Government Ownership And Competitive Advantage: The Impact On Performance Of Indonesian Regional Development Banks

Noorhayati, Mansor and Donal Devi, Amdanata (2017) Government Ownership And Competitive Advantage: The Impact On Performance Of Indonesian Regional Development Banks. In: International Academic Conference on Business and Economics, 10 July 2017, Universiti Sultan Zainal Abidin.

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Abstract

PURPOSE AND BACKGROUND Regional Development Banks (RDBs) were established by provincial governments in Indonesia to support development at the regional level. As government-owned banks, RDBs receive numerous assistance and preferential treatments from the government. It is acceptable for the RDBs to obtain the privileges and government’s support since RDBs fall under the category local companies and thus, their assets belong to the respective states. Competitive advantage may be achieved when RDBs received certain benefits which result in reduce their operating costs or increase revenues in ways not available to their competitors. As a stateowned bank, RDBs have the advantage of getting direct awards for the business activities of the government without having to compete with other banks. At the same time, the RDBs are also associated with disadvantageous or unfavorable branding that is automatically attached to them as government-owned companies. There are three weaknesses associated with government-owned or Government-Linked Companies (GLCs). Firstly, they have only a small chance to compete outside of their regions. Secondly, market orientation sets by the government tend to hamper development efforts outside their business areas. Thirdly, for the RDBs in particular, competitions with other national and private banks as well as international banks may reduce their desired profits. Thus, the objectives of this research are: (i) to determine the effect of government ownership on the RDBs performance; and (ii) to determine the effect of competitive advantage on the RDBs performance. One of the roles of the RDBs is to help finance the development of provincial and district governments in Indonesia. These regional or provincial governments have limitations in collecting funding and financing. The regional governments can only raise community taxes but cannot perform activities as business enterprises and they are not allowed to form agreements with business enterprises. Therefore, RDBs as intermediary institutions are needed to support the provincial governments in conducting fund-raising activities and fund disbursements. To date, the impact of competitive advantage of Indonesian state-owned banks has not yet been studied.

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