Production Performance of Sugar Industry in Indonesia: The Role of
Stakeholder Pressures
Alfiyatul Qomariyah, Bambang Tjahjadi, Nadia Anridho, Sigit Kurnianto
Department of Accounting, Universitas Airlangga, Surabaya, Indonesia
Keywords: Company Performance, Production, Stakeholder Pressures, Sugar Industry.
Abstract: Sugar is one of the most important commodities in Indonesia. An increasing demand for sugar makes sugar
companies in Indonesia encounter some difficulties to fulfill it. Despite the high demand for sugar, sugar
companies cannot provide enough products for the consumers due to several reasons. Thus, it is important
to know the factors that can increase sugar production. This study conducted an empirical research from 34
managers working in Indonesia sugar companies to investigate the influence of stakeholder pressures,
including farmers, competitors, government, customers, and employees, on the production and
organizational performance. By using Smart-PLS to test the hypotheses, the results of this study proved that
stakeholder pressures can significantly increase sugar production and organizational performance. These
findings are expected to provide some important references for further academic validation. Moreover, the
results of this study can be useful to academicians and managers, especially in the sugar industry, to mprove
the effectiveness of production and overall performance.
1 INTRODUCTION
Sugar is one of the most important food
commodities in Indonesia since most Indonesian
consume it every day. Cited from the Agricultural
Socioeconomic Report by Sudana Friyanto, Muslim,
and Soelistiyo (2000), Indonesia was reported as the
world's second largest sugar exporting country after
Cuba in the 1930s. The highest production at that
time was approximately 3 million tons of sugar with
11-13% of sugar content. These were produced by
179 sugar factories in Indonesia. However, the
current national sugar industry cannot deal with the
increasing demand for sugar in today's society. The
incapability is not only caused by the inreasing
demand, but also due to a decline in sugar
production which further causes an imbalance
between sugar’s supply and demand. Furthermore,
the decline of national sugar production is also
caused by several factors, such as low quality of
sugarcane, inadequate number of sugarcane
plantations, extreme weather changes, various
demands from some farmers, low productivity of
factory workers, government regulations, and so on.
It was explained by Wahyuni, Seupriyati, and
Sinuraya (2009) that the current condition of the
sugar industry is not as good as it used to be,
because sugarcanes are planted in some farmers’
fields with cheap rental prices. It makes the farmers
were less willing to sell their harvest to sugar
companies. Low wages for labor and priority use of
irrigation water are also some other factors which
renderred sugar production ineffective and
inefficient. Therefore, it is important for sugar
companies to understand and address the factors
affecting the companies’ production performances
and their overall organizational performances.
On similar notes, pressure from company
stakeholders is one of the factors affecting the
productivity of sugar companies (Proches &
Bodhanya, 2013). In conducting its business, a sugar
company must associate itself with its internal and
external stakeholders, such as employees, farmers,
competitors, and government. Therefore, these
stakeholders also act as the drivers or triggers for the
company to be more productive. For example, some
farmers who can produce sugarcanes with high sugar
content shall become the main suppliers of the
company. However, those farmers sometimes also
put some pressures on the factory, for instance, by
demanding high price for their harvests which
hindered the company to get the sugarcanes it needs.
The pressures from farmers can further lead to a
Qomariyah, A., Tjahjadi, B., Anridho, N. and Kurnianto, S.
Production Performance of Sugar Industry in Indonesia: The Role of Stakeholder Pressures.
In Proceedings of the Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study (JCAE 2018) - Contemporary Accounting Studies in
Indonesia, pages 61-65
ISBN: 978-989-758-339-1
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
61

decrease in sugar quality produced by the company,
because the company cannot get the highest quality
of the raw material (sugarcane). Conversely, farmers
pressure can also trigger the factory to find another
farmer to supply them raw materials or to improve
their negotiating skills with the existing farmers, so
that the production processes can run smoothly and
produce good-quality of sugar. It concludes that
stakeholder pressures can both enhance and reduce
the productivity of sugar mills. Based on this
reciprocal relationship, this study aims to examine
the positive influences of stakeholder pressures on
the production and organizational performance of
sugar companies in Indonesia. Furthermore, the
results of this study are expected to be useful for
academicians and sugar company managers in order
to improve the effectiveness and efficiency of the
sugar companies’ production and organizational
performance. In more details, this study contributes
for some readers, who used to see pressures as the
factors that can downgrade a company’s
performance, to understand that it actually helps
managers to improve their productivity and overall
performance.
2 LITERATURE REVIEW
2.1 Stakeholder Pressures in Sugar
Industry
Based on Freeman (1984), stakeholders are groups
of people or individuals affecting the achievement of
organizational goals. Related to study, it is known
that sugar industry is a complex industry as various
stakeholders are entangled in its production
processes and finished products, such as sugar,
refined sugar, or sugar syrup (Proches & Bodhanya,
2013). Proches and Bodhanya (2013) also stated in
their research that important stakeholders in sugar
industry include farmers, millers, and transport-
people. In general, other key stakeholders in sugar
industries who need to be considered in order to
achieve the companies’ best productivity and
maximum performance are the employees,
competitors, consumers, and policy makers
(government). Therefore, this research employs
stakeholder pressure as a key factor influencing
factor of the sugar companies’ production
performances.
Based on the stakeholder theory, manufacturers
need to pay attention to the interests of stakeholders
to achieve effective management performances
(Freeman, 1984). Stakeholder theory explains that
companies possess both direct and indirect
relationships with various stakeholders who have the
capacity to influence the company direction and
powerful figures within the company (Freeman,
1984; Jones, 1995). Therefore, the company must be
careful with its behavior against its stakeholders, if
the company wants to be more effective and
performs better.
Stakeholder pressure can come from both inside
or outside of the company (Sarkis, Gonzalez-Torre,
& Adenso, Diaz, 2010). In this study, we examine
the stakeholder pressures coming from farmers,
competitors, governments, customers, and
employees as the main stakeholders in the sugar
industry in Indonesia. Farmers are the important
party for sugar companies, because they are the main
suppliers of sugarcane for the factory. The sugar
quality also depends on the sugarcane quality
produced by farmers. Sugarcane with high sugar
content are needed to produce high-quality sugar.
However, farmers are rather demanding about which
companies to supply, and they often choose sugar
companies which they perceive as more profitable,
rather that those closer to them in terms of distance.
Regarding competition, sugar companies are
actually getting stronger competition from imports
rather than from other domestic sugar companies.
Related to that issue, Indonesia government
regulation actually recommends to import sugar in
order to fulfill national sugar demand. Nonetheless,
relatively cheaper price of the imported sugar causes
national sugar companies to suffer losses. In terms
of customers, the increasing demand for sugar and
company’s need to meet the demand also enhance
the pressure for the domestic sugar companies.
Finally, from the employees’ side, sugar companies
need employees with qualified competence so they
can produce good quality sugar effectively and
efficiently. Employee trainings are urgently needed
to achieve these goals.
From the explanation above, it is clear that
stakeholder pressures have significant influence for
sugar companies, especially in Indonesia. These
pressures can actually inhibit the process of sugar
production in general; conversely, the pressures
cause the companies to put more efforts to solve and
overcome the problems. Furthermore, it also triggers
sugar companies to improve their value chain
performance in order to be more effective and
efficient.
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
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2.2 Production Performances
In sugar industry, production performance refers to a
plant’s capability to produce sugar either within a
year or another production period, and is usually
measured by the units of 'ton'. Based on some data
provided by the Indonesian Sugar Association
(AGI), sugar companies’ production in Indonesia
actually has started to increase from year to year. It
is evident from the improved amount of sugar
production from 2.2 million tons in 2016 to 2.7
million tons in 2017. However, this slight rise has
not yet capable of fulfilling national sugar demand
which reached 6.7 million tons. In order to fulfill
this demand, Indonesia government imports sugar in
a very large amount. The existence of imported
sugar does help meeting the national sugar
requirement, but it also slows down domestic sugar
market. One of the reasons is because the imported
sugar is more affordable than domestic one. Based
on this information, sugar companies in Indonesia
should do better in improving the efficiency of their
production process.
2.3 Organization Performances
Organizational performance refers to the success of
an organization to achieve both its financial and
non-financial goals (Li et al., 2006). Past researches
have argued that the organizational performance can
be measured using financial and market criteria, for
example ROI (Return on Investment), market share,
sales growth, etc. (Li et al., 2006; Vickery,
Calantone, & Droge, 1999).
Based on the literature review above, this study
predicts that there is a relationship between
stakeholder pressure, production performance, and
organizational performance. Based on the
stakeholder theory (Freeman, 1984), a company
must adjust the company’s value with its
stakeholders, because it will determine factories’
ability to sell its products or services. Meixell and
Luoma (2015) also pointed out that company
stakeholders play important roles in facilitating and
occasionally blocking the factory from running its
business, which further impact on the effectiveness
of the company’s supply chain management.
Moreover, external stakeholders are also influential
in orchestrating public opinion; while the pressures
from employees and managers can support a more
proactive work environment (Zhu & Sarkis, 2006;
Sarkis, et al., 2010). In sugar industry, pressures
coming from farmers demand make the sugar
companies to be more flexible when dealing with
them, because all of them need farmers to produce
good quality sugarcane. It is significantly related to
the production performance of the company, because
company with good sugarcane will produce high
quality sugar. In addition, government pressure, such
as on import policies to meet local needs, requires
sugar companies to produce sugar more effectively
and efficiently to enhance the product performance.
Therefore, if the sugar companies are able to
overcome the problem of stakeholder pressures and
take the opportunity, they will be able to improve
their production performance and even sustain their
overall organizational performances. Based on these
explanations, this study predicts that:
H1: Stakeholder pressures have a positive
influence on production performance
H2: Stakeholder pressures have a positive
influence on organizational performance
3 METHODOLOGY
In this study, stakeholder pressures were defined as
the pressures from farmers, competitors,
government, customers, and employees as the
stakeholders in the sugar industry. Production
performance was defined as how well a company
produces sugar in a period of time; while
organizational performance was defined as the
overall performance of the organization. Based on
these definitions, literature reviews, the objectives of
this study, and a survey of some questionnaire items
were designed. Research items for the 3 constructs
were then developed. After that, a permission letter
was sent to national sugarcane companies, PTPN X
and PTPN XI. After obtaining permission from the
companies, an online questionnaire was distributed
to the managers. This study collected 34
questionnaires that were employed for further
analysis.
Furthermore, Smart-PLS was applied to analyze
the collected data. Construct measurement should be
assessed with the reliability and validity for further
analysis to achieve a level of consistency. The
reliability of constructs can be classified as
composite reliability (CR) and has to be recorded
between 0.60 to 0.70 mark in exploratory research
and 0.7 to 0.9 in more advance stages of research in
order to achieve satisfactory results (Nunally&
Bernstein, 1994).
Production Performance of Sugar Industry in Indonesia: The Role of Stakeholder Pressures
63

Table 1: Measurement scale items and factor
loadings.
The values below 0.60 indicate the construct is
lacking of reliability. Besides, the constructs validity
can be classified as critical values of CR which has
to be higher than 0.8 and Cronbach’s α should be
higher 0.7 (Hair, et al., 2011). Furthermore, the
goodness-of-fit (i.e., the GoF index) was also
calculated.
4 RESULTS
To verify the validity and reliability of constructs in
this study, PLS was applied. Table 1 depicts the
results of measurement scale items and the factor
loadings. Some questionnaire items were deleted,
because it did not fulfill the requirements. The
results proved that ‘Customer’ recorded AVE value
of 0.465 and CR value of 0.722. The results also
proved that its Cronbach’s α value was 0.515. All
items within this factor have loadings higher than
0.600. For ‘Famer’, it was recorded AVE value of
0.664 and CR value of 0.798. It was also scored
Cronbach’s α value of 0.497. All items within this
factor have loadings higher than 0.750. Furthermore,
for ‘Competitor’, AVE value was recorded at 0.449
and CR at 0.829; while Cronbach’s α value for the
factor was scored at 0.784 which was considered as
acceptable. For ‘Government’, AVE value of this
factor was 0.746 and CR value was 0.936. The
results also recorded Cronbach’s α value of 0.914.
All items within this factor have loadings higher
than 0.750. Moreover, ‘Production Performance’
recorded AVE value at 0.581 and CR at 0.905. The
results also pointed out that Cronbach’s α value for
the factor was 0.875. The values of factor loadings
are also still acceptable. Lastly, for the construct of
‘Organizational Performance’, AVE was recorded at
0.509 and CR was 0.861. The results also depicted
that its Cronbach’s α value was 0.806. All items
within this construct have loadings higher than 0.600.
Table 2: The influence of stakeholder pressures on
product and organizational performance.
Notes: *** p< 0.001, ** p< 0.01
Constructs
Research
Items
Loadings AVE CR α
Stakeholder
Pressures
Customer 0.465 0.722 0.515
PL2 0.686
PL3 0.744
PL4 0.610
Farmer
0.664 0.798 0.497
PT4 0.778
PT5 0.850
Competitor 0.449 0.829 0.784
PS1 0.747
PS2 0.692
PS3 0.574
PS4 0.649
PS5 0.718
PS6 0.625
Government 0.746 0.936 0.914
PM1 0.875
PM2 0.879
PM6 0.847
PM7 0.784
Employee 0.699 0.901 0.854
KY2 0.796
KY3 0.875
KY4 0.931
KY5 0.728
Production
Performance
PR1 0.701
0.581 0.905 0.875
PR2 0.867
PR3 0.774
PR4 0.898
PR5 0.582
PR6 0.831
PR7 0.626
Organizational
Performance
KO1 0.754
0.509 0.861 0.806
KO2 0.730
KO3 0.665
KO4 0.789
KO5 0.704
KO6 0.625
Hyp Path Standardize Estimate t-value
H
1
SP Æ PP 0.464*** 4.084
H
2
SP Æ OP 0.575*** 7.190
Construct R
2
PP 0.216
OP 0.331
Goodness-of-Fit:0.267
JCAE Symposium 2018 – Journal of Contemporary Accounting and Economics Symposium 2018 on Special Session for Indonesian Study
64

Furthermore, Table 2 illustrates the results of
hypothesis testing. The results proved that
stakeholder pressures have a positive influence on
production performance (β=0.464, p<0.001) and
organizational performance (β=0.575, p<0.001). It
indicates that the pressures from stakeholders can
improve production and organizational performance.
These results are supported by the findings of Sarkis,
et al. (2010) which stated that the pressures from
stakeholders facilitate an organization to improve its
productivity and performance. Furthermore,
according to stakeholder theory (Freeman, 1984),
managers also need to consider about their
stakeholders (both internal and external) to manage
its organization. Therefore, based on these findings,
managers shall understand that the stakeholder
pressures in sugar company actually developed
productivity and organizational performance.
5 CONCLUSION
Based on the results above, several conclusions can
be drawn. Firstly, stakeholder pressures have a
positive influence on production performance. It is
supported by Sarkis et al. (2010) who stated that
stakeholder pressures in a certain level can improve
value chain as the key of a company’s production
performance in sugar industry. Pressures from
farmers, customers, competitors, government, and
employees shall motivate the company to perform
better. Sugar company will try to deal with those
pressures and enable them enable to produce more
sugar. From that explanation, the second conclusion
is stakeholder pressure can also increase
organizational performance. For the same reason,
the whole performance of an organization can be
improved after it successfully solved stakeholder
pressures.
The findings of this study shall give more
understanding for the academicians and managers
regarding the importance of stakeholder pressures.
However, this study also has limitations. First, it
used cross-sectional data which possibly create an
unclear, directional relationship. Thus, future study
may try to combine it with other methods to confirm
the results of survey data. Second, the numbers of
respondents (managers) are quite small which may
not be able to represent all managers’ opinions.
Therefore, future study may add more respondents
with the same criteria to obtain some more accurate
results.
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