CHAPTER I

INTRODUCTION

1.1. Background

Apple Inc. is great company in the industry technology which is very

competitive. So Apple Inc. must remain innovative and able to provide customer

desires. Apple Inc. is one of example of company which has a large number of

intellectual capital such as, recognition of brand loyalty, reputation, customers , and

employees. Apple also managed all successfully because Apple constantly put out

product which is innovative and combine with technology. So, Apple Inc. can create

product. Apple Inc. use these qualitites in single device by bringing together

knowledge and technology. This development and creation of better product through

ideas are proved that Apple Inc. have intellectual capital. Not many company have

taken advantage of unification and improvement of idea like Apple Inc has done. The

strong factor of Apple Inc success is Apple always need to continue to feel better and

create their own special product. Apple Inc. use their brand recognition, innovative

capabilities, and a superior reputation for creating better intellectual capital and

financial position.

The data reported by World Economic Forum (WEF) in competitiveness

Report 2014-2015 states that Indonesia achieve rank 34 out 144 countries and

increase by 4 number compared to previous year in terms of growth in economic

competitiveness. Indonesia’s rank is still behind with other ASEAN country , such as

1

Singapore, Malaysia , Brunei , and Thailand. Many factor have become indicator in

determining WEF competitiveness rankings , one of which is the capability of science

and technology. Indonesia has lower competitiveness because Indonesia have been

not maximize knowledge capital and technology . Firm in Indonesia are still using

convetional capital for operation. The Firm is still not aware of other resources in the

form of human intellectual capital compared with the technology that will be able to

provide innovation in order to increase the value of company.

The development of intellectual capital in Indonesia began with PSAK No. 19

(Revised 2000) regarding intangible assets and it revised become PSAK No. 19

(Revised 2009). Intellectual Capital has gained attention although it not stated

explicitly. PSAK No. 19 states that intangible assets are non-monetary assets that can

be identified without physical form and owned and used in producing good or

services , leases to other , or for administrative purposes (IAI,2009)

The use of intellectual capital in Indonesia is growing due to the study MAKE

(Most Admired Knowledge Enterprise) which has been held since 2005. This study

was first held in 1998 by Teleo is an independent research institute in knowledge

management and intellectual capital field which colaborate with the KNOW Network.

The aim of this study is to MAKE see how committed companies in facing business

in knowledge-based world. One of the programs in the study MAKE is the award ,

namely MAKE AWARD, given to organizations which have managed knowledge

and technology greatly and turn it into a superior product. Here is the list of winners

Indonesian MAKE award for 2014:

2

Winners List Indonesian MAKE Award 2014

Winners List Indonesian MAKE Award:

1.PT Adira Multi Finance Tbk

2.PT Astra Honda Motor

3.PT Bank Negara Indonesia (Persero) Tbk

4.Binus University

5.PT Pertamina (Persero)

6.PT Industrial Engineering

7.PT Telecommunications Indonesia Tbk

8.PT Tigaraksa Satria Tbk

9.PT United Tractors Tbk

Source: www.dunamis.co.id

From the list of Indonesian MAKE Award winner, it can be seen that the

banking sector is still not optimal in managing intellectual capital into a superior

product to support business performance. The banking sector is still not optimal in

managing their own assets especially in human intellectual capital and turned it

become a high-tech innovation that can enhance the company's strategy to achieve

competitive advantage.

3

The biggest challenge for the company is how to measure intellectual capital.

Latest intellectual capital measurement delivered by Ante Pulic (2004) using a model

VAIC ™ (Value Added Intellectual Coefficient). This model does not directly focus

and measurement of intellectual capital of the company, but rather propose a measure

for assessing the efficiency of value-added as a result of intellectual ability in

company. VAIC ™ model has three components: CCE (capital employee efficiency),

HCE (Human Capital Efficiency), and SCE (Structural Capital Efficiency) (Pulic,

2004). CCE is the indicator of the efficiency of the added value of capital employed,

which is calculated by dividing the Value Added (VA) with CE. HCE is the indicator

of the efficiency of value-added labor of serious human capital in terms of the total

salaries and wages of employees of the company. SCE is the indicator of the

efficiency of the added value of the company's capital structure.

Intellectual capital become a major factor in generating profit and creating

value that considered as a major advantage for the company in business competition.

The topic of intellectual capital in its development has been gained some interest to

the company managers and shareholders (Clarke, 2011). The topic of intellectual

capital becomes important to be investigated, as well as the factors that influence the

performance of intellectual capital.

Factors that affect the performance of intellectual capital (VAIC ™) is Barrier

to entry. Barrier to entry is barriers which made for preventing the entry of potential

competitors (Porter, 2008). Research conducted by Bannany (2008) found that barrier

to entry positively affect on the performance of intellectual capital.

4

Bank efficiency also affects the performance of intellectual capital. Research

on the relationship between intellectual capital and leverage has been done by

Bannany (2008) showed that a significant effect towards intellectual capital

performances.

Employee number in the company also affects the performance of intellectual

capital. Human capital represents a source of innovation and development in the

company for going concern. Research which related with labor relations and the

intellectual capital has been done by Mavridis (2004) that most of the performance of

intellectual capital created by human capital owned by the company. While Joshi et

al. found that the performance of VAIC ™ the best bank in Australia , Elders Rural

Banl, have the least amount of employee which only has 310 people.

Another factor that affects the performance of intellectual capital is firm size.

Firm size describe large or small companies who described through the equity value,

the value of sales or total assets of the company (Riyanto2008: 313). Firm size is also

used as a variable with the assumption that large companies usually do a lot more

activity and has many business units and has the potential for long-term value

creation (Purnomisidhi, 2006).

Research on the effect of firm size on intellectual capital has been done by

Purnomosidhi (2006) who found that the size of the company significantly related to

the disclosure of intellectual capital. Different results shown by Nugroho (2012) who

found that company size does not affect the intellectual capital.

5

Performance of intellectual capital (VAIC ™) has been widely research by

several researchers. Firer and William (2003) examined the relationship of

intellectual capital performance (VAIC ™) with ROA, ATO and market valuation at

75 public companies listed on the Stock Exchange Johennesburg, South Africa. In

addition, there Mavridis (2004) who studied the effect of intellectual capital

performance to the performance of the banking sector in Japan. The results of the

study , Mavridis said that some intellectual capital performance (VAIC ™) produced

by HC (Human Capital). Bannanny (2008) examined the factors that determine the

performance of intellectual capital in a bank in the United Kingdom (UK), by taking a

sample of large banking groups in the UK in the period 1999-2005. Results of the

Bannany study showed that intellectual capital performance is determined by several

factors: investment in information technology systems (IT) efficiency of banks,

barrier to entry profitability of banks and bank risk.

The use of intellectual capital in the banking sector is expected to improve the

WEF ranked Indonesia to keep up with the other ASEAN countries. The banking

sector can compete in a global environment with appropriate vision API (Indonesian

Banking Architecture). API vision is becoming a more resilient banking industry

globally competitive and beneficial in the process of economic development of the

nation (Burhanuddin, 2006)

The banking sector was chosen because this sector is still not able to dominate

in the use of intellectual capital and not take advantage of the three components of the

intellectual to the fullest. The banking sector is still less able to control the human

data source for generating a high-tech innovation and make it as a business strategy in

6

order to achieve competitive advantage. Moreover, Intellectual capital is very

important in the process of acquiring wealth than other abilities (Bannany, 2008). In

general, the banking sector is ideal for research in intellectual capital field because in

the banking sector requires intellectual (Mavridis, 2004). Another advantage in the

banking sector, are : (1) financial statement data has been presented in a publication

and can be accessed at any time, (2) intellectually , the banking sector staff is

identical (Kubo and Saka, 2002 in Joshi et al, 2010), ( 3) banking sector is a service

that uses human capital and customer capital (Kannath, 2007).

1.2. Research Problem

Based on the above, the problem in this research is:

"Does the Barrier to entry , Bank efficiency , number of employee, and firm

size affect the performance of intellectual capital?

1.3. Research Purposes

Based on the research problem above, the purpose of this study is:

To determine the effect of Barrier to entry , Bank efficiency , number of

employee, and firm size towards performance of intellectual capital in the banking

companies listed on the Indonesian Stock Exchange in 2011-2014

1.4. Research Contribution

a. For researchers

7

As a means to determine the effect of Barrier to entry , Bank efficiency , number of

employee, and firm size towards performance of intellectual capital in the banking

sector. As a reference for research in the same field in the future

b. For companies.

Provide information as a basis for decision making in the implementation of

corporate strategy forward in conjunction with efforts to add value through

intellectual capital management

c. For academic purpose

Is to give the insight to readers. So it can be hoped that this research can be used as

the reference for future researchs.

1.5. Research Systematic

In this research the writing systematic is divided into 5 chapters. The purpose

of the classification is to make the reader easier to follow , start from the background

and the conclusion part.

Chapter 1 Introduction

In introductory chapter, this study describes the background research on the

effect of Barrier to entry , Bank efficiency , number of employee, and firm size

towards performance of intellectual capital in the banking company

Chapter 2: Review of Literature

8

In this chapter contains literature review of theoretical concepts used in the

discussion of research for next chapter. In this chapter also describes the results of

previous research related to this study, the conceptual framework and the

development of the research hypothesis.

Chapter 3: Research Methods

In research methods contains types and approaches to research conducted

Chapter 4: Results and Discussion

This chapter provides a general explanation of the subject and the object of

the research and interpretation of test results and the results of the research

conducted.

Chapter 5: Conclusions and suggestions

This chapter contains the conclusion or an outline of the research and advice

as a writer as reference for further research.

9