Industrial Policy and Firm Capability in Late Industrialization: Explaining Toyota Kijang’s Success under Indonesia’s KBNS Program (1977–1996)

Abstract

This study examines the role of industrial policy in shaping automotive industrialization in Indonesia through the implementation of the
Kendaraan Bermotor Niaga Sederhana (KBNS) program between 1977 and 1996. While the developmental state literature highlights the
importance of state intervention in promoting industrial development, limited attention has been given to the interaction between policy
instruments and firm-level capabilities in explaining divergent industrial outcomes within the same policy environment. This study addresses
this gap by analyzing how the KBNS policy contributed to the success of the Toyota Kijang compared to other participating firms. Using a
historical policy analysis approach based on archival policy documents, industry statistics, and secondary literature, this study examines the
design and implementation of KBNS policy instruments and their effects on firm performance. The findings identify three key mechanisms
through which the policy facilitated industrial development: tariff protection that created a protected domestic market, progressive localization
requirements that stimulated technology transfer and supplier development, and fiscal incentives that encouraged long-term investment.
However, the comparative analysis reveals that policy support alone was insufficient to ensure success. Toyota’s superior firm-level capabilities—
particularly in supplier development, technological commitment, and product adaptation to local conditions—enabled it to leverage policy
incentives more effectively than its competitors. This study contributes to the developmental state literature by demonstrating that the
effectiveness of industrial policy depends not only on policy design but also on the alignment between state intervention and firm capabilities in
late industrializing economies.