, batik, crispy seafood, steel, etc.).

4 The level of trust determines the quality of the transaction. In the absence of trust, fear may have a negative influence on any exchange (the fear of not being paid on delivery). This trust is reinforced by reputation.

5 For more information about social cooperation and social capital (defined as the networks, norms and trust that facilitate mutually beneficial cooperation), see Putnam (1994). For a summary of the relationship between trust and economic performance, see Fukuyama (1995).

6 The international basis for the production is mainly tourism.

7 The study deals with the socio-economic relations that support the subcontracting relations, as well as the restrictions imposed by public authorities and access to credit.

Additional information

Notes on contributors

Damien Bazin

Damien Bazin (PhD in economics) is Associate Professor (Accreditation to Supervise Research) in Economics at the Université Cote d’Azur, France & GREDEG (Research Group on Law, Economics and Management). He conducts research on sustainable development. His fields of specialisation are many and varied, including ecology, ethical and environmental economy, macroeconomics, corporate ethics, and topics related to socially sustainable development. He develops projects in the EUR ELMI (Graduate School of Economics and Management) whose direct applications can be found within ecological economics. His latest work is related to the protection of nature and economic ethics. GREDEG: https://gredeg.univ-cotedazur.fr

Augendra Bhukuth

Augendra Bhukuth (PhD in economics) is Professor at IESEG School of Management, La Defense-Paris, France, and Visiting Professor at Narotama University, Surabaya, Indonesia. In his younger days he was a research intern at the French Institute of Pondicherry, India, and a postdoctoral research fellow at the University of Antananarivo, Madagascar. In addition, he has been a consultant for the Ministry of Social and Economic Integration in Mauritius. His specialism is sustainable development, and he teaches microeconomics, the sociology of work, economics and business ethics, and business economics. IESEG School of Management: https://www.ieseg.fr/en/programs/phd-programs/

Abir Khribich

Abir Khribich is a PhD student in economics, jointly supervised by the University of Côte d’Azur, France and the University of Carthage, Tunisia. Her research focuses on the efficient strategies to adopt in order to develop the consumption of renewable energy. In 2022, she was awarded the prize of the Tunisian Ministry of Women’s Affairs for the best female scientific research. Her research looked at how renewable energy consumption and social development could be combined. She was also awarded the EIFFEL Excellence Scholarship by the French government. GREDEG: https://gredeg.univ-cotedazur.fr

Ani Wulandari

Ani Wulandari (PhD in economics), is Lecturer in the Faculty of Economics and Business, as well as Director of the International Relations Office, International Class and Language Centre of Narotama University, Surabaya, Indonesia. A pioneer of international collaborations since 2011, she has contributed to many international agreements and project implementations for the institution. Her research covers several fields, such as strategic management, sustainable development and marketing management. www.narotama.ac.id