Spillover Effect Multinational Corporation (MNC) Toward Local Society Development·

Tonny D Effendi·

This paper examined the spillover effect of MNC’s toward the local society where they operate their business. This paper is one subject in the author final assigment (skripsi) in Department of International Relations University of Jember in 2005. His final examinations was focused in International Poltical Economy, and has a tittle “Spillover effect, export, domestic capital and local community effect : a study about MNC’s effect of PT.CSI to the host country”.
MNC have soveral effect toward the host country. We can examined from several side like from the Foreign Direct Investment (FDI), export effect, domestoc capital, tax and sociological effect to the local community. This paper will explain a case which showed that MNC has contribution to develop the local community in economic and social side. This contribution in devemopment local community is a shape of Corporate Responsibility.
From the author reseacrh in 2005, showed that MNC gave contribution to social activity like build the social service program, give donation to the children education, build the sanitary and water system program, build the religion facility, support the transfer of technology, transfer of knowledge in management system. And the most important effect is that by MNC which operate in that place, its can develop the economic growth in the local society that has showed by the growth of market and the moving of social orientation from the peasant jobs to the factory worker. But as sociology view, this progress have two side both in positive and negative side. One of negative side is when MNC operation invite the migration some people to work there and then take interaction, which in author view, it is made a competition with the local community and sometimes the immigrant attitude made “a clash of culture”.

Keywords : Multinational Corporation, Spillover effect, social community, development.

One of the product of post Cold War is Multinational Corporation whose have a big power in international economy bargaining process. Some analyst in International Political Economy called this actor as a capitalist tool of winning the game and this breake the Marx identification that said that in a point when Capitalist will collapse because of over productions and decrease of natural resources. MNC was emerge as capitalis solution by spread out of their products over country and continet and also made research to build factory in the out side this main office to get natural resources and pressing the production cost.
The world change in the last decade bring world to the third wave that signed by a new problems, new structures, new actors and one of this phenomena is globalization which bring a new economic global power as MNC.[1] This phenomena was supported by the rigid interaction among actors of international economy so the domestic economy is so sensitive to the chage of international economy conditions[2]
MNC is one of economic power which coulg take it’s operation over the state and by it’s economic power could influence political and economical policy both from the home and host country. Theodore H Moran identified three variabels thats determined the equilibrium between host country and MNC power. They are about the competition in this industry, is the technology can be transfered? And distinguishing of marketing and product.[3] From this bargaining between host country and MNC, some analyst take opinion that MNC have some effect both side in positive and negative. In the negative side they called that MNC bring the economic exploitation to the host country. But in the other side, MNC could be take positive effect. The main positive effect of MNC to the host country is that they can support the economic growth by it’s operation. Eventhough, the MNC also bring the other side effect called spillover effect. It is about by opening of MNC operation in host country, it is as stimulan for the local society to take advantage as an opportunity to made a new jobs like as supplier, distributor and other non formal economic activity.
The spillovereffect MNC in the new enterpreneurship is caused by develop of MNC activity horizontally. Develop horizontally is means that MNC build the operation is look like what they do in the homeland. So, because of this same operations, MNC needed to take cooperation with the local industries to get the natural resources as their raw material for the industry. The spillover effect to the host country can be view as the appereance of local industry as supplier, distributor or local non formal economic activity. it is as coog corporate citizenship as the MNC responsibility to the society.
This article is as a result of author research in one of MNC in East Java, PT. CSI. This research examined the local society growth by the MNC operations. And from this research, the author will explaining in simple way about the sociolgycal aspect of this influences.

Theoritical Perspectives
Most of literature in Indonesia, like the most in the third world countries, told us about the negative effect of MNC as an agent of globalozations. But if we tried to refer in the west literature, they has showed the two side and delivering to the reader to choose their opinion. But, for this paper, author will use some term and concept as the theoritical perspective this paper.
This article is in the level of international political economy. In this level, MNC is an actor who played in the global market. Howard H Lentner defined MNC as a tool or vehicles that carries market principles accross the state.
MNC are prominent among the vehicles that carry market principles accros state frontiers. In spreading capital and technology throught foreign investment and other transaction, MNC’s hold very different significance for different interpreter. Although they are not only sort of transnational, non governmental actor in international relations, no others seem to have a challenge to the state.[4]

From this definition we knowed that MNC is like a state, even more of state power because it have so many branch overall the world. So, it is possible that MNC can support the transfer of technology and as stimulant to the local society to take new opportunity as supplier, distributor and non formal economuc society. In some case, in colaboration with local enterprenour, they can be partner in international competition. This coorporation build like an alliance which take important aspect that can give advantage to the developing countries.[5]
In theoritical perspective, this paper take neo fungsionalis perspective. Neo fungsionalis look that state role time by the time is in decrease line. This perspective said that MNC have the soft process in it’s activity. MNC is an efficient actor to spread out the wealth and knowledge around the world. MNC more efficient to spread out technology, worker training, pay salary by unexploitating and more than that the worker get in domestic industries. In this perspective, if state can make a good cooperation with MNC, so the weak countries will be strong in economic.[6]
This perspective is the middle perspective between two mainstream analyse in the study of MNC affect to the host country. The first perspective is liberal perspective that look that MNC always bring a good effect to the host countries by spread technology and efficiency. The second one, is economic national perspective that look MNC is threating to the states sovereignity. The Marxist-Structuralis worried that MNC will create a world that full of dependence and lameness. The neo fungtionalis look in different angle, thats MNC will bring positive effect only if there is a equal relationship between state and MNC. One important point in neo fungtionalist analyse is bargaining position of the state to the MNC and how state dan take advantahes from investation by MNC more efficient to the national economic growth.

Spillover effect MNC
By the operation of MNC, the local community have been change. The origin of the social life of the local community is as peasant. But after operation of the MNC, there are friction to that community by appereance of new interpreneur in supplier, distributor, merchant and opened a new market. Some peasants leave their land and take a job as industrial worker in MNC operation. In general, there are a friction in the local community from traditional society (indicated by traditional agriculture) to the modern society (indicated by a new interprenour in trade and service).

Transnationalism and Globalization
Describe about MNC and development, we cannot leaving the term that followed this. Thats terms is transnationalism and globalization. In the term of transnationalism, the world today is contain of several new actors in the world interactions. In the last decade, individu, regional organizations, MNC and Non Governmental Organizations (NGO) playing a new role in international interaction.
Transnationslist was defined as a system where the states is not as major actor anymore. There are appereance other factors as non state actors in the world interactions. The state was not dominated the interaction of the nations around the world. Some non state actors have capability almost like the state where they are have network around the world and their financial capability can influenced in the policies both in political and economical.
The other term is about globalization. The culture and system thas was brought by non state actors, MNC, is a fact about globalization where a trend, consumser culture and west value was spread out around the region whelobalizatre MNC has operating. The theory of globalization was found as a product of internal social theory growth, specially in the reaction the perspective before, like theory of modernization.[7]
Anthony Giddens, is a sociolog who believe that the West was take a role to made globalization. In his opinion describes about globalization :

Globalization is restructurization of our way of life, and with the depth way. It is came from West and bring economical and political thinking form United States[8]

Gidden was believed that globalization could made tle local cultural is weakness but also in can rebuilt it.
In other side, beck described about the relations between politics and globalizations. In this term, Beck was separated this relations into some concept. They are globalism, globality and globalization. Globalism is the view that the world was dominated by economic side and we saw the appereance of capitalism free market hegemony and sipported by neoliberal ideology. In globality, Beck described about globality about this point :

Globality is the conditions that we have begis from now that no actions in our planet that just contain to the local limited situations; all invention, challenge and disaster was influenced around the world.[9]

Globality is a new process in three reason, first, it’s influence to the geographic space more intensive, second, it’s influenced to the time is more stable and three, there is density that increasing it’s influence to the transnational network, relations and the flow of networking.

Spillover effect MNC
This point will described about the MNC’s spillover effect to the host country focused in it’s effect to the local industries and local community. This article based from the data that the author was gathered in his research in 2005 toward one of MNC that was operating in East Java, Indonesia. PT.CSI is one of Asia’s MNC which operating chemical industries and made Indonesia to be the second largest L-Lysine producer in the world. From it’s relations to the local industries and it’s social program toward local community, the author sign that there is a positive side from the investations and operating of this MNC.
Spillover MNC to the local industries
In MNC’s operation, it is entagling soem local industries to take affiliations in the productions process. So there are appereance some contractor for the MNC activity, from the cleaning service contractor to the suplier contractor. Usually, the contractor in production process is in the engineering, repair, electric, security, recepotionist and supplier. In the research thars takes by author in 2005, the author give some questioner to some contrator worker. This questioner was examined the relation between cooperation with MNC aspect (as independent variables) to the indreasing production, skill and welfare of local industries (as dependent variables).
By Spearman corellation analyse, this research examined in some indpendent indicator. They are sufficient of cooperations and opinion about MNC effect to the national economic conditions. In the dependent indicators, they are the increase of earnings and productions, the increasing of skill and the increasing of welfare.
By using the SPSS 11,0 analyse, the corelation coeficient between independent and dependent variables are 0.588 and it is mean they are corelated in 0,01 level (2 tailed). From this result we saw that there are some positive effect of MNC to the local industries as contractor. One responden, a State Electrical Company (PT.PLN) worker said that this cooperation is veru important to the PT.PLN because there are sustainable cooperations that difficult to take it from domestic industries. The other positive side is that MNC is obe options from the decreasing devemopment project that entagling this electrical company, this dooperation also can help the company to employing their employee.
The other responden from the supplier contractor worker said that the MNCs big industries can permeating all of the local industries production as the raw material of the MNC productions process. This fact made the local suppliers felt didn’t worried about the market of their product. By the operating of this MNC, they was said that this MNC was gave the “life” for them and the felt that MNC was saved them form the effect of mobetary and economic crisis in 1997 untill the early of 2000.
Other respondent as the producing contractor felt that any training by MNC give more skill and knowledge of the contractor worker. This is a fact of transfer of soft technology to the local industries. The MNC is not just transfer the knowledge about the skill on producing process but also in the motivation building and work management. And the second training, MNC was teach the savety skill to the contractor worker. From the author’s interviewed to the some traininee. They told that they felt that this training is very usefull for their work and safety. This is so important specially in the work management that they was not got it from the local industries.
The MNC also have development program to send their good employee to take good education to the abroad like in Japan, Australia and United States. In other planning, the MNC would built the new company in China and they was planned to send their Indonesian employee to take this project.

Spillover effect MNC to the local community
The other research that examined the MNC effect is the effect to the local community. The research examined some local community and take interview about what they get from the operation of MNC.
In the interview and study to the local community around industries, in general they felt they can take advantages from this condition. Their reason is by the operating of MNC, the local community whom before MNC operating just as peasant in traditional agriculture, after the operation of MNC they growth to be industries workers. The local community also take advantages in economic by the increasing their income by founding a new enterpreneurship like build a shop, foodcourt and boarding house for the MNC employees that come from other region.
The other positive effect is by operating of MNC industries was opened a new job opportunity to the local community. And MNC also have the social program for the local community. This corporate social responsibility is sustain every years by build the social service like build the religion facilities, education and health facilities, local security facilities etc.
From the intweview, the local community felt some advantages from the operating of this industry. A respondent who have the chicken farm felt some advantages when MNC give him fund to increase his work capability and the residu of this MNC’s product was dropped to his farm in the cheap price and sometimes free. The other respondent, who was a carpenter also got advantages when the company often invited him to take building work in this industries. Some area in local community also felt the advantages from this company when they get a new good paved street and the company also build the bridge which connecting this community to other community that was separated by the river. So the relations between them is more intensive and efficient in time. The youngs from this local community also take advantage when they was to be employee in this industries. Of course not all of the young of this local community can be received to be emplyoyee, depent of their education and skills. But, sometimes this is made problem between the company and the local community when they felt not fair when the company more consider to the other employee from other area.
In the environment and pollution issues, in the beginning of the operation of MNC, the soil water of the local community was contaminated. But the comany, then, built the water system to the local community to indemnifying the society.
But from this progress, this is bring a negative social effect that come from MNC employee whos come from other region. Sometimes theu bring their own culture that not suitable with the local community. So there is a clash of culture or shock culture between indigenous people with the immigrant.

MNC as a global actor in international political economy bring some effects to the host country where its take operation. The positive of negative that effects is depend of the state policy and bargaining postition to the MNCs. Beside bring the effect in export, capital and investation, MNC also bring social effect thats called in this paper as spillover effect of MNC.
In the almost all of the Third World Country was growth the opininon that the globalism is bring the negativeeffect to them and as an exploitating ways from the developen countries. Although in some condition, this opinion was right, but actually, some time in other condition the globalization bring the positive effect like the transfer of technology and spread the knowledge. This paper actually told a fact that not all of the MNC, as the globalization actor always bring the negative effect to the host country.
The spillover effect of MNC focused on it’s effect to the local industries and local community. In local industries, MNC operation give a chance to take cooperation by join in the production process as an contractor. And the local industries also can take advantages from MNC activities as supplier so guarantee of their sustainable productions.
The spillover effect MNC to the local community is be a progress of the community culture from the traditional agriculture to the industries society. The indicator of this effect is when MNC operate, some peasant changing their job to be a MNC worker. In other side, the operation of MNC also bring a new opportunity to the local community to built a new enterpreneurship by built a shop, foodcourt, merchant, and boarding house for the MNC employees.
So, in MNC also can be an actor in the domestic area when they can support the local sociaty development. This development can be focused in the social, economic and education aspect. The main actor that can play in this relations is the government. The government must made a good relation and take their bargaining position to made the MNC as a supported actor to build the development in local community and industries.
In the end of this paper, the author will be sharing an experience that some domestic literature in bahasa Indonesia who write about international political economy, almost told us about negative side of MNC or globalization. This literature did not gave us opportunity to take discussion about this topics. This phenomena is made possible that in the Third World Countries like Indonesia, the anti-globalist movement growth faster. But when author learn this topic in the west literature in English, they give us a choice to choose our aligment because they told us the MNCs effects in both side and give us a chance to discuss it.


Effendi, Tonny Dian, 2005, Spillover effect, export domestic capital and local comunity effect : a study about Multinational Corporation (MNC0 effect PT. CSI to the host country, Jember : Departement of International Relations- University of Jember
Gilpin, Robert and Gilpin, Jean Millis, 1987, The Political Economy of International Relations, New Jersey : The Princeton University Press
Isaak, Robert A, 1995, Ekonomi Politik Internasional, Yogyakarta : PT. Tiara Wacana Yogya
Lentner, Howard H, 1997, International Politics : theory and pratice, New York : West Publising Co
Ritzer, George and Goodman, Douglas J, 2005, Teori Sosiologi Modern, Jakarta : Kencana
Wahab, Solichin Abdul, 1999, Ekonomi Politik Pembangunan : Bisnis Indonesia Era Orde Baru dan di tengah Krisis Moneter, Malang : PT. Danar Wijaya – Brawijaya University Press
· This paper was submitted to the Development Sociology Assigment, Magister Sociology, Post Graduate Program, University of Muhammadiyah Malang.
· Student of Magister Socilology, Post Graduate Program, University of Muhammadiyah Malang, NIM.06250006
[1] Wahab, Solichin Abdul, 1999, Ekonomi Politik Pembangunan : Bisnis Indonesia Era Orde Baru dan di tengah Krisis Moneter, Malang : PT. Danar Wijaya – Brawijaya University Press, page 92-94
[2] Mas’oed, Mohtar, 1990, Ilmu Hubungan Internasional : Disiplin dan Metodologi, Jakarta : LP3ES, page 273-274
[3] Isaak, Robert A, 1995, Ekonomi Politik Internasional, Yogyakarta : PT. Tiara Wacana Yogya, page 217
[4] Lentner, Howard H, 1997, International Politics : theory and pratice, New York : West Publising Co, page 84
[5] Gilpin, Robert and Gilpin, Jean Millis, 1987, The Political Economy of International Relations, New Jersey : The Princeton University Press, page 250-252
[6] Lentner, Howarg H, opcit., page 84-85
[7] Ritzer, George and Goodman, Douglas J, 2005, Teori Sosiologi Modern, edisi ke-6 (Translated), Jakarta : Kencana, page587-588
[8] Ibid., page 591
[9] Ibid., page 592-593

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