CHANGING STRUCTURE AND COMPETITION IN THE KRETEK CIGARETTE INDUSTRY

Kretekproduction has developed from a traditional industry into an imp ortant manufacturing sector in terms of value added, employment and go vernment revenue. Kretek firms have outcompeted the large foreign 'whi te' cigarette companies. Originating in the late 19th century, the ind ustry grew only after World War II. Production rose from 20 billion ci garettes in 1961 to 140 billion in 1993, and employment from 65,500 wo rkers in 1929 to 137,600 in 1993. This success was confined mainly to the four largest firms; the number of kretek firms has shrunk from 1,2 00 in the 1950s to 141 in 1993. The industry is highly concentrated in Central and East Java, but consumption is widespread throughout the a rchipelago. Government intervention is high, in employment, taxation, pricing and investment policy, in promotion of small-scale firms and t hrough the clove marketing monopoly. Promotion of small-scale enterpri ses has been unsuccessful in this industry.