Permasalahan pelaku iptek dalam pembangunan ekonomi berdaya saing global

Dalam kuartal ke empat setiap tahun, forum ekonomi dunia mengeluarkan laporan peringkat daya saing global untuk lebih dari 180 negara. Untuk tahun 2007 - 2008, laporan yang diluncurkan di awal November 2007 kembali mencerminkan hasil dari kebijakan pembangunan pemerintah, baik secara makro maupun mikro.

Meninjau kembali laporan yang dikeluarkan di tahun 2007, peringkat daya saing global Indonesia terhadap negara tetangga patut mendapat sorotan.

Dengan menempati peringkat ke 54, terhadap Thailand di urutan ke 28 dan Malaysia di peringkat 21, daya saing Indonesia di mata internasional sangatlah rentan. Terlebih lagi dengan Singapura yang telah sejajar dengan negara negara maju dengan menempati peringkat ke 7.

Dari dua belas elemen yang menjadi ukuran dalam menentukan peringkat daya saing global, dua diantaranya, kesiapan teknologi serta inovasi, mencerminkan pentingnya peranan sains dan teknologi (iptek) dalam pembangunan ekonomi berdaya saing global. Hal tersebut sejalan dengan gagasan pakar ekonomi Paul Romer dimana kemajuan iptek telah merubah peta persaingan pasar global yang berlandaskan pada penguasaan akan pengetahuan.

Dengan menempati urutan ke 75 untuk kesiapan teknologi dan 41 untuk inovasi, peringkat tersebut sangat jauh tertinggal dibawah Malaysia (peringkat 30 dan 21) dan terlebih lagi Singapura (12 dan 11). Ini menunjukkan masih diperlukannya langkah langkah strategis dan taktis dalam membuahkah hasil yang signifikan terhadap peningkatan ekonomi berdaya saing.

Pelaku iptek

Hal tersebut bukanlah tidak disadari oleh pemerintah. Dalam visi iptek 2025 yang dikeluarkan oleh kementerian riset dan teknologi, peringkat daya saing global untuk tahun 2004 telah dijadikan acuan dalam menyikapi pentingnya peranan iptek dalam pembangunan ekonomi berdaya saing.

Bahkan penjabaran visi tersebut ke dalam tahapan kegiatan riset jangka pendek telah dituangkan dalam agenda riset nasional yang disusun oleh dewan riset nasional.

Dalam penyusunannya, anggota dewan riset nasional dipilih mewakili para pelaku dari sektor sektor usaha, pemerintahan serta akademik. Nampaknya pemilihan ketiga pihak tersebut diilhami oleh gagasan triple helix dari sosiolog Henry Etzkowitz dalam memaparkan interaksi para pelaku iptek dalam sebuah sistem inovasi nasional.

Gagasan tersebut bahkan diangkat pemerintah ke dalam undang undang nomor 18/2002 mengenai sistem nasional penelitian, pengembangan dan penerapan ilmu pengetahuan dan teknologi.

Kendala

Konsep interaksi antar pelaku iptek dalam sistem inovasi nasional bukanlah hal yang baru di negara negara maju. Selain mensyaratkan akan adanya kebijakan hukum dan ekonomi yang konsisten, kestabilan politik serta daya dukung institusi yang mumpuni, terciptanya interaksi yang harmonis antar pelaku iptek sangat berpengaruh dalam menciptakan pengetahuan pengetahuan baru yang inovatif.

Namun dalam penerapannya, sosiolog iptek Aant Elzinga dan Andrew Jamison mengingatkan akan munculnya benturan benturan interaksi antar para pelaku iptek yang berakar dari perbedaan tingkah laku budaya.

Oritentasi hasil riset yang terfokus pada kualitas karya penelitian seringkali dinilai kurang mempunyai nilai jual pasar oleh para pelaku industri. Pola birokrasi pemerintah juga dianggap menghambat kelancaran kegiatan usaha yang berdampak pada penurunan daya saing. Di sisi lain, budaya untuk meraup keuntungan melalui komersialisasi iptek bagi kalangan akademik adalah hal tabu bagi integritas keilmuan.

Strategi

Untuk menyiasati benturan budaya dari ketiga pihak pelaku iptek, diperlukan cara cara yang dapat menjembatani ketiga kepentingan yang berbeda.

Bentuk intermediasi seperti ini pada hakikatnya bukanlah baru di Indonesia. Hanya saja kerjasama tersebut masih didominasi oleh sektor tertentu seperti dalam bidang teknologi informasi dan komunikasi (TIK) dimana pihak industri telah melakukan kerjasama dalam bentuk pelatihan piranti lunak, pemberian piranti lunak untuk kepentingan pengembangan maupun pendidikan melalui pihak pihak lembaga swadaya masyarakat.

Disamping itu, kerjasama juga melebar dalam bentuk pendanaan untuk badan usaha yang dapat melakukan terobosan inovatif dalam pengembangan produknya. Lagi lagi kerjasama ini masih didominasi oleh sektor TIK.

Pada bidang iptek diluar TIK program tersebut masih relatif sedikit. Padahal melihat pengalaman di negara maju interaksi dalam sebuah sistem inovasi dapat menghasilkan kemampuan iptek yang handal khususnya apabila dapat menghasilkan badan usaha terpisah (spin off).

Beberapa industri seperti di bidang tekstil dan manufaktur mendapat perhatian khususnya dari pihak pihak LSM yang mendapat dukungan dana dari luar negeri. Sayangnya upaya ini belum dijadikan ajang secara optimal bagi pihak lain untuk membangun interaksi sistem inovasi dalam meningkatkan daya saing nasional.

Cara lain untuk mendorong interaksi pelaku iptek adalah melalui program inkubasi. Pihak universitas dapat menjalin kerjasama awal dengan pihak industri dengan memakai fasilitas universitas untuk penelitian tertentu. Adapun strategi komersialisasi penelitian dapat diserahkan pada pihak industri yang lebih berpengalaman dalam penjualan dan pemasaran barang.

Pada sisi lain, untuk mendorong inisiatif terbentuknya program inkubasi, pemerintah dapat mengambil langkah melalui kebijakan pemberian insentif untuk jangka waktu pendek bagi kerjasama antar para pelaku iptek. Pemberian keringanan bea masuk untuk fasilitas penelitian yang terkait dengan program inkubasi dapat dirumuskan dalam kebijakan pemerintah untuk meningkatkan gairah program inkubasi.

Selain itu, kebijakan keringanan pajak juga dapat diberikan pada badan usaha hasil pemisahan program inkubasi, setidaknya sampai pada batas waktu yang dianggap cukup bagi badan usaha tersebut untuk mencapai tingkat penetrasi pasar.

Sejalan dengan mapannya interaksi antar pelaku iptek serta meningkatnya permintaan pasar akan produk nasional hasil interaksi sistem inovasi, kebijakan kebijakan tersebut dapat dicabut agar persaingan dengan produk asing dapat berlangsung dengan sehat.

Pada tahap ini jalinan interaksi antara pelaku iptek nasional diharapkan telah siap untuk membuahkan hasil iptek yang berdaya saing tinggi yang pada akhirnya berdampak pada terciptanya tuntutan pasar akan produk produk hasil rekayasa lokal yang lebih berkualitas. Ujung ujungnya, interaksi yang sejalan antar para pelaku iptek dapat membentuk landasan dalam ekonomi yang kuat melalui pembangunan sistem inovasi nasional.

Multi National Enterprise and the state: profiting from economic changes – a personal note over the Natuna gas block agreement

As the soaring oil price becomes unpredictably high throughout 2007, energy users are looking for alternatives to avoid high production and consumption costs.

The stubbornly crude oil has been hovered above $ 90 in 2007 peaking at $ 99.29 on November 2007. Now, as the year turns to 2008, it appears that this trend steadily continues.

To the oil users such trend forces them to shift their attitudes on oil usages. Industries relying on oil for their production inputs face the imminent lost on their operational costs if the trend remains persistent.

Even PLN, the Indonesian power company, has accelerated its plans to develop new generation plants using mix energy sources combining gas and coal as its inputs. This is in line with the national energy policy targeting the reduction of oil usages for power generations down to 30 % by 2025.

So, from the oil and gas company perspectives, maintaining oil businesses for power generations, although yields large cash in the short term, may probably lead into business declines in the long term should the oil price incline.

The geopolitical condition in the Middle East is no longer favourable for producing oils. Political instabilities and social unrests are becoming daily consumption news. As countries in the Middle East are among the largest oil reserves, geopolitical instabilities drive uncertain futures in conditioning oil supplies at their ideal rates. Not to mention tensions in Nigeria, and the indifference Hugo Chavez over nationalizing oil companies in Venezuela.

Parallel to the nightmare, OPEC, the oil producer cartel, stubbornly keeps the production rate at its current output leaving the oil supply shortened.

It is not surprising that these have conditioned major oil companies to start revamping their business portfolios. In fact, companies such as BP and Shell have started diversifying their business portfolios for quite some time. History has it said that the success of Shell in becoming a major leading energy (instead of oil and gas) company lies on its strategic efforts in energy diversifications and widening its ‘radar’ over future global issues. The recent transformation of Chevron ‘Human Energy’ confirms that the energy future is no longer confined to fossil sources.

For these reasons two options have been sought for. Companies are diversifying either by selling variant hydrocarbon sources such as gas and coal or exploring renewable energy businesses.

While transitioning into a renewable energy company is considered to be more sustainable in the long run amid environmental issues, it is noticed that developing renewable energy businesses yields lower investment to revenue ratios, at least for the time being.

Likewise, turning into coal businesses requires adjustments in the organizational structure and core competencies. Oil companies may find it difficult to compete with incumbent coal producers as they are more adept in opening up field concessions, negotiating with relevant government representatives, finding suppliers and selling the outputs. Even with overlapping opportunities such as in developing Coal Bed Methane, companies putting interests on this new method has yet to acquire new capabilities and expect incentives from the government.

Thus, given the likelihood that gas would become the energy ‘diamond’ in the near future, capitalizing resources into gas extraction and production businesses is perhaps the realistic option confronted by oil and gas companies.

It is no surprise that ExxonMobil preferred to keep overseeing the Natuna gas block through negotiating for a contract extension.

At a glance, with more shares conceded to the Indonesian government in the new contract, it appears that ExxonMobil is declining its future profits.

Unlike the previous scheme, the company will not have the luxury over gaining a larger share. Furthermore, the state owned enterprise Pertamina will also take part in the contract share leaving the ExxonMobil share smaller.

Yet, one needs to recall that the reserve in the block is considered to be the largest in the Southeast Asian region. ExxonMobil can gain benefits from the contract by dealing over a longer term.

Not to mention that Malaysia, Thailand and Vietnam have given their interests to buy the gas from this block regardless the high price charged to recover the development cost. The Jakarta Post data suggest that while the market cost of gas per one million of British thermal unit (Btu) is around $ 9, the gas produced from the Natuna D-Alpha block would cost around $ 16 per million Btu.

This sets a win – win solution both for the MNE and the state. High oil price demanding the shift to alternative energy sources creates opportunities for ExxonMobil to gain profits from gas businesses over a significant time period while to the government of Indonesia bigger shares over the block will increase the state fiscal revenue.

The effects of foreign MNEs on host economies and governments roles in maximising the MNE presence to the host country competitiveness (Part III)

5. Conclusion

This essay has discussed contributions of MNE to the host country. Parallel to the discussion, government roles in sustaining competitiveness associated with the MNE presence was discussed. A conceptual model illustrating the roles of government in balancing these effects was also presented.

It is noted that debates around MNE contributions to the host country might never cease. Regardless of the debates, pressures confronted by governments to compete economically in the global stage are intensifying. At the same time, consolidations within the MNE operation are becoming common in literature studies. These dilemmas can opportune both sides. Specifically on the government side, issues in designing competitiveness policies need to be addressed.

The discussion above underlined some of the policies imposed by developing and new industrialising countries. In the reality, each policy characterises comparative advantages of the host country. Thus, policies discussed above may not represent the ones adopted in developed countries. In addition, policies for attracting MNE investments may have different approaches from those in maximising the MNE presence to stimulate competitiveness. Furthermore, the contextual settings amongst countries may require different policy instruments. Further explorations in customising policy regimes may contribute to substantial understandings in adjusting policy transfers associated with FDIs and competitiveness.

6. Reference

ADB. (2004). Asian Development Outlook 2004. Manila: Asian Development Bank.

Blomstrom, M., & Kokko, A. (1997). The Impact of Foreign Investment on Host Countries: A Review of the Empirical Evidence.

Cohen, M. (2004). Sweet Spot. Far Eastern Economic Review, 167, 36-37.

Dean, J. (2004, Sep 2, 2004). Taiwan Tech's Snazzy New Look. Far Eastern Economic Review, 167, 28-31.

Dunning, J. H. (1997). Alliance Capitalism and Global Business. London: Routledge.

Farrel, D., Gao, P., & Orr, G. R. (2004). Making foreign investment work for China. McKinsey Quarterly, 2004 Special Edition(China today).

Farrell, D., Remes, J. K., & Schultz, H. (2004). The truth about foreign direct investment in emerging markets. McKinsey Quarterly, 1, 25-35.

FEER. (2004a, Sep 2, 2004). IBM Japan Reaches Out to Others. Far Eastern Economic Review, 167, 8.

FEER. (2004b). Microsoft's Gates Visits China to Lobby Leaders. Far Eastern Economic Review, 167, 28.

Fowler, G. A. (2004, April 29, 2004). Good Idea, Copy It. Far Eastern Economic Review, 167, 40-41.

Glass, A. J., & Saggi, K. (2002). Multinational Firms and Technology Transfer. Scand. J. of Economics, 104(4), 495-513.

Hirst, P., & Thompson, G. (1999). Globalization in Question (2 ed.). Malden: Blackwell.

Hu, A., & Jefferson, G. H. (2002). FDI Impact and Spillover: Evidence from China’s Electronic and Textile Industries. The World Economy, 25(8), 1063-1076.

Kumaramangalam, K. (2003). Globalised Research and Development: A Case Study of Bangalore, India. Journal of Entrepreneurship, 12(2), 225-239.

Laudicina, P., & White, J. M. (2005). India and China: Asia's FDI Magnets. Far Eastern Economic Review, 168(9), 25-28.

Mathews, J. A. (2001). National systems of economic learning: the case of technology diffusion management in East Asia. Int. J. Technology Management 22(5/6), 455-479.

May, A., & Jia, T. (2007, Jan/Feb 2007). China's Onerous New Labor Law. Far Eastern Economic Review, 170, 36-39.

McBeth, J. (2004, September 16, 2004). Over a Barrel in Oil Search. Far Eastern Economic Review, 167, 26.

Porter, M. (1990). The Competitive Advantage of Nations. Harvard Business Review, 68(2), 73-93.

Sun, J. (2005, March 2006). China: The Next Global Auto Power. Far Eastern Economic Review, 169, 37-41.

UNCTAD. (2006). World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development. New York and Geneva: United Nations.

Vittachi, N. (2004, September 30, 2004). Asia Lifestyles: Broadband Lifestyle. Far Eastern Economic Review, 167, 57-64.

Winters, A., & Yusuf, S. (2007). Dancing with Giants: China, India, and the Global Economy. Washington DC: The World Bank and Institute of Policy Studies.

The effects of foreign MNEs on host economies and governments roles in maximising the MNE presence to the host country competitiveness (Part II)

3. Some of the MNE Hostile Effects to the Host Economies

Some of the controversial, if not hostile, effects to the host economy are still echoed. MNEs may intervene local economic and political affairs (ADB, 2004). The presence of MNEs may also weaken the market share of local firms (Dunning, 1997). Weak institutional systems of the host economy may become vulnerable to the MNE advantages. It is also noted that some business practices demonstrated by MNEs are outside the boundary of local values and cultures of the host economy (ADB, 2004).

The previous section discussed the contribution of MNEs in transferring technological capabilities to local firms. Individuals working in MNEs gained advance technological knowledge and management capabilities through trainings and experiences. Such skills can be mobilised when an MNE employee move to a local firm (Glass & Saggi, 2002). At the same time, it was also noted that MNEs provided better incentives (Glass & Saggi, 2002). The survey of McKinsey in India and China suggested that MNE employees were paid up to twice as much as those in local companies (Farrell, et al., 2004).

A study by Glass et al (2002) suggested that substantial packages (e.g. salary, benefits) offered by MNEs might impede technology transfers to local firms. In this study, it was concluded that such practice was set deliberately to sustain MNE ownership advantages. The study also suggested that MNEs offered better incentives to prevent productivity losses due to labour mobility. To illustrate the impact, Chery and Geely, local automotive makers in China, managed to capture significant market shares after they hired executives coming from MNEs background (Sun, 2005). Such manoeuvre may threaten MNEs in the long run. Local firms may regain the market share from MNEs (Farrel, Gao, & Orr, 2004).

With the deployment of ownership advantages, MNEs can capitalise their market shares (ADB, 2004; Blomstrom & Kokko, 1997). Unless local firms have the ability to compete with similar efficiencies, MNEs will eventually capture the market share (Blomstrom & Kokko, 1997). For example, a few years after Suzuki’s inception in India, PAL, a local automotive company, was ousted from the industry (Farrell, et al., 2004). A similar case was also noted in the sugar industry in Vietnam. Market shares of local manufacturers has declined since Tate & Lyle, a British sugar merchant, expanded its operation in sugar plantations and refineries (Cohen, 2004).

Practices in capturing the market by intervening local affairs are often noticeable. These acts are regarded as unfair practices to local firms (ADB, 2004). Some of the practices are directed to capture the market share of other MNEs. For example, to repel competition from Linux, Microsoft China utilised Bill Gates’ visit to persuade Chinese leaders to impose an antitrust legislation (FEER, 2004b). A similar mode of practice targeting a local firm was noted in Indonesia. Confronted by a local oil firm in securing an oil field concession, ExxonMobil, a US oil company, orchestrated a series of lobbies to Indonesian government to obtain the concession (McBeth, 2004).

Controversial effects of the MNE presence were also noted in the intellectual property right (IPR). Whilst it is suggested that imposing IPR regimes may attract MNEs to invest in a particular country, weak IPR regimes may be exploited by local firms to the disadvantage of MNEs (ADB, 2004). Technological and innovative capabilities shown by MNEs (Blomstrom & Kokko, 1997) may be imitated by local firms without MNE consents. As an example, a local consumer goods company in China aired the exact advertising campaign of Unilever in promoting a new soap product (Fowler, 2004).

The claim that MNEs bring prosperity by producing lower cost of goods (Farrell, et al., 2004) has hidden implications. Lower costs drive consumerism. Such behaviour may change the lifestyle of the population in the host country (ADB, 2004). With this regard, the one that gets the benefits are MNEs. In South East Asia, it was noted that the presence of consumer electronic MNEs has triggered consumptive behaviours of young people in buying electronic gadgets (Vittachi, 2004).

To summarise this section, despite their positive contributions, MNEs may bring unprecedented impacts to the host country. Interventions to economic and political affairs are not uncommon (ADB, 2004). Weak institutional systems were sometimes exploited by MNEs. In addition, the MNE presence may affect local values and cultures (ADB, 2004). Furthermore, the MNE presence may stimulate illegal conducts by local firms without the consent of MNEs (Fowler, 2004).

4. Government Roles in Stimulating Competitiveness

So what can the government do to maximise the presence of MNE to foster the country competitiveness? The role of government has been substantial to the growth of a country (Porter, 1990). Through implementing appropriate policy regimes, MNE contributions can be sustained, if not improved, whilst their hostile effects can be reduced, if not eliminated (UNCTAD, 2006). Figure 1 illustrates the effects of MNE to the host country and government roles in maximising the MNE presence to foster competitiveness.

Figure 1 Effects of the MNE presence and the government roles in competitiveness

A common ground between local firms and MNEs can be instigated by the government (Porter, 1990). Different treatments between employees working in MNEs and local firms can be levelled through labour regulations (ADB, 2004). A draft of new labour contract regulation in China may illustrate the case. The implementation of such regulation will add operational costs to all firms (May & Jia, 2007). In such case, local firms are forced to adopt MNE capabilities to stay competitive in the industry (Blomstrom & Kokko, 1997; Hu & Jefferson, 2002).

The government in a host country can impose product or process standards to stimulate competitiveness. Anti trust regulation can also be implemented. To meet the standard, local firms are forced to adopt new technologies (Porter, 1990). MNEs can be utilised to assist local firms in gaining new technology sources. In addition, local firms can utilise MNE feedbacks to achieve the level of standard imposed by their government (Blomstrom & Kokko, 1997). In the long run, the industry will gain recognition in international markets (Porter, 1990).

The government may scan specific industries and establishes specialised factor creations such as public research institutions (Porter, 1990). The established institutions can be encouraged to cooperate with MNE affiliates (ADB, 2004). For example, the advance semiconductor industry in Taiwan was rooted from the establishment of Industrial Technology Research Institute (ITRI) in 1973. The agency gained its momentum after securing the license of semiconductor fabrication from RCA. Later on, ITRI cooperated with Philips in manufacturing advanced semiconductor products (Mathews, 2001).

The government can foster competitiveness by creating an industry cluster (Porter, 1990). Incumbent MNEs can be invited to join the cluster to foster the competitiveness of the region (Porter, 1990). For example, the rise of information technology (IT) industry in India originated from the government decision in appointing Bangalore as the hub of science and technology activities. Incumbent MNEs were initially participated as joint venture partners. These linkages cultivated advanced supply chain networks (Kumaramangalam, 2003). Because of this cluster, India is now reckoned as a competitive country in the IT sectors (Winters & Yusuf, 2007).

In summary, the government can maximise the MNE presence by implementing appropriate instruments (ADB, 2004; Porter, 1990). The government can also stimulate competitiveness by establishing factor creation mechanism (Porter, 1990). Furthermore, creating industry clusters and inviting MNEs to participate in the cluster are being preferred to cultivate the competitiveness of the host country (Blomstrom & Kokko, 1997; Porter, 1990).

The effects of foreign MNEs on host economies and governments roles in maximising the MNE presence to the host country competitiveness (Part I)

1. Introduction

Recent inward foreign domestic investment (FDI) trends suggest that market liberalisation gains significant attentions in many countries (ADB, 2004). A report from UNCTAD (2006) noted that world inward FDIs in 2005 rose to $916 billion, a 29% increase from the previous year. In Asia alone, the FDI growth has a substantial magnitude. Cross border mergers and acquisitions valued at $32.9 billion were transacted in developing Asian countries in 2001 (ADB, 2004). By 2005, the expansion of multi national enterprise (MNE) projects in the Asian regions increased to 1,081 within four years (UNCTAD, 2006).

Empirical evidences presented above may have significant meanings to MNEs. The trend above suggests that MNEs, as the arm length of FDI, are charging their dominance to capitalise their strength under the approval of host countries (ADB, 2004; Farrell, Remes, & Schultz, 2004). There is no illogical explanation of such phenomenon. Dunning (1997) suggested that competition forced MNEs to expand outside their home territories. MNEs looked for alternatives to maintain their competitive advantages (Hirst & Thompson, 1999; Porter, 1990; UNCTAD, 2006). In parallel with these, market liberalisation has forced governments to open their countries for FDI in sustaining the economic growth (Farrell, et al., 2004).

In luring foreign investments, the government may involve in providing attractive incentives, aligning institutional systems as well as providing infrastructures (ADB, 2004). Contrary to this argument, a survey by McKinsey, a global consulting company, suggested that incentives were becoming irrelevant to MNE decision to invest in a particular country (Farrell, et al., 2004). Thus, the understanding of the effects of the MNE presence and the roles of the government appear to be essential in stimulating the competitiveness of a host country.

This essay will discuss effects of the MNE presence in the host country. Parallel to the discussion, the essay will outline government roles in stimulating competitiveness in association with the presence of MNEs. The first part of the discussion will highlight MNE contributions in the host country. It will be followed by discussing controversial effects perpetuated by the presence of MNEs. The subsequent part will outline government roles in fostering competitiveness through maximising the contribution of MNEs. Conclusion will be provided in the end of the discussion.

2. MNEs contribution to host economies

Apart from capital flows, creating welfare is often cited as the positive effect of the MNE presence to the host economy (Farrell, et al., 2004; UNCTAD, 2006). Regardless of the aim, the MNE operation requires local resources to support MNE activities (Dunning, 1997). The unemployment rate of the host country can be reduced. Additionally, it is argued that employees working in MNEs have better welfare conditions (UNCTAD, 2006). A study conducted by Glass and Saggi (2002) found that individuals working in MNEs were paid higher than those working in the local counterparts. The study of Farrel et al (2004) on India and China supported the finding. They concluded that the MNE workers in these countries were paid 50 to 100 percent higher than those working in local firms.

Indications of MNE contributions to the living standard of a host country appear to be significant (ADB, 2004). A survey conducted by McKinsey found that the propensity of MNE presence was more market seeking than resource exploitation. Consumers in a host economy benefited from lower cost products. The survey also noted that MNEs offered more product choices than those offered by local firms (Farrell, et al., 2004).

The MNE investment in the host country can increase the productivity level through the adoption of advance technology (Blomstrom & Kokko, 1997). MNEs bring new production and processing techniques unparalleled to local firms (ADB, 2004). MNEs also set up production facilities and provide technological knowledge to their employees (UNCTAD, 2006). Through ownership advantages, MNEs gain better efficiency and produce lower good costs (Blomstrom & Kokko, 1997; Porter, 1990). In such stage, competition starts to emerge (Dunning, 1997). Local firms try to adopt more efficient production function to retain their market shares (Farrell, et al., 2004). The presence of Suzuki in India exemplified the case. Since the inception, car prices had dropped significantly and consumer choices rose to over 30 car models by 2004 (Farrell, et al., 2004).

It is noted that MNEs contribute positive effects through knowledge transfers (Blomstrom & Kokko, 1997). This has been noted in the case of IBM Japan. As the sales of ThinkPad laptop weakened, some of the firm engineers utilised their expertise in consulting activities to electronic manufacturers (FEER, 2004a). Knowledge spill over may also be channelled through customers and suppliers (Blomstrom & Kokko, 1997; UNCTAD, 2006). MNEs can provide valuable inputs to the improvement of supplier products (Blomstrom & Kokko, 1997). For example, the presence of multinational companies such as Dell and Sony Ericsson in Taiwan has benefited Lite-On, a local electronic company, not only in supplying the products to these companies but also in improving the products quality (Dean, 2004).

The MNE presence may stimulate higher value investments through setting up R&D facilities (ADB, 2004). By setting R&D facilities in a particular country, the host country gains recognition in R&D sectors. Such status will attract more MNEs to invest in other R&D areas (Laudicina & White, 2005). Increasing trends of research and development (R&D) investment in the host country was noted particularly in India and China (Winters & Yusuf, 2007). In China for example, since Motorola’s inception in setting up R&D facilities in 1993, more than 700 foreign based R&D units were set up by 2006. Similar phenomenon was also noted in India. R&D investments in clinical research set up by major pharmaceutical MNEs such as Astra-Zaneca has attracted other global players in carrying out R&D activities in the country (Laudicina & White, 2005).

To summarise this section, through manifestation of foreign direct investments, MNE contributions to the host country are channelled by creating job (ADB, 2004), raising living standard (Farrell, et al., 2004), increasing productivity level (ADB, 2004; Blomstrom & Kokko, 1997; Dunning, 1997), transferring knowledge and technological capabilities (Blomstrom & Kokko, 1997) and setting up R&D facilities (ADB, 2004). Having gone through the positive effects, the next section will discuss the controversial effects contributed by the MNE presence in the host country.