Thriving in the Competition? How Value Chain Governance Affects the Economic Performance of SMEs in Kasongan Pottery Cluster

The insertion of small and medium enterprises (SMEs) in developing countries into global value chains is often associated with significant increases in income and economic growth. However, this view has been continuously challenged due to the growing inequality between lead firms in developed countries and local suppliers in developing countries. The governance within the value chain is argued to have significant influence on the distribution of economic rents among various actors along the chain. This research seeks to analyse the effect of value chain governance on the economic performance of SMEs in Kasongan pottery cluster through learning and upgrading as mechanisms to achieve higher economic rents. The research also observes how the institutional environment embedded in the cluster is operating. Furthermore, throughout the discussion, the study pays attention to the dynamics that occurred among different actors. The research argues that given the institutional environment has not yet matured enough to promote competitiveness and prevent SMEs from market volatility; value chain governance has considerable influence on the learning and upgrading opportunities. Therefore, it has a say on the economic performance of SMEs. However, the study also finds some exceptions and dynamics that show a mixed picture of the realities. It further highlights some methodological challenges in the application of the theories and suggests modification for further research.