||Kretek or clove cigarette is one of the most important product of Indonesia. Kretek industry contributes a large share of revenue to the Indonesian government annually. It also generates enormous employment for the country. Although kretek was invented by an indigenous man and firstly commercialised by the indigenous people, Chinese entrepreneurs were people who successfully controlled the industry since the 1930s until today. The success of the Chinese in running business is a common phenomenon in Southeast Asia. However, this phenomenon is not yet fully explained. The aim of this thesis is, thus, to examine why could Chinese entrepreneurs become dominant in the kretek industry. It looks at three factors involved in the phenomenon: the characteristics of the industry, economic policies, and the Chinese community and businessmen. This thesis argues that kretek industry required large capital to sustain price fluctuations, inconsistency of demand and delayed payment from distributors. Therefore, businessmen with large capital had advantages in this industry. Economic policies pursued by the colonial government also indirectly help big enterprises by destroying small enterprises through taxation and industrialisation of some cigarette companies. Unfortunately, indigenous entrepreneurs usually had less capital than the Chinese entrepreneurs. The Chinese could get into businesses easily with helps from their broad networks. These networks provided Chinese entrepreneurs with capital and know-how. Chinese entrepreneurs, thus, became dominant in the kretek industry in the 1930s although they came into the industry after the indigenous.