1

CHAPTER ONE

INTRODUCTION

1.1. The Political Economy and International Relations of Firms as Non-

State Actors:

In discussions or discourses on international political economy (IPE) and by

extension business history (as an academic discipline or field in its own right), there

is an argument to be made that multinational companies (MNCs) or firms in the

colonial (and pre-decolonisation) – 19th

and 20th

century – have tended to be

(though not in absolute terms – that is to say, consistently so) focussed and analysed

at the micro-level (= micro-economy), i.e. particularly as best exemplified by

Dunning’s eclectic (OLI) paradigm (O-L-I = Ownership, Location, &

Internalisation).1

The eclectic paradigm describes firm-specific characteristics, and explicates the

strategic business and investment decisions and choices of firms, including the

1 John Dunning. (2001). “The eclectic (OLI) paradigm of international production: Past, present and future.”

International Journal of the Economics of Business, Vol. 8, No. 2, , pp. 173-190.

Source: <http://biz.konkuk.ac.kr/community/upload/Dunning1.pdf>, accessed 29 June 2012. And John Dunning &

Sarianna M. Lundan. (2008). “Institutions and the OLI paradigm of the multinational enterprise.” Asia Pacific

Journal of Management, 25, pp. 573–593.

Source:

<http://faculty.ksu.edu.sa/ahendy/313%20ECON/Syllabus%20and%20Handouts/Dunning%20modelfulltext.pdf>,

accessed 29 June 2012.

2

influence and impact of the external environment on organisational behaviour and

activities, and allocation of resources.2

Hence, the differentiation/ distinction is made with the study of firms at the macro-

level (= macro-economy), i.e. IPE proper where their contribution to the wider

external environment – beyond the immediate market relations and linkages – can be

discerned. Especially pertinent and germane to this paper is the place and role of

firms as non-state actors3 specifically in the formulation and conduct of foreign policy

and diplomacy – as the locus for the intersection & interaction between IPE and

international relations (IR) environments.4

The term “firm” is employed here in the general sense of business organisations

involved in any form of production, trading or financial services activities. As firms

are normally not part of the government institutions or the bureaucracy, including the

diplomatic apparatus, they are conveniently categorised as non-state actors.5

2 For such representative literature, consult the scholarly works of Mira Wilkins, Marcelo Bucheli, Shakila Yacob,

Nicholas J White, etc. 3 Non-state actors/ players in foreign policy/ international relations refer to institutions and individuals that are not

part of – and hence do not represent – the state/ government; and normally belong to the private and voluntary (civil

society) sectors. State-owned enterprises (SOEs), government-linked companies (GLCs) and para-statal

organisations would be categorised as non-state as these are not directly or purportedly involved in conventional

foreign policy and diplomacy. 4 Literature on firms in the framework and structures of IR & IPE will be covered in Chapter 2.

5 For an introductory discussion on the emergence of non-state actors in the era of globalisation, see Laura Neack.

(2008). The new foreign policy: Power seeking in a globalized era. Maryland: Rowman & Littlefield Pub. Inc,

chapters 7, pp. 111-128 & 10, pp. 181-187. For a focused and detailed exposition of the role of multinational

corporations/ companies (MNCs) in international relations, consult Dennis A. Rondinelli. (2002). “Transnational

corporations: International citizens or new sovereigns?” Business and Society Review, Vol. 107, No. 4 (December),

pp. 391-413. Sourced from Jon C Pevehouse & Joshua S Goldstein. (2008). Readings in international relations.

Pearson Longman (pp. 233-243). The history and development, and role and contribution of MNCs are well-

documented in the classic and scholarly book by Geoffrey Jones. (2005). Multinationals and global capitalism from

the nineteenth to the twenty-first century. Oxford: Oxford University Press (OUP).

3

Much of the IR literature has customarily focussed on traditional and mainstream

actors, including non-state, whilst paying scant attention to or even overlooking firms

as an actual (concrete) variable or determinant. This is ironic given the recognition

that economics (as an abstract variable or determinant) is a fundamental input/driver

in foreign policy formulation and bilateral/ multilateral relations.

Moreover the state is increasingly exploiting and manipulating the role and function

of state-managed firms6 – either directly as in the case of state-owned enterprises

(SOEs) or indirectly as in the case of government-linked companies (GLCs). SOEs

are completely (100 per cent) owned by the government – they belong to the public

sector. China’s SOEs in their form prior to their initial public offering on the stock

exchange/ market are a classic example. GLCs, on the other hand, are privatised/

corporatised public bodies. Therefore, GLCs are technically not part of the public

sector whilst simultaneously coming under direct and/ or indirect government control

through ownership of equity and managerial composition.

That is to say, GLCs could be categorised as a hybrid organisation. In turn, it has to

be understood and appreciated that the existence of GLCs as a specific type of

parastatal organisation is invariably or inevitably linked to the wider macro-economic

system of the country – which in terms of “label” would be conveniently and

6 However, there would be instances also where state officials – serving politicians and bureaucrats – who are

directors or hold a stake in private firms. Notwithstanding any conflict of interests (legally or ethically), they would

be acting in their own individual capacity and as such do not represent the state. Nonetheless, their presence in these

firms opens up the possibility of abuse of power whereby the lines between state and personal capacities can be

blurred. Equally so is the use of state entities for personal gains. In the context of cross-border and trans-national

transactions, it would be merely the extension of the abuse of power vis-à-vis the firms’ operations in the country of

origin.

4

popularly termed as “state capitalism.” Thus, it could be stated that the existence of

GLCs are a facet or aspect of state capitalism of which Malaysia (and increasingly

Indonesia also) can lay claim to a particular type of expression.7

This paper looks at three (selected) firms which are Malaysian brand names both

domestically as well as regionally with significant business interests in the Indonesian

market, namely Air Asia, CIMB and Sime Darby (set against the context and

backdrop of the IPE of Malaysia-Indonesia bilateral relations).

In addition to their targeting Indonesia as a major growth driver (in terms of

profitability), the three entities are engaged in key sectors of the economies of both

countries – airline, banking, and plantation – that are at the same time inter-related

because of their role and contribution towards enhancing bilateral ties and economic

cooperation.

For the sake of simplicity and avoiding confusion, the term GLCs will not be applied

to the selected entities. Firstly, Air Asia does not, strictly speaking, qualify as a GLC

since it is owned entirely by private sector companies although the individual

shareholders could be regarded as well-connected to the political elite.8

7 See “Emerging-market multinationals: The rise of state capitalism.” The Economist (21 January 2012).

Source: <http://www.economist.com/node/21543160>, accessed 26 March 2012. For the ideological dimension, see

“The visible hand.” The Economist (21 January 2012).

Source: <http://www.economist.com/node/21542931>, accessed 29 June 2012. 8 Air Asia, however, was formerly a HICOM company (i.e. “a GLC under a GLC”). HICOM was a key corporation

of the Malaysian government under the Mahathir administration’s heavy industrialisation programme.

5

Secondly, due to the sensitive and controversial nature surrounding the use of the

term, “GLC,” as applied to both CIMB and Sime Darby with possible unfavourable

connotations, this paper prefers to refer all three firms as “multinational companies”

(MNCs) – which can be defined as a company that “controls operations or income-

generating assets in more than one country.”9 In other words, a MNC has a

headquarters based in the home country whilst maintaining operational bases in host

countries.

For the term “GLC” implies that the management and direction of the firm

concerned is conducted on the basis of political interference and intervention, and

thus not “purely” in a professional manner (according to corporate standards) and

on a commercial (i.e. profit-seeking) basis. In other words, the use of the term,

“GLC,” produces the implicit impression and perception of a loss-making entity

which is dependent on tax-payers’ subsidy (and bailouts).

1.2. The Political Economy and International Relations of Firms of

Malaysian MNCs:

In the context of Malaysia-Indonesia bilateral relations, which this paper is interested

in using as the broader case study, much has been discussed concerning their

politics.10

Thus, all other factors become subsumed or are subsidiaries to the political

9 Op. cit., Jones (2005). See Box 1.3: “Defining multinationals” in Chapter 1: Concepts, at p. 5.

10 For a focused analysis on the politics of Malaysia-Indonesia diplomacy, consult Liow, J. C. (2005). The politics of

Indonesia-Malaysia relations: One kin, two nations. Oxford: Routledge. On people-to-people relations, consult

Khadijah Md Khalid & Shakila Yacob. (2012). “Managing Malaysia–Indonesia relations in the context of

6

framework. It is the contention of this paper – in justifying the choice of Malaysia-

Indonesia relations as the contextual framework – that the increasing presence of

Malaysian businesses in Indonesia, particularly government-linked companies

(GLCs) – to take advantage of the continuing economic potential including the

development of a bigger middle-class and the rise in purchasing power – has made it

necessary to consider the role of firms in promoting bilateral relations of which

foreign policy is the vital intermediary mechanism.

Already Malaysia-Indonesia bilateral relations have been complicated by the growing

presence and influence of Malaysian MNCs on Indonesian soil. This is partly as a

consequence of the openness and eagerness of Indonesia to receive foreign direct

investment (FDI).11

In actuality, the groundwork has already been laid in the years

preceding the reformasi of 1997 when the technocrats under the Suharto/ Orde Baru

regime undertook structural reforms and measures to progressively liberalise key

sectors of the economy.12

Since then a sustained commodities boom13

(fuelled by strong demand from China

and India for palm oil products such as cooking oil for households as well as refined,

democratization: the emergence of non-state actors.” International Relations of the Asia Pacific, April, pp. 1-33

(online publication).

Source: <http://irap.oxfordjournals.org/content/early/2012/04/25/irap.lcr024.full.pdf+html>, accessed 1 July 2012 11

“Improving the investment climate in Indonesia.” Asian Development Bank (ADB) report (2005). 12

See for example, Radius Prawiro. (1998). Indonesia’s struggle for economic development: Pragmatism in action.

Kuala Lumpur: Oxford University Press (OUP). 13

“Commodities boom fuels Indonesia’s rich.” Reuters (13 March 2012).

Sourced from:

<http://www.freemalaysiatoday.com/category/business/2012/03/13/commodities-boom-fuels-indonesias-rich>,

accessed 29 June 2012.

7

bleached & deodorised/ RBD supply for industries) have seen an increase in the

wealth and number of Indonesia’s rich. On the other hand, growing FDI flows (e.g. in

the automotive sector) have tremendously pushed up employment levels and

maintained the momentum of adding to the growing Indonesia middle class.14

The

opportunities for Malaysian companies to tap into the growing purchasing power

which keenly translates into a growing appetite for consumption15

simply cannot be

overlooked especially given the close proximity of the two countries.

Hence, this paper is interested in researching on Malaysian MNCs operating and

investing in Indonesia from the perspective of bilateral relations between Malaysia

and Indonesia with a specific focus on selected firms – that are neglected or

overlooked as emerging non-state actors in the IR of Southeast Asia.

Indeed, in view of the inseparable links and nexus which exist between politics and

business in Malaysia, it is not unreasonable to suppose or surmise that the influence

of the latter in domestic policies extends also to foreign policy (and by implication,

bilateral relations). This is especially so as the country’s foreign policy is strongly

14

“Significant growth potential for Indonesia's middle class.” iStockAnalyst (7 December 2011).

Source: <http://www.istockanalyst.com/finance/story/5586078/significant-growth-potential-for-indonesia-s-middle-

class>, 29 June 2012. 15

“Indonesia chases China as middle-class consumption soars.” Bloomberg (2 May 2012).

Source: <http://www.bloomberg.com/news/2012-05-01/indonesia-chases-china-as-middle-class-consumption-

soars.html>, accessed 29 June 2012. See also Shijie Chen. “Opportunity Indonesia: A growing middle class.”

Emerging Markets Insights (13 December 2011).

Source: <http://blog.frontierstrategygroup.com/2011/12/opportunity-indonesia-a-growing-middle-class>, accessed

29 June 2012.

8

economic-driven. That is to say, economic diplomacy16

is given explicit recognition

in Malaysia’s foreign policy approach and orientation.

Economics is regarded as a definitive form of diplomacy (dubbed as “low politics”)

by proponents of the school of thought known as “Liberal International Relations

Theory.” Thus, foreign economic policy (FEP) is simply foreign policy (FP) per se,

i.e. by itself. This is why some have also pointed out that the dichotomy between

“high” and “low” politics is false because on many occasions, both have been simply

undifferentiated.17

Furthermore, by extension, the argument could be taken to its logical conclusion that

foreign policy is a form of domestic policy. That means that finally all foreign policy

is a function of domestic policy – and hence reducible thereof. This does not mean a

collapse in the traditional or conventional distinction anymore than it is an argument

for the invalidity of IR as a separate discipline.

16

Obviously economics is not the only factor and dimension in foreign policy – in line with historical developments

and societal progress (politia & oeconomia) in all areas of creativity (poiesis) and productivity (praxis), foreign

policy has become more complex and multi-faceted. Science and technology, sports and culture, finance (e.g.

currency), development aid, etc. are emerging as foreign policies in their own right. Secondary (and by inclusion

tertiary) tier governments are also engaged in foreign policy and diplomacy (particularly in the context of people-to-

people relations). Forms of bilateral cooperation include the twinning of cities which fosters socio-cultural

exchanges, technical assistance (environmental management and green energy) and investments (in business clusters

within regions or cities). On the role of sub-national state actors, see Francisco Aldecoa & Michael Keating. (1999).

Paradiplomacy in action: The foreign relations of subnational governments. Portland (Oregon): Frank Cass. 17

See for example, Barnett, Michael. (1990). High politics is low politics: The domestic and systemic sources of

Israeli security policy, 1967-1977. World Politics, 42(4), pp. 529-562.

Source: <http://www.jstor.org/stable/pdfplus/2010513.pdf>, accessed 16 August 2011.

9

The argument does affirm that a pure foreign policy for the sake of conducting

international relations simply does not exist as an empirical reality. But that domestic

policy intersects and intertwines with foreign policy – foreign policy is dependent on

domestic policy as much as domestic policy is dependent on foreign policy. In short,

there is genuine reciprocal relationship between the two which can be formulated

thus:

(F)Px [foreign policy] = (D)Py [domestic policy];

p

if and only if the sign of = (equal) is taken to imply symmetrical dependency instead

of symmetrical identity.

The current administration under Malaysian Prime Minister Najib Razak is

committed to renewing bilateral ties with selected countries via strengthening

economic cooperation.18

In relation to Indonesia, the Deputy Prime Minister,

Muhyiddin Yassin, has indicated Malaysia’s interest in FDI from Indonesian

businesses.19

He explicitly acknowledged that Malaysia had overlooked the need to

court and attract investments from Indonesian billionaires (just across the Straits of

Malacca as well as the Java Sea). Such precise attention is reflective of the Najib

administration’s approach to the economic renewal and transformation of Malaysia in

the quest to achieve Vision 2020. By then, Malaysia is expected to bear all the

“hallmarks” of a developed nation.

18

See Khadijah Md. Khalid. (2011). “Malaysia's foreign policy under Najib.” Asian Survey, 51(3), May/June, pp.

429-452. 19

“DPM: Don’t take billionaires for granted.” The Star (5 December 2010).

Source: <http://www.thestar.com.my/news/story.asp?sec=nation&file=/2010/12/5/nation/7562756>, accessed 23

April 2011. The International Trade and Industry Minister, Mustapa Mohamed, had also issued a call to Indonesian

businesses to narrow the investment gap between Malaysia and Indonesia. See “Boosting Indonesian investments in

Malaysia.” New Straits Times (5 June 2011).

10

1.3. Problem Statement:

Although economics (and by inclusion business interests) is a fundamental “theorem”

in foreign policy (as distinguished from IR theory), it is admitted that the relationship

between it and firms as inputs remains obscure and yet to be mapped out not least due

to the dearth of focus and literature on the subject. In other words, whilst IR scholars

have given recognition to the emergence of MNCs as non-state actors in the wider

IPE i.e. the conceptual framework and institutional structures in IR are employed to

explain the role of firms operating across borders, their contribution to foreign policy

– and by extension bilateral relations20

– have not been fully explored, i.e. as an

explanatory variable and impact factor.

Whilst this paper is concerned about delving deeper into the obvious fact that

Malaysian firms operating and investing in Indonesia are an expression (outgrowth)

of bilateral relations – effect, other things being equal, the conceptual framework (of

this paper) is biased towards firms as a cause – part of the bilateral relations

processes themselves – that is to say, inside rather than outside, albeit as

20

This is despite the fact that the role of business (as activity in contradistinction from businesses – that is the actors

themselves) in bilateral and multilateral diplomacy is growing and becoming more prominent. Hence there remains

a “gap” between “theory” (intellectual world of scholarship) and “practice” (real-world situation) whereby it is

incumbent on the former to “shift” its position (the “internal” hypothesis) to be more closely aligned with the

(“external”) reality/ facts – in effect, more empirical-based. On the other hand, some scholars have argued that

policy-making needs to be more adaptable in its institutional capabilities and, by extension, accommodative and

inclusive of the role of business. See Saner, Raymond & Yiu, Lichia. (2003). “International economic diplomacy:

Mutations in post-modern times.” Discussion Papers in Diplomacy – Netherlands Institute of International

Relations.

Source:

<http://www.clingendael.nl/publications/2003/20030100_cli_paper_dip_issue84.pdf>, accessed 5 September 2012.

In some countries such as the UK under the current Coalition Government (2010-_), diplomacy – as epitomised by

UKTI (UK Trade & Investment) – is (pro-actively) employed to advance business & commercial interests seen as

crucial to increase British market presence and exports in the fast-growing economies of Asia and Latin America.

UK is, therefore, an eminent example of diplomacy promoting the global interests of local businesses.

11

beneficiaries. Hence, the research questions are more interested in how firms (are able

to – directly or indirectly) influence developments – or are a determinant/ factor – in

bilateral relations rather than on the benefits they derive (as a spill-over) thereof.

1.4. Research Questions:

As such, this research paper is geared towards critically examining, analysing and

seeking to answer the following questions:

Do the selected MNCs, namely AirAsia, CIMB & Sime Darby, play (an explicit or

implicit) role as non-state actors in Malaysia-Indonesia bilateral relations? Or can it

be argued that the growing presence of these MNCs (as representative of the

Malaysian firms) in Indonesia impact and influence the shape of bilateral relations

between the two countries?

Specifically, does the presence of AirAsia, CIMB & Sime Darby in Indonesia help

promote greater economic inter-dependence or rivalry? Or is it the case of both/ and,

i.e. the intensification of bilateral economic cooperation (and exchanges) also

simultaneously and sequentially create space for heightened competition (in tandem

with changing economic self-confidence and perception of both countries where the

superiority-inferiority complex characteristic of the politics of bilateral diplomacy

now extends to economics thus exposing the intricate and inextricable link between

the two? By extension therefore, are these Malaysian MNCs emerging as non-state

actors in contributing to the “transition” from the primacy of politics to the primacy

of economics in bilateral cooperation (and rivalry)? If so, why?

12

1.5. Objectives:

To outline the presence of the selected Malaysian MNCs in Indonesia and discuss the

importance of Indonesia as a fast emerging market for these firms;

To identify and examine the role of these Malaysian MNCs in contributing directly or

having an indirect influence on the foreign policy outlook and conduct of Malaysia

towards Indonesia (the role being considered “standard” or “constant” – as a given);

To determine or ascertain, if any/ possible, the extent of these Malaysian MNCs

acting as foreign policy inputs – directly or indirectly (recognising the high

probability of variation and dissimilarity one from another – i.e. not all possess the

same level of influence or acquire a uniform degree of importance/ significance in

foreign policy decision-making, or else their the impact on the dynamics of bilateral

relations);

To analyse the (growing) potential of Malaysian firms in driving bilateral relations in

the present and in relation to future trends.

1.6. Limitations of the Study:

This research paper is not a thesis as such and thus limited by the time factor. As

such, it seeks to narrow down its policy focus of the “players” or “actors”

(stakeholders) to the selected MNCs – as well-connected MNCs – rather than the

other Malaysian firms even though the interest shown in the burgeoning Indonesia

market has grown tremendously over the past few years, especially as the post-

Suharto (post-Reformasi) era introduced radical changes in all spheres of state and

society hitherto unexpected. As mentioned before, the growing Indonesian middle-

13

class presents an attractive business opportunity for Malaysian companies to tap into

the enhanced purchasing power and stronger disposable income.

It is no coincidence that the growth in business to business (B2B) interests have

contributed significantly to the broader people-to-people (P2P) ties both of which

epitomises the unofficial aspect or feature of bilateral relations. Air travel plays an

important role in facilitating P2P ties, and flight frequency between Jakarta and Kuala

Lumpur is heightening due to strong demand from both countries.21

Moreover, this research paper represents or at least seeks to be a new study on a topic

much neglected by IR scholars, particularly in the context of Malaysia-Indonesia

bilateral relations, and therefore would encounter brevity or scarcity or lack of

paucity of the relevant information to be used as past data and in service of the

literature review pointing to such sources. As such, it is submitted that this research

paper is/ can be considered a pioneering and “trail-blazing” effort as far as IR &

foreign policy are concerned.

In addition, the nature of the study might impinge on the sensitivity of the firms

involved or targeted given that these relate to the processes of foreign policy making

– which are high-level and normally not subject and certainly not accountable to

public scrutiny (at least under the present political system). Therefore, full

21

See for example, “Garuda to increase flights to Malaysia.” New Straits Times (7 June 2011).

Source: <http://www.nst.com.my/nst/articles/GarudatoincreaseflightstoMalaysia/Article>, accessed 10 August 2011.

14

transparency should not be expected to be forthcoming or a certain “self-censorship”

or reserve could be the response of the interviewees.

Indeed, in the course of sourcing and requesting for “real-time” (i.e.

unprocessed/ raw) information, this author has encountered various difficulties

or obstacles with the stakeholders concerned (= all three MNCs which declined

an email interview. Responses were not forthcoming at all from the Ministry of

Foreign Affairs, Malaysia/ Wisma Putra despite prior assurances). However, this

research paper will strive to accumulate as much information and empirical data as

possible despite these constraints albeit with a heavy reliance on newspapers and

library-based research.

1.7. Significance of the Study:

This research paper will attempt to shed light and offer insights into the neglected role

of businesses – in this case that of “government-linked” MNCs – in foreign policy

and diplomacy. Malaysian “government-linked” MNCs can properly be regarded as

non-state actors which play a pivotal role in what is now termed as “public

diplomacy.” Public diplomacy recognises that foreign policy is no longer the sole and

exclusive domain of policy makers. And thus it is vital that the role of businesses as

non-state actors be not overlooked and hence underestimated. A thorough

investigation will yield information that is definitive in understanding the ever-

increasing role of non-state actors in shaping foreign policy outlook.

15

Presently, Malaysian “government-linked” MNCs play a “behind the scenes” and at

the same time “sub-conscious” role in Malaysia’s bilateral relations (in the region

and beyond), particularly with Indonesia. Unlike business councils and organisations,

and trade federations, Malaysian MNCs per se (viz., as singular entities) lack

sufficient clout and the collective position to influence foreign policy at the

multilateral level. Especially so, such description applies to the selected

“government-linked” MNCs to be considered in this paper – AirAsia, CIMB, and

Sime Darby.

This is unlike, for example, the role played by the Keidanren (Japan Federation of

Economic Organization) in forging and fostering regional integration through free

trade agreements (FTAs). However, it must be stressed that MNCs do have a role to

contribute towards regional integration – regionalism and regionalisation. In fact, as

will be discussed later in the paper, Malaysian MNCs, including CIMB, Sime Darby

and AirAsia are self-conscious and enthusiastic about their role in responding to as

well as facilitating the regional integration process vis-à-vis ASEAN. Indeed, these

Malaysian MNCs are playing a vital and critical part in realising the agenda of an

ASEAN Community & a Single Market (by 2015).

In other words, entities of which Malaysian MNCs (particularly “government-linked”

or politically-connected ones) are an example do play a role similar to that of the

Keidanren (as aforementioned) but at a different level – “downstream,” i.e. at the

post-agenda setting and formulation process. Hence at most, Malaysian MNCs (or

16

foreign counterparts) would be involved indirectly and “invisibly”/ inconspicuously

as policy-makers – in their subsidiary and secondary position within the broader or

overall structure of the multilateralism system (see Flowchart 1).

The situation becomes different at the “horizontal” plane where the role and influence

of singular entities match those exercised and exerted by collective groups. Here in

rerum natura (“in the nature of things”), the GLCs as non-state actors are outside the

institutional terrain which – by convention at least – is limitedly defined as between

diplomatic agencies.

Whereas in multilateral fora, there is scope and space for the inclusion of non-state

actors since relations are geared towards and conducted within a distinct or even a

separate framework (as the centripetal focus). And hence, multilateral relations are

already from the outset shaped and determined by institutional forces other than

national governments (sovereign countries). This is not the parallelism which one

encounters in bilateral relations where both government-to-government (G2G) and

people-to-people (P2P) relations exist simultaneously, and intersect and overlap

where relevant and appropriate.

17

Multilateral Relations “Upstream” Multilateral Relations

“Downstream”

Bilateral

Relations

Flowchart 1. The place of MNCs in the inter-relationship between multilateralism

and bilateralism

But rather than relations emerging from countries as in bilateralism, multilateral

relations emanate between individual member states and the supra-national/ regional/

international or inter-governmental body. An analogy, if one can be borrowed, could

well be from the sphere of physics, or more precisely in the field of electro-magnetic

– particularly the concept of electricity in relation to the flow of currents. Direct

current (DC) is characterised by uni-directional flows and perhaps the form of

generated electricity that is the most “rudimentary.” Bilateral relations share some

typical characteristics with DC – the flow of movement is not modified or moderated

by an intermediary or mediating factor/ variable.

Multilateral

Fora

Country A Country B

18

In such a case, the danger is that the intensity of the “current” (or position) of one of

the bilateral countries may become too strong (or domineering). This occurs when the

stronger country projects hegemonic influence without the moderating force of a third

party (intervention or interference). The weaker country may end up becoming a

client-state or (literally) subject to “shock and awe” (in the non-electrical sense) as

the strategic means to gain control and exploit its natural resources. However,

multilateralism offers and allows middle-power and smaller states to cushion against

the external threat of unchallenged or unrestraint hegemony which can be inherent

(though not necessarily so) in bilateral relations.

Multilateralism is conducted on the principle that to a certain extent essentially

analogous to the flow of electro-magnetic radiation/ energy in the form of alternating

current (AC) whereby the frequency of the charge is moderated to an appropriate

level by an adaptor (horizontal supply as within an building) or transformer (vertical

supply as from the hydroelectric dam transmitted through the pylon cables to be

circuitously modified in the voltage before reaching buildings). Thus, there is a

moderating force in multilateralism that channels and re-channels as well as

manipulates relations amongst and even between member states (depending on the

nature of the multilateral entity).

This paper contends there is an “unresolved” or “existential” tension between non-

state actors, specifically Malaysian MNCs, as being outside of diplomatic channels

and yet part of the official inter-play by virtue of their background (often discreet

19

and tacit) role in the dynamics of bilateral diplomacy. In short, it is this scenario

which marks the role of MNCs in foreign policy as differentiated from the role of

other non-state actors in the context of multilateral diplomacy, and which promises to

offer new insights into the dynamics of contemporary international relations of

Southeast Asia.

20

CHAPTER TWO

LITERATURE REVIEW

2.1. Past & Present Studies/ Research on the Political Economy of MNCs:

It is the contention of this paper that the contribution of multinational firms, i.e.

business actors (which have or intend to acquire interests e.g. operational bases as a

means to penetrate into or expand market presence in other countries) to foreign

policy and diplomacy – in other words, bilateral relations, particularly in the context

of Southeast Asia – have not been adequately addressed/ studied. At the risk of over-

simplification, much of the discussion on multinational firms (or also referred to as

“transnational corporations” inter alia) have taken place in the context of IR per se,

i.e. as a complex and inter-twining lattices of overlapping, shared and competing

interests, and common concerns, and concomitantly from the multilateral perspective.

Charles E. Lindblom’s classic Politics and markets22

makes a trenchant (albeit non-

emotive) critique of political democracies that come under the undue influence of

unaccountable (and sometimes shadowy) market-oriented corporate enterprises, thus

being incompatible with popular democracy as such. It is therefore an “implicit”

attack on “free market capitalism” so often promoted and touted by MNCs.23

22

Charles E. Lindblom. (1977). Politics and markets: The world’s political economic systems. New York: Basic

Books. 23

Lindblom expanded and developed on his argument in (2002). The market system: What it is, how it works, and

what to make of it. New Haven (Connecticut): Yale University Press.

21

Nonetheless, there is a steady literature on the role of MNCs in IPE (though once

again not necessarily in IR) particularly since the post-gold standard (viz. Bretton

Woods international monetary system)/ arrangement (where the world’s currencies

were “pegged” to the gold as a unit of account) of the 1970s onwards.

This reflected the rapid growth and expansion of MNCs globally due to the ability of

the developed economies particularly the US to finance large current account

deficits. The contemporary era of “paper money” also enabled and facilitated

excessive credit creation which induced and encouraged the flow of FDI (long-term

funds) and “hot money” (short-term speculative funds) from the developed to the

developing economies. Such a scenario has been precisely covered in Nathan M.

Jensen’ well-covered book entitled, Nation-states and the multinational corporation:

A political economy of foreign direct investment.24

Jensen reminds readers that:

“In response to any negative policy change [by host

countries], multinationals can threaten political leaders that

harm multinational operations by refusing further

investment in the country, or by pulling out existing

investments. This possibility exists in both [emphasis mine]

types of political systems--authoritarian or democratic.

Unlike authoritarian regimes, however, in democratic

systems citizens have the ability to replace leaders with

tarnished reputations through electoral mechanisms. Voters

who want to reap the benefits of future FDI will choose

candidates with the best reputations on election day.

Therefore, political leaders must be wary of developing bad

reputations, leading them to avoid policies that hamper

multinationals' operations. While this system does not

guarantee market-friendly policies, legislation that hinders

multinationals in democratic societies nonetheless

generates substantial political costs for leaders because the

24

Nathan M. Jensen. (2006). Nation-states and the multinational corporation: A political economy of foreign direct

investment. New Jersey: Princeton University Press (PUP).

22

political position of multinationals proves even more

“privileged” (in Lindblom's 1977 terms25

) than that of

domestic businesses.”26

On the other hand, much has been researched – in particular reference to the specific

context of Malaysia – on the role and place of firms in behaving as proxies or agents

of political actors. This focus is normally set within two distinct (but overlapping and

inter-related/ intertwined) broad frameworks, namely a) Policy: The political

economy (and “industrial policy”) of the East Asian and Southeast Asian countries; as

well as b) Politics: The political system (and “political business”) of the East Asian

and Southeast Asian countries, and in tandem with studies on “cronyism,” “rent-

seeking,” “patronage politics,” “money politics,” etc. In both instances, the focus is

on the relationship between business and domestic policy/ politics.

Between the two opposite “poles” in the literature on firms in the context of IR

inevitably subsumed under general (abstract) categories such as “globalisation” and

“development aid” and in the context of domestic relations which can also tend to be

treated under broader topics, there is a “gap” or lacunae in relation to firms as actors

in bilateral diplomacy – that is, a situation which combines both elements of domestic

and international relations which have thus far been inclined to “go separate ways.”

Hence, by extension, there is “discontinuity” between the two types of literature

which can become problematic.

25

Op. cit., Lindblom, 1977. 26

Ibid. Introduction, p. 3.

23

This situation tends to “forget” or is “indifferent” to the fact that firms which are

influential actors in domestic politics and economics are/can also be simultaneously

influential actors in geo-politics and geo-economics. That means the domestic and

international dimension are held concurrently and mutually reciprocal, i.e. both are

inter-related and impact on one another. In other words, the influential role exercised

by these firms is the same and therefore “singular,” and merely differentiated in

context rather than two unique but perhaps separable roles (plural). As such, the focus

is on the concrete role of the actor instead of the actor as an organisation. If one is to

outline the literature review spectrum, a simple scheme is as follows …

Bilateral Relations

(Gap)

Figure 1. The academic “lacunae” in the inter-relation between firms as

international and domestic (non-)actors

2.2. Firms as Domestic Actors:

As a country which has experienced rapid gross domestic product (GDP) growth of 8-

9 per cent on an annual basis, particularly in consecutive pattern since the 1990s

buoyed by foreign direct investments (FDI) especially in electrical and electronics

(E&E) manufacturing and high commodity prices (petroleum, palm oil), Malaysia

came into international prominence for its sound macro-economic fundamentals and

pragmatic development policies. Scholarly attention was turned to the economic and

industrial model adopted (and or adapted) by Malaysia as part of the “tiger

International

Domestic

24

economies,” “newly industrialising countries” (NICs), “emerging developing

countries,” etc.

The nature of the Malaysian political system has often produced terms such as

“benign authoritarianism” or “guided democracy” – some of which are accepted

jargons by the ruling class or political elite themselves. The political economy of

Malaysia is recognised as a form of “state capitalism” where the government plays a

strong interventionist role in the wider macro-economy to a) exploit and benefit from

the market forces of supply and demand (e.g. as in the automotive industry via a form

of “managed” protectionism – approved permits (APs); b) bolster and support the

“free” market wherever and whenever there is allocation failure caused perhaps by a

“breakdown,” disruption or weakness in the transmission and intermediation

processes (such as lending/ flow of credit to businesses) or supply chain (e.g.

increasing supply for controlled items – that are subsidised – such as cooking oil,

sugar and rice when there is a shortage which can occur because vendors withhold

deliveries pending outstanding credit from the retailers; c) manipulate and manage

industrial growth and development – players, structure, and pace/ momentum – as a

policy strategy to accelerate and boost the rate of the country’s gross domestic

product (GDP).

State capitalism ala Malaysia as expressed in the framework of industrial policy was

given a classical exposition by Jomo K Sundaram in Industrial policy in East Asia:

25

Lessons for Malaysia (1999).27

Jomo also co-related Malaysia’s institutional

framework and regulatory environment with economic development in his co-edited

book in Law, institutions and Malaysian economic development28

and chapter written

therein.29

Consult also Malaysian industrial policy (2007)30

which highlights and

brings to the forefront the nuances in and context-specific determinants of Malaysian-

style state capitalism as well as the various debates on the merits (and or demerits

thereof).

Inevitably focus is given to the relationship between the State and business, and the

symbiotic alliance or nexus which enables both actors/ players to continue to bolster

and sustain the political economic structure of “state capitalism” as self-beneficial.

Such an arrangement as being an integral part of the Malaysian political custom and

is said to be reflective of the broader Asian “culture” or “values” where personal

friendship and camaraderie matters more than professional relationships has been

well documented, discoursed and analysed by prominent local scholars/ academicians

(such as Jomo K Sundaram, Edmund Terence Gomez, Lee Kam Hing, Lim Teck

Ghee, Jeff Tan, etc.).

27

Jomo K Sundaram & Tan Kock Wah (Eds.). (1999). Industrial policy in East Asia: Lessons for Malaysia. Kuala

Lumpur (Malaysia): University of Malaya Press. 28

Jomo K. Sundaram & Wong Sau Ngan (Eds.). (2008). Law, institutions and Malaysian economic development.

Singapore: National University of Singapore (NUS) Press. 29

Chapter 7: “Investment and technology policy – Government intervention regulation incentives.” 30

Jomo K. Sundaram (Ed.). (2007). Malaysian industrial policy. Singapore: National University of Singapore

(NUS) Press.

26

E. Terence Gomez has dubbed the relationship between business and politics as

“political business” in Political business in East Asia31

(2002). Throughout the survey

of the complex of institutional actors, factors or determinants and case-studies, the

general model of political business practices whereby the influence between business

and politics are mutual and “co-related” (conjoined as in Siamese twins) so that both

entities can reasonably be said to share the same policy-political and even economic

space(!) can aptly be employed as a description of the foreign policy and diplomatic

context.

This is not to ignore or overlook the significant and subtle variations and

convergences in different country-specific cases. Businesses, however, are placed in a

situation in which they are well-poised to interfere and intervene, and participate in

the policy-making process. They, therefore, become part of, i.e. “assimilated into,”

the policymaking process, deliberately or unwittingly as a logical and natural

development and outcome of the politics-business nexus – where now the lines

between policy and business interests are blurred.

The implication is then that business is given preference over other stakeholders in

policy formulation and financial/ monetary considerations (“capital is king”)

“override” other factors. This opens up the possibility (or even plausibility) that

government policies can also be “tendered” for foreign business interests too(!)

Indeed, as will be later seen, business interests as non-state actors have and are

31

Gomez, E. T. (Ed.) (2002). Political business in East Asia. London: Routledge. See Gomez. “Introduction,” pp. 1-

33.

27

playing a pivotal role in eroding the distinction or difference between foreign and

domestic policy. Notwithstanding, it is submitted that this critical aspect of the role of

capital as “global” and “globalised” and its flow across porous borders operated by

sovereign entities has been missed in scholarly literature in international relations. In

other words, capital has the immense potential to “out-rival” and “out-bid” other

determinants, sources and influences of (both foreign & domestic) policy. This is

especially pertinent to the subject of this paper, namely the business of diplomacy in

the concrete context of Malaysia-Indonesia bilateral relations.

And hence, it is argued that as the literature, at least, in the context of East Asia as

well as the emerging/ developing economies of the post-Cold War is concerned has

shown or should inevitably imply, the politics-business nexus is not just confined to

party political funding in exchange for government access or favours but has a

corrosive effect that “permeates” the nerve centre of policy-making itself.

This scenario thereby renders policy-makers susceptible to the dictates of a small

group of business elites (pseudo-oligarchs) which tends to “crowd out” other

stakeholders and non-state actors whose inputs and feedback are vital in a political

system claiming democratic credentials. Intriguingly (and worryingly also), if there

are no proper and enforceable/ workable check and balance, the impact of business

influence on policy-making may lead to a trajectory in which privatisation becomes

the “overarching” political/ ideological outlook that extends to policies themselves

qua policies (and not just institutions and assets).

28

In other words, privatisation as normally understood to refer to, as for example, the

water industry, can also be applied to policies (which are the normal and natural

“provenance” and activity of the government). Then the lines between privatisation

and nationalisation will become blurred. This is already evident or at least does yield

interesting observations in the case of Malaysia where privatisation and

(re)nationalisation seems to be “inter-changeable” (Tan, 200832

). And this should

(will) include foreign policy too where the national interests may not necessarily be

compatible (ethical or otherwise) or logically connected with private interests.

2.3. Firms as International Actors

Despite the focus by Malaysian scholars on the role of firms as domestic actors, there

has been interest in the role of MNCs in the country’s political economy and bilateral

relations. The scholarly works are mainly focussed on Japanese firms. This trend

could well be attributed to the Look East Policy promulgated by the Mahathir

administration in 1981/ 82 which sought to (re)direct Malaysia’s external outlook

towards Japan as the source of emulation and technical assistance for the former’s

heavy industrialisation programme.

32

Jeff Tan. (2008). Privatisation in Malaysia: Regulation, rent-seeking and policy failure. Abingdon (Oxfordshire),

UK: Routledge (Taylor & Francis Group).

29

control over

distribution of

funds to secure these concessions come from

used by clients for

results in

brings about

part of which are

channelled back as political & election funds to the ruling party/ coalition

Figure 2. The political-business nexus model 33

33

Ibid. Gomez (2002), replicated from Figure 1.1.: “Model of the practice of political business,” page 4.

Government

Political leaders/ political

parties

State-controlled concessions:

government funding, licences,

contracts, various types of

privatised projects

Government-owned or

politically-controlled banks and

other financial institutions

Shares-for-assets swaps, reverse

takeovers, mergers, and

acquisitions of public-listed

companies

Creation of politically-linked “new

rich,” insider trading, manipulation of

share prices, conflict of interest

situations, corruption, politicisation of

the economy

Access to substantial funds

30

In this regard, Khadijah Md Khalid has conducted extensive research on the role of

the “Japan lobby” in Malaysia as part of her PhD thesis (unpublished) – Malaysia-

Japan relations: Explaining the root causes of the pro-Japan orientation of Malaysia

in the post-1981 period. Khadijah highlights the intense covert rivalry between two

groups of the Japan lobby (thus exposing the fact that foreign-linked lobbies need not

necessarily be monochrome in character) both of which have contributed to

“Malaysia’s ‘positive’ orientation towards Japan particularly in the period leading up

to the 1980s and [thereafter].”34

Khadijah also discussed the personal role of Kazumasa Suzuki35

who was intimately

linked to Malaysia’s then Prime Minister, Mahathir Mohamad. Citing (Takashi)

Shiraishi, “... Japanese private individuals as well as the business community have

taken over the role of government officials in promoting ‘national interests’ of Japan

in the region [including Malaysia].”36

The role of non-state actors in the policy-making process (with special reference to

the US context) has been amply highlighted in a journal article by Thomas R. Dye in

“Oligarchic tendencies in national policy-making: The role of the private policy-

34

Khadijah Md. Khalid. (1999). Malaysia-Japan relations: Explaining the root causes of the pro-Japan orientation

of Malaysia in the post-1981 period (unpublished PhD thesis), London School of Oriental and African Studies –

SOAS, University of London. See Chapter Four, Part IV (Analysis), p. 201. 35

Suzuki, a close friend of Mahathir, founded the Japan Chamber of Commerce, Trade and Industry (JACTIM) in

1983 which placed it in competition with the older MAJECA (Malaysia-Japan Economic Association). Ibid., see p.

192. JACTIM was said to have played a part in reducing the significance of MAJECA, as acknowledged by the then

Malaysian ambassador to Tokyo – H. M. Khatib at the 18th

Joint-Annual Conference of JAMECA (Japan-Malaysia

Economic Association)-MAJECA in Kobe, Japan (6-7 November 1995). (JAMECA is the Japanese counterpart of

MAJECA). Undoubtedly, Suzuki benefitted from his personal relationship with Mahathir. 36

Ibid, p. 200. See also Peter J. Kanzenstein and Takashi Shiraishi (1997). Network Power: Japan and Asia. New

York: Cornell University Press.

31

planning organizations” (2002).37

Indeed, even security, a realm traditionally

associated with the state – as an indispensable public good (non-rival and inclusive)

was privatised – or outsourced – as exemplified in the case of the US occupation in

Iraq.

Could it be that this was but a “natural” outgrowth of the “privatisation” of US

foreign policy (which admittedly is neither unique nor exceptional)? Interestingly a

discourse on the use of the private firms to provide security for the US presence in

Iraq was included in Readings in International Relations (2008) co-edited by Jon C.

Pevehouse & Joshua S. Goldstein. The article concerned was entitled “The

privatization of security: Lessons from Iraq,” (Chapter 6) authored by Deborah D.

Avant.38

Perhaps one of the most comprehensive works on the complex role of firms in IPE is

by renowned business historian, Geoffrey Jones in his magisterial, Multinationals and

global capitalism.39

Undoubtedly the growth of MNCs can be attributed to the

support provided by the home government. It was colonialism and imperialism that

enabled the early MNCs to locate overseas since the host countries at the time were

mainly under the rule of the home government.

37

Thomas R. Dye in “Oligarchic tendencies in national policy-making: The role of the private policy-planning

organizations” (1978). The Journal of Politics, 40( 2), May, pp. 309-331.

Source: <http://www.jstor.org/stable/pdfplus/2130090.pdf>, accessed 27 March 2012. 38

Deborah D. Avant. (2008). “The privatization of security: Lessons from Iraq,” In Jon C. Pevehouse & Joshua S.

Goldstein (Eds.). Readings in International Relations. Boston: Pearson-Longman. See Chapter 6, pp. 154-163. 39

Op. cit., Jones (2005). See Chapter 1, p. 1.

32

Already then, the politics-business nexus had existed and some variants of “state

capitalism” did exist not least as practiced since the late 16th

century by Britain –

where national and private commercial interests became so inter-twined that the

trading firm East Indies Company could assume the characteristics of a sovereign

power epitomised by the use of force.

Following this, a review of the literature on the role of MNCs in IPE and IR would be

inadequate if some coverage of the (so-called) “banana republics” particularly in

Latin America is not included. The public or popular (i.e. stereotypical) impression of

“banana republics” is that of unsophisticated Spanish-speaking dictators who are on

the “payroll” of malevolent big corporations from abroad (normally the US) and thus

whose sole purpose in power is simply to do the bidding of these foreign powers, and

where there is no rule of law properly understood. At times, the dictator is backed and

thus kept in power by foreign mercenaries (working in concert with MNCs). Indeed,

the term “banana republic” goes back a long way – coined in 1904 by the American

writer, William Sydney Porter (known by his pen name, “O Henry”).

The term is mainly applied to the Central American countries, principally Honduras

and Guatemala. An interesting twist has been offered by Mark Moberg who provides

an intriguing and riveting account of the role of the infamous United Fruit Company

(UFC) in British Honduras where he applied the term, “banana republic” to the local

33

colonial administration itself.40

In other words, even colonial governments themselves

have not been spared manipulation by MNCs which in this case is UFC (bearing in

mind that the latter was an American corporation). That this can be attributed (at

least partly) to the relationship between UFC and US interests in Latin America

cannot be overstated. As Moberg notes:

“... [C] olonial officials acted on behalf of the multinational

[as a reflection of the] ascendant US political and economic

influence in the region, one that officials found increasingly

difficult to resist.”41

Indeed UFC “has been considered the quintessential representative of American

imperialism in Central America” and aside from the enormous privileges it enjoyed,

the company was also notable/ notorious for its reliance on the dictatorial regimes to

deal with labour unrest as recounted by Marcelo Bucheli in “Multinational

corporations, totalitarian regimes and economic nationalism: United Fruit Company

in Central America, 1899–1975.”42

Other than Central America (and also South America in which the downfall of

Salvador Allende in Chile in the 1973 coup backed by the CIA and US conglomerate,

ITT could well be the example par excellence), the Middle East has also been the

scene of the influence and power of MNCs vis-à-vis the host countries – here there

40

Mark Moberg. (1996). “Crown colony as banana republic: The United Fruit Company in British Honduras, 1900-

1920.” Journal of Latin American Studies, Vol. 28, No. 2 (May), pp. 357-381.

Source: <http://www.jstor.org/stable/pdfplus/157625.pdf?acceptTC=true>, accessed 29 June 2012. 41

Ibid, pp. 358-359. 42

Marcelo Bucheli. (2008). “Multinational corporations, totalitarian regimes and economic nationalism: United

Fruit Company in Central America, 1899–1975. Business History, Vol. 50, No. 4 (July), pp. 433–454. Concerning

the impact of MNCs on the political economy of the banana republics, see Darío A. Euraque. (1996). Reinterpreting

the Banana Republic: Region and state in Honduras, 1870-1972. Chapel Hill (North Carolina): University of North

Carolina Press.

34

has been contestation between MNCs and nationalist governments (in what was the

age of de-colonisation). Much has also been said about the machinations and

manoeuvrings of post-World War II American and British MNCs (which some would

claim as exemplifying the Anglo-American neo-imperialist alliance) in developing

countries such as Iran as a notable example. The downfall of Iranian nationalist Prime

Minister Mohammed Mossadegh was said to be engineered by Anglo-American oil

companies.

Hence, Iran under Mossadegh is a classic example highlighting the influential role of

oil companies in oil diplomacy – that is, commercial interests as the critical factor

underlying diplomatic disputes. Nonetheless, as Mary A. Heiss (1994)43

has argued,

(even) the (subsequent) negotiations which followed the ouster of Mossadegh in 1953

that was described by Herbert Hoover, Jr. as the “largest commercial deal every put

together”44

– the formation of an international petroleum consortium – has received

scant attention from scholars.

In other words, once again the role of firms, in this case that of the petroleum

corporations, in pushing their commercial calculations that was aligned with the geo-

strategic agenda of their countries of origin cannot claim to be afforded extensive

coverage in scholarly literature. As such there is a need to integrate, coalesce and

combine a paradigmatic analysis of international relations with that of the specific

43

Mary A. Heiss. (1994). “The United States, Great Britain, and the creation of the Iranian Oil Consortium, 1953-

1954.” The International History Review, 16(3), August, pp. 511-535.

Source: <http://www.jstor.org/stable/pdfplus/40107317.pdf?acceptTC=true>, accessed 27 March 2012. 44

Ibid., p. 511.

35

and peculiar role played and influence exercised by MNCs – to bring IR theory

much closer with non-state actors.

To be more precise, there is need for the main schools of thought in IR viz., the realist

[and its off-shoot of neo-realism as “founded” by Kenneth Waltz as outlined in his

Theory of International Politics, 197945

]; liberal – Richard N. Rosecrance (The rise of

the trading state: Commerce and conquest in the modern world46

) [and neoliberal

institutionalism propounded by Robert O. Keohane in After hegemony: Cooperation

and discord in the world political economy47

] and constructivist (e.g. Johan

Saravanamuttu: Malaysia’s foreign policy – The first fifty years: Alignment,

neutralism, Islamism48

) to apply the respective perspectives and insights onto the

(f)actual dynamics of MNCs as these are situated in and related to the concrete

contexts. To reiterate, this paper intends to map out the place of Malaysian MNCs

within the context of Malaysia-Indonesia bilateral relations focussing on foreign

policy-making, and the impact of their operational presence on official and public

diplomacy.

45

Kenneth Waltz. (1979). Theory of international politics. Columbus (Ohio): McGraw-Hill. 46

Richard N. Rosecrance. (1986). The rise of the trading state: Commerce and conquest in the modern world. New

York: Basic Books. 47

Robert O. Keohane. (1984). After hegemony: Cooperation and discord in the world political economy. Princeton:

Princeton University Press. 48

Johan Saravanamuttu. (2010). Malaysia’s foreign policy – The first fifty years: Alignment, neutralism, Islamism.

Petaling Jaya (Malaysia): Strategic Information and Research Development Centre (SIRD) & Institute of Southeast

Asian Studies (ISEAS), Singapore.

36

CHAPTER THREE

RESEARCH DATA

3.1. Introduction

This chapter looks at the initial core substance of the research paper itself, namely the

three Malaysian MNCs – AirAsia, CIMB (CIMB Niaga), & Sime Darby (Minamas

Plantation) – which maintain a presence in Indonesia, and enjoy a close relationship

with the government of Malaysia. These three MNCs are the product of state

capitalism ala the Malaysian Way, and thus can well be regarded as the “select

companies” or “winners” within “favoured industries.”

In other words, these are companies49

whereby state resources have been poured or

channelled into because of their almost unique position within (their respective)

industry, and thus “earmarked” (identified) and groomed to be a key player in

national development and the economy. This includes performing the “national

service” of fulfilling certain pivotal strategic thrusts of the government:

49

AirAsia is the exception where the company instead enjoys implicit state “endorsement” via personal relations of

the Group CEO, Tony Fernandes, with the political (and economic) elite. Thus, although AirAsia may not enjoy the

overt backing of the state, the personal friendship of Tony Fernandes with top politicians and captains of industry

provides him (and AirAsia) with the almost unique access to undue privilege and advantage which has been used in

the form of e.g., tax incentives (capital expenditure/ CAPEX investment allowances) for the purchase of aircrafts.

See “Corporate: AirAsia applies for extension of tax incentive.” The Edge (1 February 2010).

Source: <http://www.theedgemalaysia.com/features/160402-corporate-airasia-applies-for-extension-of-tax-

incentive.html>, accessed 8 July 2012.

The relationship could also be leveraged in other (financial) situations (in the future).

37

Liberalising and ensuring a more open and competitive airspace (vis-à-vis AirAsia)

via cheaper or more affordable air fares. By extension, increased passenger volume

and greater flight connections and frequencies caused by the choice of low-budget

airline promotes regional integration (within ASEAN as well as the broader East

Asia);

Driving the move and momentum up the value chain in the macro-economic

“hierarchical” architecture and promoting the transition from manufacturing towards

the finance & banking sector by increasing the latter’s contribution to the GDP.

Banking also plays crucial role in regional integration (vis-à-vis CIMB) by supporting

and inter-mediating trade and investment flows in the form of credit lines (and

currency transactions in the ringgit).

Positioning the commodities industry as represented by the oil palm & palm oil

sectors to ensure long-term sustainability and competitiveness in the global markets

alongside maintaining and boosting their capacity as a key engine/ institution of

national development and economic growth (vis-à-vis Sime Darby). The commodities

industry, particularly the palm oil sector, continues to be a critical source of revenue

for the nation, both in fiscal (export tariffs) and commercial (price per tonne) terms.

And Sime Darby continues to be an icon and national institution of the Malaysian

economy contributing well beyond the plantations sector through the diversification

of its portfolios and other (core and non-core) business activities (represented by the

entire range of the supply chain – upstream, mid-stream and downstream).

38

For the purpose of this research paper, it is therefore pertinent to ask – in view of the

nexus between the government and these three MNCs – whether the boundaries or

lines between diplomacy and business have been blurred or mixed, or at very least, if

there is scope or potential for such a phenomenon to happen. This chapter also hopes

to consider accordingly of whether the Malaysian MNCs in Indonesia do behave in an

“active” or “passive” role (overt or covert) – if ever – in bilateral diplomacy.

Despite the limitations imposed, not least because the research represents a fresh

approach and new niche area in IR studies as well as the dearth or paucity of primary

information and data caused by the reticence (conspiracy of silence?) and lack of

cooperation from most of the (prospective) interviewees50

(on the basis of

confidentiality which in turn is motivated by a host of related reasons, e.g. the desire

by the business elite to avoid controversy and causing offense to certain political

elites with whom good-will depends, and concomitantly also the “natural” tendency

of these business elites to conform to the prevailing culture or climate as a reflection

of the association or even simply because they are actually proxies of the politicians

themselves), the necessity of considering the role of Malaysian MNCs in bilateral

diplomacy cannot be dismissed.

It is a (categorical) mistake to simply assume that because much of the diplomatic

spleen (on the part of Indonesia) have by default been vented or targeted at the

government of Malaysia (the Malaysian state), that this is exhaustive of the dynamics

50

For a list of non-responsive interviewees and the research questions, consult Appendix A.

39

of bilateral tension. The non-response by the selected Malaysian MNCs could be

interpreted as implying or inferring (possible) “involvement” or “participation” in the

agenda-setting and policy-making processes with which they wish to remain discreet

and maintain a low-profile as much as possible – stay away from any “limelight” and

scrutiny.

It cannot be strongly emphasised, however, that the non-response at this level is –

simultaneously also – highly indicative of the “secrecy” surrounding the bureaucratic

and political culture. As it is, as a reflection of the broader policy-making processes,

there remains a lack of transparency and accountability, and therefore access and

retrieval continues to be encumbered by a stifling regulatory framework including the

Official Secrets Act (OSA) which has been given the widest possible interpretation

and scope to cover much of state-related data, and thereby seeking to deter and avoid

any disclosure which may jeopardise the integrity of the government.

As such, virtually all of the research data pertaining to the selected MNCs – AirAsia,

CIMB and Sime Darby – therefore will be focussed and oriented towards their

corporate profiles as outlined in the following part:

3.2. Corporate Profiles

Case Study 1 – AirAsia:

Corporate Logo:

40

Corporate Website: <www.airasia.com>

Motto: “Now Everyone can Fly”

Background

The origin of AirAsia actually pre-dates the foray of Tony Fernandes51

into the low-

cost airline business. The “original AirAsia” was established in 1993 and started

operations in 199652

as a government-owned entity by the state conglomerate DRB-

Hicom. In 2001, the heavily-indebted airline was purchased by Fernandes’ company,

Tune Air Sdn Bhd, for the token sum of RM1. Just within the span of one year, he

engineered a turnaround which saw AirAsia earning a profit in 2002.

This was achieved by establishing routes from the Kuala Lumpur International

Airport (KLIA) at breakneck speed with promotional fares as low as RM1

(USD0.27). By 2003, AirAsia was already recognised as a Malaysian Superbrand.53

Undoubtedly, AirAsia has not only become a prominent commercial success in the

field of air travel (particularly in the budget market), but also a catalyst in its own

51

Tony Fernandes has been named the “Best CEO of Malaysia” for the second consecutive time at the 2nd Asian

Excellence Recognition Awards by Corporate Governance Asia (Hong Kong). See “Fernandes is best CEO for

second straight year.” The Malay Mail (6 April 2012). Source: <http://www.mmail.com.my/story/fernandes-best-

ceo-second-straight-year>, accessed 14 June 2012. 52

Source: <http://www.oppapers.com/essays/Air-Asia-History/188731>, accessed 14 June 2012. 53

See AirAsia Awards & Achievements at <http://www.airasia.com/ot/en/corporate/awards.page>, accessed 14 June

2012.

41

right vis-à-vis the rapid development of the low cost segment in Malaysia and the

region.

The establishment of a new budget terminal in 2006 – which was the first of its kind

in Asia – has added further impetus for the growth and expansion of AirAsia and by

extension the low cost airline sector. The Low Cost Terminal (LCCT) handles an

average of 10-12 million passengers a year. Passenger traffic is expected to increase

by 150 per cent with the completion of KLIA2 as the new and permanent LCCT.54

AirAsia X was launched in 2007 to provide “high-frequency and point-to-point

networks.” AirAsia today flies to all of the ASEAN destinations, including Yangon

(Rangoon).55

In total, AirAsia covers 132 routes representing 165 destinations in 18

countries.56

Its three main destinations outside of ASEAN are China and India.57

In Q2 2011, the former Minister of International Trade and Industry (MITI) and ex-

head of the largest women wing of any political party in Malaysia, Rafidah Aziz, was

appointed as the Chair of AirAsia X.58

Rafidah’s appointment is not only an example

of the political-business nexus in Malaysia involving Tony Fernandes but also how

such connections can be leveraged for business expansion opportunities outside

54

“LCCT will be turned into cargo terminal.” The Star. (13 July 2010).

Source: <http://thestar.com.my/news/story.asp?file=/2010/7/13/nation/20100713151608&sec=nation>, accessed 14

June 2012. The new LCCT boasts a 3660m long runway, and parking facilities for 76 aircrafts. 55

Flight Routes. Source: <http://www.airasia.com/ot/en/flightinfo/routemap.page?>, accessed 14 June 2012. 56

About AirAsia.

Source: <http://www.airasia.com/my/en/corporate/iraboutairasia.page>, accessed 14 June 2012, 57

Op. cit. Flight Routes. 58

“Tan Sri Rafidah Aziz is new AirAsia X independent chairman.” SME Magazine (7 March 2011).

Source: <http://www.smemagazine.asia/index.php/top-news/malaysia/798-tan-sri-rafidah-aziz-is-new-airasia-x-

independent-chairman>, accessed 2 July 2012.

42

Malaysia and the region, i.e. penetrating the international markets given her

experience and negotiating skills which had positioned Malaysia a prominent global

trade and investment partner.59

It has to be mentioned that this factor (of e.g. having

ex-ministers and other members of the political elite in the top management) places

AirAsia in a strategic and enviable position as a non-state actor in bilateral relations

not only with Indonesia but with other countries also.

As of Q3 2011, AirAsia has a market capitalisation at RM11.5 billion which is twice

the size of MAS’s.60

Its stocks are amongst the best performing in the region and

beyond when other major budget air travel providers have seen the value of their

shares declined by an average of 21 per cent, whereas for “full fare” airlines, MAS

took a nearly 30 per cent drop.61

Presence in Indonesia

Its presence in Indonesia began in 2003, and Awair (Wagon Asia) joined as a full

associate in 2004. The transition to complete integration and franchise branding took

place a year later (in 2005). AirAsia Indonesia is based at the Soekarno-Hatta

59

“AirAsia X makes Rafidah board chairman, eyes quicker expansion.” The Malaysian Insider (27 February 2011).

Source: <http://www.themalaysianinsider.com/business/article/airasia-x-makes-rafidah-board-chairman-eyes-

quicker-expansion>, accessed 2 July 2012. Part of Rafidah’s main priorities since her appointment as Chairman of

AirAsia X is gaining the Jeddah and Sydney routes. Malaysia looks to the Middle East for investment (both

particularly for services and real estate sectors) and tourism. “New AirAsia X chairman Rafidah eyes new routes.”

The Malaysian Insider (3 March 2011).

Source: <http://www.themalaysianinsider.com/litee/business/article/new-airasia-x-chairman-rafidah-eyes-new-

routes>, accessed 4 July 2012. 60

“AirAsia soars to all time high.” The Edge (3 August 2011).

Source: <http://www.theedgemalaysia.com/highlights/190684-airasia-soars-to-all-time-high.html>, accessed 14

June 2011. 61

Ibid.

43

International Airport in Jakarta. Growth performance for AirAsia Indonesia has been

buoyant, and in anticipation of continuing upward trend in passenger demand, an

initial public offering (IPO) to raise USD200 million was proposed in March 2011 to

be launched in Q4 of that year but postponed soon after until 2012. The reason

offered by AirAsia Indonesia was the uncertain global economic outlook and that it

was continuing to monitor the external conditions for signs of recovery and

rebound.62

Case Study 2 – CIMB:

Group Logo:

CIMB Niaga Logo:

Corporate Website: <www.cimb.com>

Group Motto: “ASEAN for You”

Background

The formation of CIMB could be traced back to or has its roots (i.e. in relation to the

“external” context – politico-economic & policy milieu) in the Asian Financial Crisis

(1997/98) when the region, including Malaysia, was mired in currency instability

62

“AirAsia Indonesia postpones IPO until next year. The Jakarta Globe. (13 December 2012). Source:

http://www.thejakartaglobe.com/business/airasia-indonesia-postpones-ipo-until-next-year/484409#Scene_1>,

accessed 14 June 2012.

44

(excessive downward pressure) which in turn caused capital flight (mainly in short-

term portfolios) and overextended private debts (because of exposure to external

liabilities, i.e. in foreign denominated currencies, particularly the USD). The

consequences exacerbated the Crisis, i.e. became a co-efficient cause that plunged the

Malaysian economy into a deep(er) recession.

The banking industry or sector in Malaysia was hit by a wave of non-performing

loans (NPLs – which are classified as non-repayable from between 3 to 6 months and

beyond). At the same time, the value of equity in the banking industry also dropped

drastically in line with broader market trend. These two factors seriously impacted on

the capital “adequacy” (viz. the level needed to buffer or cushion against shocks) of

the banking industry subject to rigorous rules and standards (as under the supervision

of the Bank of International Settlements – BIS in the promotion of financial and

monetary stability) to ensure and promote resilience and sound risk management.

In other words, banks are capital constraint (rather than reserve constraint) in their

role and function as financial/ credit “intermediaries” vis-à-vis lending. As such,

theoretically, an erosion of the capital margin would adversely curtail the capacity

and capability of banks to lend and hence, expect or anticipate higher earnings and

profits (including economic – opportunity costs).

In fact, the Crisis had threatened the solvency of many banks in the Malaysian

banking industry – that is, the creditor or lenders themselves were in danger of

becoming bankrupt and this of course raised the scenario of a liquidity/ credit

45

“crunch” (that happened a decade later in 2008 in the US!). Thus, the government of

Malaysia under the Mahathir administration took remedial action – a dual strategy –

to restructure the banking industry.

(It has to be highlighted that this policy approach was quite different from the bail-

outs or partial nationalisation conducted by both the US & UK governments in the

aftermath of the 2008 Financial Crisis). In the second half of 1998, Pengurusan

Danaharta Nasional Berhad (Danaharta) was set up to absorb the burden of NPLs

from the banking industry.63

Such a move was aimed at allowing or enabling the

banks to resume their lending activities and by extension overcome the disruption in

the intermediation process.64

The other dimension or facet of the dual strategy was the establishment of Danamodal

Nasional Berhad (Danamodal) with the aim of recapitalising the banks so that these

can generate new lending activities – spur growth and not merely prevent stagnation

in the banking industry. In addition, to ensure resilience and competitiveness, and

increase capacity, Danamodal was also tasked by the Mahathir administration to

rationalise and consolidate the banking industry, i.e. restructure and re-order the

organisational configuration of existing banks via mergers and amalgamations. This

63

Takatoshi Ito & Yuko Hashimoto. (2007). “Bank restructuring in Asia: Crisis management in the aftermath of the

Asian financial crisis and prospects for crisis prevention (Malaysia).” RIETI (The Research Institute of Economy,

Trade and Industry) Discussion Paper Series 07-E-039 (16 April), p. 6.

Source: <http://www.rieti.go.jp/jp/publications/dp/07e039.pdf>, accessed 12 June 2012. 64

Ibid. See also Rahimah Majid.(1999). “Restructuring the banking sector: Role of Danaharta and Danamodal.”

Northern Malaysian Economic Bulletin (Jan-Mar), pp. 1-5.

Source: <http://repo.uum.edu.my/652/1/Rahimah_Majid.pdf>, accessed 12 June 2012.

46

has in view the creation of more “anchor” (big player) banks underpinned by strong

market capitalisation.

Bumiputera-Commerce Bank Berhad (BCBB)65

, Commerce International Merchant

Bankers (CIMB) and Southern Bank Berhad (SBB) which “constitute” the CIMB of

today were originally two of the ten anchor banks post-Crisis. The “three-way

merger”66

of two anchor banks took place in 2006. CIMB was originally renamed

from Pertanian Baring Sanwa Multinational in 1986 when Bank of Commerce (M)

Berhad took over. Pertanian Baring Sanwa Multinational was initially conceived as a

joint-venture by the original controlling shareholders – Baring Brothers & Company

Ltd67

or simply Barings Bank (which collapsed in 1995 due to the notorious “extra-

speculative” activities of Nick Leeson), Sanwa Bank of Japan and Bank Pertanian. It

had served as an investment bank cum equities consultancy firm.

In other words, CIMB was originally engaged in asset and portfolio management

(“investment”) whilst the parent company, namely Bank of Commerce (M) Berhad

pursued retail/ consumer or “universal” banking (“commercial”). Hence, in terms of

the “internal” context – structural and organisational – the origins of CIMB are a bit

65

The merger between Bank Bumiputera (M) Berhad with Bank of Commerce (M) Berhad) in October 1999 in the

aftermath of the Crisis was dubbed the biggest in Malaysia's banking history. Bumiputra-Commerce Bank Berhad

(BCBB) came under the control of CAHB (Commerce Asset Holdings Berhad).

Source: <http://www.cimb.com/index.php?ch=g2_au&pg=g2_au_content&ac=14&tpt=cimb_group>, accessed 12

June 2012. 66

The merger in effect made BCBB the majority shareholder of CIMB. It could well be argued that the merger

was conducted via CIMB to enable the latter’s (i.e. CIMB) transition to consumer banking. 67

Barings Archive. Source: <http://www.baringarchive.org.uk/features_exhibitions/timeline>, accessed 12 June

2012.

47

more complex as there were earlier mergers and acquisitions (M&A) prior to where

the firm is now.68

The current Group CEO is Nazir Razak, younger brother of Prime Minister Najib

Razak. He was appointed to the position in 2006.69

Prior to that, he served as CEO for

CIMB Investment Bank. Intriguingly, through Nazir’s personal role, CIMB – in its

capacity as lead consultant and adviser – has professional/ business relationships

with both AirAsia (AirAsia-MAS share swap70

) and Sime Darby (Synergy merger71

)

(hence all three major MNCs in Indonesia considered in this project paper) which

were in enmeshed in controversy amidst fears of ulterior motive and lack of

68

See “Corporate History of CIMB.” Ibid. 69

Source: <http://www.cimb.com/index.php?ch=g2_au&pg=g2_au_leader&ac=2&tpt=cimb_group&cat=bod>, 2

July 2012. Like Tony Fernandes, Nazir has also chalked up a reputation as an eminent CEO in the country and the

region. Nazir was ranked second by Institutional Investor in its Asia’s Best CEO (Bank) survey in 2008, and in

2011, he was named the “Best CEO” by FinanceAsia in the Asia’s “Best Managed Companies Poll 2011.” In

addition, he also has been awarded “Best CEO for Investor Relations” in the Malaysia Investor Relations Awards

2011. 70

In this case, CIMB Investment Bank had acted to facilitate what was termed “cross-holding” of shares owned by

AirAsia (20.5 per cent) and MAS (10 per cent) in the other and vice-versa. CIMB was accused by Opposition

politicians of unduly profiting from the consultancy fees. “Disclose consultancy costs for MAS-AirAsia turnaround

deal, Pakatan tells Putrajaya.” The Malaysian Insider (8 May 2012).

Source: <http://www.themalaysianinsider.com/mobile/malaysia/article/disclose-consultancy-costs-for-mas-airasia-

turnaround-deal-pakatan-tells-putrajaya>, 2 July 2012. The deal faced vociferous objection from MAS Employees

Union (MASEU) for fears of potential job losses. See “MAS union happy share swap is off.” New Straits Times (3

May 2012).

Source:

<http://www.nst.com.my/nation/general/mas-union-happy-share-swap-is-off-1.80114?localLinksEnabled=false>,

accessed 1 July 2012. The “bottom-line” of the opposition to the share swap arrangement could be summarised as

follows, namely that it was bias and lop-sided towards AirAsia which had much to gain since MAS was considered

to be suffering from a continuous ailing financial condition. Indeed, as mentioned, by way of corporate personality

(at least), both Tony Fernandes (the so-called individual/ party which stands to gain the most) and Nazir Razak have

much affinity. 71

CIMB Investment Bank designed and planned the merger amongst Sime Darby, Guthrie and Golden Hope. At the

same time CIMB also provided the initial financing (“seed funding”) to facilitate the merger. In fact, Synergy Drive

was originally a special purpose vehicle (SPV) set up by CIMB Investment to precisely enable the process of

“integration” to materialise. Sceptics questioned if the merger will truly create a synergy (that is joint-collaboration)

or just another “reverse takeover” by Sime Darby to “absorb” or “cover” its loss in overseas investments or even

pave the way for a later divestment to foreign fund managers for a quick profit (which will dilute Bumiputera equity

ownership as well as impact on the investment returns of PNB, the major stakeholder of Sime Darby). Sourced with

permission from Shakila Yacob. (2012). “Sime Darby: Sustaining Malaysia’s Future,” paper presented at the XVIth

World Economic History Congress (WEHC) in South Africa (9-13 July 2012).

48

transparency. The political-business nexus, therefore, also crosses intra-corporate

lines (which arouses cynical suspicion and scepticism amongst observers and

commentators because Nazir is a sibling of Malaysia’s most powerful politician and a

member of Malaysia’s economic elite).

Presence in Indonesia

Today, Khazanah Nasional (the government of Malaysia’s leading investment

holding arm and strategic investor) is and remains the largest shareholder in CIMB

Group.72

Indeed, Khazanah’s investment in CIMB Group reflects the government of

Malaysia’s confidence in and expectation of the role of that banking entity as a key

driver in the regionalisation and internationalisation of the country’s financial

services industry or sector.73

And Indonesia has been and continues to be pivotal in CIMB’s quest to expand its

regional market(s). CIMB maintains its business presence through CIMB Niaga

(formerly Bank Niaga) which equally has a long and illustrious history. The

background to its acquisition (i.e. majority stake) by the then BCBB in 2002 was the

Asian Financial Crisis as part of the government of Indonesia’s restructuring

programme managed by the Indonesian Bank Restructuring Agency (IBRA). Three

72

“Khazanah sold CIMB shares to Credit Suisse buyer for RM493.6mil.” The Star (9 March 2012).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2012/3/9/business/10884013&sec=business>, accessed 12

June 2012. 73

Briefing and presentation by Johan Razak, Vice President, Transformation Management Office (Khazanah

Nasional) at PETRONAS Twin Towers, Kuala Lumpur City Centre (KLCC) on 7 June 2012.

49

years later, in a separate move, CIMB Group acquired majority ownership of

LippoBank.

In fulfilment of Bank Indonesia’s “single presence” policy74

whereby foreign banks

are not allowed to hold majority stakes in more than one local bank, Bank Niaga and

LippoBank officially merged in 1 November 2008 and rebranded as CIMB Niaga.

Merger was the chosen option – rather divestment or even forming a(nother) holding

company which could entail or result in the involvement of non-CIMB shareholders –

thus proving that CIMB Group considers its presence in Indonesia crucial in the drive

towards positioning to be a leading regional universal bank. Under CIMB, CIMB

Niaga has been at the forefront of offering the “most comprehensive portfolio of

universal banking services available in Indonesia ...”75

The merger made Bank CIMB

Niaga “the 5th

largest bank in terms of assets, deposits, lending, and branch

distribution network.”76

Case Study 3 – Sime Darby:

Sime Darby Plantation Logo:

74

“BI said to delay single presence rule.” Jakarta Post (3 November 2010).

Source: <http://www.thejakartapost.com/news/2010/03/11/bi-said-delay-single-presence-rule.html>, accessed 12

June 2012. 75

CIMB Niaga’s website.

Source: <http://www.cimbniaga.com/index.php?ch=gen_about&pg=gen_about_us&ac=1>, accessed 12 June 2012. 76

Ibid.

50

Minamas PT logo:

Sime Darby Plantation Website: <www.simedarbyplantation.com>

Motto: “Developing Sustainable Futures”

Background77

As the name implies, Sime Darby was the (combined) eponym of its founders –

William Middleton Sime and Henry Darby who actually started by managing a pre-

existing 500 acre estate (Radell Rubber) in Malacca since 1910. The initial

investment of Messrs Sime Darby & Co. Ltd was USD20000, and the firm had strong

links with local Chinese businesses, particularly Tan Cheng Lock who was soon

appointed as one of the two Chinese non-executive directors.

The local Chinese towkays were instrumental in providing Sime Darby with financial

assistance at times. Sime Darby also functioned as a typical British agency house –

providing secretarial services to other rubber plantations. By 1915, Sime Darby had

77

Based on Syed Zamberi Ahmad & Philip J. Kitchen. (2008). “Transnational corporations from Asian developing

countries: The internationalisation characteristics and business strategies of Sime Darby Berhad.” International

Journal of Business Science and Applied Management, Volume 3, Issue 2, pp. 21-36.

Source: <http://www.business-and-management.org/library/2008/3_2--21-36-Ahmad,Kitchen.pdf>, accessed 28

May 2012. In addition please also refer to <http://www.simedarby.com/History.aspx>, accessed 28 May 2012 and

<http://www.simedarby.com/upload/Timeline_Sime_Darby.pdf>, accessed 28 May 2012; and archive materials

(including annual reports) and notes courtesy of Shakila Yacob (Department of History, Faculty of Arts and Social

Sciences, University of Malaya).

51

already diversified into trading activities with branch in Singapore and a marketing

office in London. In 1936, the headquarters shifted from Malacca to Singapore.

In 1959, a revamp occurred when (the new) Sime Darby Holdings Limited was

incorporated in the UK. The old Sime Darby self-dissolved and divested with the

former assets claimed by creditors. In the 1970s, the firm began to focus on oil palm

and cocoa in addition to rubber. This represented an extension of the first wave

(plantations). This was combined with the launch of the second wave beginning in the

1980s, namely expansion of core and non-core activities – commodity trading, heavy

equipment, tractors and motor vehicles, tyre manufacturing, property, oil & gas,

insurance and money-broking, power generation, healthcare, shipping and general

trading as well as manufacturing, processing and engineering contracting.

The current Chairman of Sime Darby (and Sime Darby Foundation78

), Musa Hitam79

,

is a well-known personality in Malaysia not least because he was a former Deputy

Prime Minister under the Mahathir administration. Throughout his political career,

Musa Hitam has also helmed various positions including as Chairman of the Federal

Land Development Authority (FELDA), Deputy Minister of Trade & Industry and

78

Sime Darby Foundation (or Yayasan Sime Darby) was set up to promote the corporate social responsibility of the

company. <http://www.yayasansimedarby.com>. 79

Musa Hitam (who is bestowed with the highest honorific title in the country which is styled, “Tun”) is also (con)

currently the Chairman of Lion Industries Corporation Berhad and United Malayan Land Berhad – both are listed on

the Main Board of Bursa Malaysia (stock exchange). As a reflection and recognition of his international experience,

Musa Hitam is Chairman of the CIMB Group’s International Advisory Panel and the World Islamic Economic

Forum (WIEF). Furthermore, he is the Joint-Chairman of the Malaysia-China Business Council and a member of the

International Advisory Board Rotterdam.

Gleaned from: Sime Darby Annual Report (2010). See Profile of Directors, p. 14.

Source: <http://www.simedarby.com/downloads/pdfs/SDB/Annual_Report/Sime_Darby_AR2010.pdf>, accessed 9

July 2012. He also sits as a member of the Brookings Doha Center International Advisory Council. Source:

<http://www.brookings.edu/about/centers/doha/about>, accessed 9 July 2012. Interestingly, Musa Hitam is a

graduate in international relations (both BA & MA). Source: <http://ir.chartnexus.com/umland/director.php?id=1>,

accessed 9 July 2012.

52

Minister of Primary Industries. These positions, particularly the latter two, would

have exposed him to international networking and linkages (both with individual and

institutional counterparts) in trade and investment as well as providing him with the

experience in international negotiations and other related transactional engagements

(like Rafidah Aziz, Chairman of AirAsia X).

After stepping down as Deputy Prime Minister in 1986, he has been active as

Malaysia’s representative in international forums in his capacity as the country’s

Special Envoy to the United Nations, and the Prime Minister’s Special Envoy to the

Commonwealth Ministerial Action Group (CMAG). Now a corporate figure in his

own right, Musa Hitam is active in Sime Darby’s overseas expansion – though not

without controversy.80

He also devotes considerable amount of time to enhancing the

corporate social responsibility profile of Sime Darby’s international presence such as

in Liberia (where the MNC maintains its upstream operations).

He is “linked” with Nazir Razak and CIMB through the CIMB Group’s International

Advisory Panel which perhaps serves to illustrate how “seamlessly” inter-connected

the “web” of political and corporate relations are – where the “transition” from

politics to the corporate world and vice-versa (as well as from the technocracy to the

corporate world and vice-versa) is – at times – characterised by “incestuous” relations

80

This was in reference to Sime Darby’s (energy and utilities unit) foray into oil & gas projects in Qatar which saw

costs overrun amounting to RM2 billion. Former Group CEO Zubir Murshid became one of the casualties out of this

debacle/ fiasco. See “RM1.15bil shot in the arm for Sime.” The Star (27 April 2011).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2011/4/27/business/8556709&sec=business>, accessed 9

July 2012. Sime Darby was heavily criticised at the time for what was described as poor investment decision by

detractors.

53

between the two spheres (i.e. where the lines between public and private sectors are

blurred). Thus, intriguingly, despite his fallout with Mahathir Mohamad, his public

persona and profile has not diminished.

On the contrary, Musa Hitam’s role as a state and (now especially as a) non-state

actor in international relations assumes greater prominence. Indeed, it could well be

argued, for example, that his role as the Joint-Chairman of the Malaysia-China

Business Council has secured Sime Darby’s access to the China market and enabled

the expansion of the MNC’s operations there.81

China is seen as key and crucial to

Sime Darby’s strategy to “turnaround” its energy and utilities unit that was embroiled

in the 2010 overseas costs overruns (as mentioned earlier).82

Perhaps Musa Hitam could be regarded as the Malaysian non-state actor par

excellence having interests and connections in both IR and IPE (given his academic

qualifications in international relations studies and experience as Deputy Minister for

Trade & Industry et al and of course extensive exposure). Be that as it may, Musa

Hitam definitively exemplifies the Malaysian politics-business nexus as applied at the

international level (including bilateral as Joint-Chairman of ASEAN and Malaysia-

Indonesia Eminent Persons Group - EPG).

81

See “Sime Darby in China.” Source: <http://www.simedarby.com/Sime_Darby_in_China.aspx>, accessed 9 July

2012. See also “Sime Darby to invest in China’s Weifang Port.”The Malay Mail (15 June 2012).

Source: <http://www.mmail.com.my/story/sime-darby-invest-china%E2%80%99s-weifang-port>, accessed 9 July

2012. And also “Sime banks on Weifang Port.” The Star (19 June 2012).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2012/6/19/business/11502818&sec=business>, accessed 9

July 2012. 82

“Sime Darby banks on China to recast E&U division.” The Edge (19 June 2012).

Source: <http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=215614&Itemid=79>,

9 July 2012.

54

Presence in Indonesia83

Presently, the Sime Darby Group has a market capitalisation of RM58.9 billion

(USD19.2 billion).84

As a major subsidiary in line with its time-honoured tradition,

Sime Darby Plantation (SDP) is one of the world’s largest listed palm oil companies,

and produces approximately 2.4 million tonnes or 6 per cent of the world’s crude

palm oil (CPO) output annually. SDP is engaged in all related and integrated streams

of activities from plantations through to production of oleochemicals and research

and development (R&D).

Its presence in Indonesia is represented by Minamas Plantation85

set up in 2001 and

headquartered in Jakarta. It is heavily focussed on upstream (i.e. plantation) activities.

The size of its landbank encompasses eight provinces (from the regions of Sumatra,

Kalimantan and Sulawesi) totalling 285571 hectares out of which 207889 are planted

with oil palm, which is approximately 40 per cent of the company’s total planted area.

The number of estates and mills stand at 70 and 24, respectively. For the 2010/2011

financial year, Minamas Plantation upstream operations produced 3.74 million metric

tonnes of fresh fruit bunches (FFB) and 814000 tonnes of crude palm oil. An

agricultural research station, Minamas Research Centre – located in the Riau Province

– functions to carry out R&D to enhance output and quality of yields.

83

Based on <http://www.simedarby.com> and <http://www.simedarbyplantation.com>, accessed 28 May 2012. 84

As of 10 May 2012. 85

Taken from <http://www.simedarbyplantation.com/Sime_Darby_Plantation_in_Indonesia.aspx>, accessed 28

May 2012.

55

Conscious of its image and reputation domestically and abroad as well as “adding

value” to its credentials by engaging in “environmentally responsible” plantation,

Sime Darby, and by extension Minamas Plantation, have submitted to the Roundtable

on Sustainable Palm Oil (RSPO) certification. To be RSPO-certified, firms must fulfil

the criteria of sustainability. Out of the 23 plantations (PTs) in Indonesia, 12 PTs have

received the Roundtable on Sustainable Palm Oil (RSPO) certification while the rest

are ready to be audited for certification.

Currently, Minamas Plantation produces 508138 metric tonnes of certified sustainable

palm oil and 103673 metric tonnes of certified sustainable palm kernels. As part of its

expansion programme in Indonesia, Sime Darby is planning to build a palm oil

refinery in Kalimantan (which has never been undertaken before).86

The refinery will

have a production capacity of 2500 tonnes per day which should translate into 750000

tonnes per annum. It is pertinent to note that the Head of Minamas’s Upstream

Plantation, Mohd Ghozali Yahaya, was quoted as saying that the “Indonesia’s

domestic market is huge, so we will focus on the domestic market first [emphasis

mine] before considering exports.”

86

“Malaysia’s Sime Derby to establish its first palm oil refinery in Indonesia.” Jakarta Globe (30 June 2011).

Source: <http://www.thejakartaglobe.com/business/malaysias-sime-derby-to-establish-its-first-palm-oil-refinery-in-

indonesia/450012>, accessed 2 July 2012.

Source: <http://www.thesundaily.my/news/393209>, accessed 2 July 2012.

56

3.3. The emerging role of Malaysian MNCs in Malaysia-Indonesia

bilateral relations?

Whilst there seems to be very little or scant publicity and attention towards non-state

actors in Malaysia-Indonesia bilateral relations – particularly in this case that of the

Malaysian MNCs – the increasing economic linkages, cooperation and integration

(and inter-dependence) entails that it is no longer sufficient to ignore the role of

Malaysian MNCs and just be contented with considering the “usual suspects” of non-

state actors such as Indonesian NGOs or lembaga swadaya masyarakat (LSM)87

/

ormas (organisasi masyarakat/ mass or grassroots organisations). Indeed as Dr Lili

Yulyadi Arnakim, and Indonesian academic attached to the Department of Southeast

Asian Studies, University of Malaya states in an email interview with the author:

“ ... MNCs are among [the] non-state actors [in Malaysia-

Indonesia bilateral relations]. [They] are the most suitable

means [sic] to convey the message of “interdependence” to

both people in their respective countries. People directly or

indirectly will gain some benefits and spill over effects

[from] their interaction in the [...] domestic setting.

However, it depends on [the] managerial willingness [to

collaborate] with [the] respective [governments] and

people. If the [management] of these MNCs are willing to

understand the [problems] and share ... with their respective

[governments] and people ... [the inter-dependence] will

work. Otherwise it can also [encourage a wrong notion of]

interdependence. [In other words] ... interdependence can

easily be seen as exploitation, annexation and other means

of domination. If ... so, the MNCs could [potentially]

disturb the current ... relations between both countries.”88

Dr Lili Yulyadi recognised that MNCs do have a role to play – albeit implicitly

(covertly?) at least at this stage – in “advising” both governments (although he also

87

Also known as organisasi non-pemerintah (ornop) – a direct translation from “non-governmental organisation.” 88

Email interview responses received from Dr Lili Yulyadi dated 4 May 2012.

57

cautioned at the same time that this depended on the contemporary domestic

economic and political setting). But MNCs as non-state actors (especially including

also in the realm of public diplomacy) should take pro-active (i.e. overt) measures

commensurate with their capacity and position to offer advice to enhance the

dynamics of bilateral relations. This is, in fact, part and parcel of the concept of

interdependence. Dr Lili Yulyadi’s contention and insight is well-taken and presents a

compelling foundation with which bilateral outlook and engagement can be

conducted on a more enhanced basis and developed level.

58

CHAPTER FOUR

ANALYSIS, FINDINGS, RECOMMENDATIONS & CONCLUSION

4.1. Introduction

4.1.1. This chapter hopes to discuss and analyse in more details how AirAsia, CIMB and

Sime Darby have or do and can play a role (“inconspicuous” or “conspicious”) in

bilateral diplomacy (if any) and how such scenario (abstract or concrete) is situated

within/ related to IR and IPE.

4.2. Background

4.2.2. Malaysia-Indonesia bilateral relations have become increasingly complex post-

Suharto/ Mahathir era.89

This has been particularly so in relation to the people-to-

people dimension of the bilateral ties, which includes amongst others the flows of

investments. The inter-twining and inter-locking nature of government-to-

government and people-to-people facets of bilateral relations is such that the one

inevitably impacts on the other, and vice-versa.90

4.2.3. By extension, political and economic issues are often inseparable and inter-

connected, and informed/ influence one another which (further) contribute to the

complexity in the dynamics of bilateral relations between Malaysia and Indonesia.

89

Op. cit., Khadijah & Shakila (2012). “Managing Malaysia–Indonesia relations in the context of democratization:

the emergence of non-state actors.” 90

It has to be highlighted that even investment comes under the government-to-government dimension of bilateral

relations (economic cooperation) as governments do play a crucial and vital role in forging, fostering, enabling and

facilitating investment activities across borders. Or to it put in another way, business to business relations “straddle”

between government-to-government and people-to-people aspects of bilateral relations (as a sub-set of both).

59

4.2.4. This also meant that, both by presupposition and implication, the boundaries

between foreign and domestic issues can often be blurred – hence the term,

“intermestic” (a neologism – said to be coined by Henry Kissinger – which denotes

the entanglement of international and domestic affairs).

4.2.5. Not only has democratisation (political transformation) contributed to the

“intermestication” of Malaysia-Indonesia bilateral relations91

, liberalisation

(economic transformation) have also intensified and heightened the challenge in

managing bilateral relations.92

4.2.6. Political democratisation and economic liberalisation in Indonesia coupled with the

growing economic interest by Malaysia, and increasing inter-dependence between

the two countries have by necessity introduced new (non-state) actors in bilateral

relations. Currently, the “traditional” or “prominent” non-state actors have been on

the Indonesian side, namely the vocal civil society and mass media known for their

strident publicity of bilateral issues ranging from migrant labour (tenaga kerja

Indonesia – TKI) to allegations of cultural plagiarism.

4.2.7. Hence, the emerging complexity in bilateral relations posing a serious challenge to

the governments of Malaysia and Indonesia have been caused by and resulted in the

rise of anti-Malaysian sentiments.93

That is to say, the non-state actors play a potent

role in creating and or exacerbating bilateral tension between Malaysia and

Indonesia. These can act as pressure groups on the respective governments,

91

Op. cit. Khadijah & Shakila, 2012. 92

Ibid., pp. 28-29. 93

For an analysis, see Farish Noor. “The rise of anti-Malaysianism.” Aliran (16 October 2011)

Source: <http://aliran.com/6884.html>, accessed 1 July 2012. Farish argues that the root cause of bilateral tension is

ideological mistrust.

60

particularly in the case of the latter, to ensure resolutions favourable to one side and

diplomatic face-saving because of grievances – perceived or real.

Figure 3. The inter-relationship of variables within (Malaysia-Indonesia) bilateral

relations

Malaysia-Indonesia

Bilateral Relations

<Diplomatic>

Government

-to-

Government

People

-to-

People

Political and

Economic

Exchanges/

Cooperation

Business

-to-

Business

61

4.2.8. With the growing presence of Malaysian companies in Indonesia,94

bilateral

relations will be further complicated by (potentially) new areas of tension. Indeed,

following the argument put forward by Khadijah and Shakila (2012) who have

written:

“Developments in Malaysia–Indonesia bilateral relations

will be decisively impacted by their economic strengths

relative to each other, which (to reiterate) are mutually

vested. The economic transformation of Indonesia will

place the country in a less insecure position toward

Malaysia, thus intensifying implicit or covert rivalry. At the

same time, Indonesia’s economic transformation enhances

its attraction as an investment destination for Malaysia,

thus strengthening economic complementarity and

cooperation between the two countries. Hence, the growing

economic cooperation will [augur] more scope for

contention.”95

94

Indeed in recent years, more Malaysian companies have shown keen interest to invest in Indonesia. “Malaysian

investors explore business opportunities here.” The Jakarta Post (31 May 2011).

Source: <http://www.thejakartapost.com/news/2011/05/31/malaysian-investors-explore-business-opportunities-

here.html>, accessed 3 July 2012. 95

Op. cit., Khadijah and Shakila, 2012. See p. 29.

62

4.3. The Political Economy of Malaysia-Indonesia Bilateral Relations vis-

à-vis AirAsia, CIMB & Sime Darby:

Map of Malaysia and Indonesia

a) The contribution of the Indonesian market to the corporate earnings of

AirAsia, CIMB & Sime Darby

4.3.1. As stated in 4.1., the Indonesian economy has played catch up with Malaysia which

had earlier earned a reputation for impressive and buoyant economic growth in the

1990s (before the Asian Financial Crisis of 1997/ 98). Indonesia’s GDP growth rate

(year-on-year/ y-o-y) – as measured by quarterly figures – has consistently been on

an average of 6 per cent at least for the past seven years.96

Private consumption

96

“Growth eases in Indonesia.” Wall Street Journal (7 May 2012).

Source: <http://online.wsj.com/article/SB10001424052702304363104577389203819941734.htm>, accessed 1 July

2012.

63

continues to drive growth in the form of aggregate demand against the backdrop of

global economic uncertainty.97

Chart 1. Indonesia’s GDP growth per quarterly

4.3.2. The growing middle-class (which is at least three times the size of Malaysia’s) –

and a young population (the so-called “demographic dividend”) – eager to use their

new purchasing power for consumption and the liberal business climate has made

Indonesia an economic magnet for Malaysian firms. Such strategic outlook (on the

part of Malaysian firms) has paid off in the form of Indonesia now accounting as

97

See “Indonesia a good investment destination for Malaysians.” The Borneo Post (8 June 2012).

Sourced from:

http://www.kbrikualalumpur.org/web/index.php?option=com_content&view=article&id=890:indonesia-a-good-

investment-destination-for-malaysians&catid=35:berita-kbri&Itemid=178>, accessed 1 July 2012.

64

the major contributor of profits for corporate earnings. CIMB Niaga contributed 29

per cent of the CIMB Groups pre-tax profit for the year 2011.98

4.3.3. Indeed, CIMB Group CEO, Nazir Razak was quoted as saying that “[w]e expect

that CIMB Niaga to continue its high growth rates in line with the robust

Indonesian markets ...”99

(Other companies such as beverage manufacturer Yeo

Hiap Seng also saw the major share of their profits derived from Indonesia.100

Yeo

Hiap Seng’s sales in Indonesia had grown by 245 per cent in just one year in

2011).101

4.3.4. AirAsia Indonesia’s profit jumped by 34 per cent (from 2010-2011) which was

compared favourably with the earnings performance of its regional counterparts.102

It is not surprising then notwithstanding earlier assurances, AirAsia Group CEO,

Tony Fernandes, intends to set up a “regional base headquarters” in Jakarta.103

This

is despite him having back-tracked on an earlier plan to shift the corporate

98

“RM4 b record for CIMB.” Business Times (28 February 2012). This compared, for example, to CIMB Thai’s

contribution at 2 per cent. 99

Ibid. 100

“Yeo Hiap Seng’s sales from Indonesia to surpass M’sia.” The Edge Financial Daily (26 April 2012). In addition

to food and beverage, Malaysia has a strong presence in the telecommunications market represented by Axiata’s

Indonesian subsidiary - PT XL Axiata Tbk <http://www.axiata.com/operating-companies/indonesia>, 101

Even property developers are keen to tap investments opportunities in Indonesia. See “S P Setia keen to pursue

investment in Indonesia.” iProperty.com (12 April 2012). Other Malaysian firms eyeing the Indonesian market

include retail giant Parkson. “Malaysia’s Parkson looks to Indonesia for expansion.” Jakarta Post (28 June 2012).

Source: < http://www.thejakartapost.com/news/2012/06/28/malaysia-s-parkson-looks-indonesia-expansion.html>,

accessed 2 July 2012.

Source: <http://www.iproperty.com.my/news/5144/S-P-Setia-keen-to-pursue-investment-in-Indonesia>, accessed 1

July 2012. 102

“Bullish AirAsia reports 2011 profit and accelerates expansion.” CAPA - Centre for Aviation (23 February

2012).

Source: <http://www.centreforaviation.com/analysis/financials/bullish-airasia-reports-2011-profit-and-accelerates-

expansion-68729>, 1 July 2012. 103

“AirAsia makes Jakarta its regional base.” Business Times (14 June 2012).

Source: <http://www.btimes.com.my/Current_News/BTIMES/articles/turns/Article/index_html>, accessed 1 July

2012.

65

headquarters there.104

Fernandes has expressed confidence that AirAsia Indonesia’s

profit yield would increase by four to five-fold.105

4.3.5. It would probably be not unreasonable to surmise that once Jakarta becomes the

“regional base headquarters” for AirAsia, Fernandes could well be courting

prominent Indonesian figures from the political and economic elite to promote

corporate interests (just as he has done in Malaysia). From this, Fernandes might

well emerge as an important stakeholder in Malaysia-Indonesia bilateral relations –

acting as an “adviser” or “consultant” or “mediator” perhaps albeit indirectly via his

linkages with both the Malaysian and Indonesian political and corporate elite.

4.3.6. Minamas PT in Indonesia provides Sime Darby with the largest plantation land-

bank outside of Malaysia.106

Although harvesting output in the Indonesian

plantations was slightly hampered in 2011 due to the El Nino phenomenon which

induced a prolonged drought, the situation has been improving in 2012 onwards.107

It is envisaged that Sime Darby will be more reliant or dependent on its Indonesian

land-banks in the near future as plantation space in Malaysia reach its limits.108

104

“AirAsia’s Malaysia HQ not moving to Jakarta, says Fernandes.” The Edge Financial Daily (13 June 2012).

Source: <http://www.theedgemalaysia.com/business-news/215349-airasia-malaysias-hq-not-moving-to-jakarta-says-

fernandes.html>, accessed 1 July 2012. See also “AirAsia Moves Corporate HQ from KL to Jakarta.” Asian Sentinel

(23 July 2012).

Source: <http://www.asiasentinel.com/index.php?option=com_content&task=view&id=3339&Itemid=429>,

accessed 1 July 2012. 105

“AirAsia CEO’s move to Jakarta is to grow profit by five-fold.” Jakarta Post (19 June 2012).

Source: <http://www.thejakartapost.com/news/2012/06/19/airasia-ceo-s-move-jakarta-grow-profit-five-fold.html>,

accessed 2 July 2012. 106

Source: <http://www.simedarbyplantation.com/Upstream_Overview.aspx>, accessed 2 July 2012. 107

“Sime Darby confident of surpassing FY11 profit.” The Edge Financial Daily (31 May 2012).

Source: <http://www.theedgemalaysia.com/in-the-financial-daily/214620-sime-darby-confident-of-surpassing-fy11-

profit.html>, accessed 2 July 2012. 108

“Malaysia’s oil palm land fast depleting.” The Star (24 May 2012).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2012/5/24/business/11346082&sec=business>, accessed 2

July 2012.

66

4.3.7. This means more investments in Indonesia, particularly in Kalimantan – which

might see a geographical link-up with new plantations in Sarawak’s hinterland

(which would further erode the size of inland primary forest). A focus on the

Kalimantan region could probably involve the authorities of both countries working

closely together on cross-border issues such as labour movement (in and out of the

country) and the exploration of options such as possible joint-use or sharing of land-

banks (with local smallholders or Indonesian corporate counterparts) to optimise

and expedite output, and manage or circumvent regulatory restrictions. In this

scenario, Sime Darby can participate in the General Border Committee (GBC) to

promote better cross-border cooperation and coordination between the two

countries.

4.3.8. In any case, it is foreseeable that Sime Darby would want to ensure its reputation as

a leading employer and stakeholder in Indonesia’s socio-economic development

continues.109

As such, it is not in Sime Darby’s interest (as a renowned GLC &

MNC) that (unresolved or contentious) border issues become a focal point for

conflict between Malaysia and Indonesia – and more to the point – for the firm to

be “caught in the cross-fire,” i.e. having to suffer the consequences of a diplomatic

fallout or some kind of bilateral belligerence; and for being located in a

“flashpoint.”

4.3.9. It is therefore not too farfetched to assume that, ultimately, the strong profitability

potential of the huge Indonesian market will make Malaysian firms more willing

(rather than less) to comply with any changes in the regulatory structures. In other

109

See again <http://www.simedarbyplantation.com/Sime_Darby_Plantation_in_Indonesia.aspx>, 2 July 2012.

67

words, should the Indonesian authorities be seen as less accommodating than

before, Malaysian firms nonetheless would still maintain an optimistic and positive

outlook.

4.3.10. Regarding the most recent decision by Bank Indonesia (BI) to reduce the level of

foreign ownership of local banks, CIMB Niaga’s president and CEO, Arwin Rasyid

expressed confidence that:“... [A]ttracting foreign investors will remain a priority

and (the government) needs to work alongside local partners [to achieve that].”110

4.3.11. And despite the stricter regulation which could see CIMB’s stake in CIMB Niaga

reduced to 50 per cent, the latter’s capital base will not be affected or eroded but

enhanced by greater liquidity meaning that the price of shares will appreciate

further due to more scope for demand by minority shareholders.

4.3.12. Furthermore, given BI’s overriding or overarching mandate to maintain rupiah

stability,111

it could be speculated that the new regulation might not be maintained

for long should it induce a situation whereby the inflow of “hot funds” (short-term

portfolio investments) is encouraged that could jeopardise the value of the rupiah in

foreign exchange rate market. Thus, consciously or otherwise, the “patience” and

“forbearance” of Malaysian banks such as CIMB Group will reap benefits in the

future – at least the mid- to long-term.

4.3.13. In other words, provided Malaysian firms adopt a long-term (“here to stay”)

strategy, they will continue to benefit tremendously from the Indonesian market.

110

“CIMB Niaga better option for Indonesia exposure.” The Edge Financial Daily (7 May 2012). 111

Bank Indonesia - <http://www.bi.go.id/web/en>. Consult also “Managing Indonesia’s capital inflows ...”

Indonesia Economic Quarterly: Current challenges, future potential. Refer to p. 21

Source: <http://siteresources.worldbank.org/INTINDONESIA/Resources/Publication/280016-1309148084759/IEQ-

Jun2011-ENG-25June2011.pdf>, accessed 3 July 2012.

68

The only question, perhaps, is whether the Indonesian market will continue to be

receptive to Malaysian-based products and services or to put it in another way, for

how long will/ can the Malaysian brand name be sustained in Indonesia?

b) Reception/ acceptance of AirAsia, CIMB & Sime Darby in Indonesia

4.3.14. In discussing and analysing the receptivity of Indonesia to Malaysian goods and

services, it is useful to distinguish between Indonesian regulatory and market

environment. The former refers to the role of the State and government (or more

precisely, the legal and institutional system) and the latter alludes to the consumer

base of Indonesia. Thus far based on the sentiments and outlook of Malaysian

companies, including AirAsia, CIMB and Sime Darby, the Indonesia represents a

vast market to tap just like China and India.

4.3.15. Time will only tell if Indonesian nationalism does “(re)awakens” the link between

anti-Malaysian sentiments on bilateral issues with a boycott of Malaysian

products and services. Intriguingly, therefore, whilst Malaysian national dignity has

been besmirched by flag burning and other antics, its products and services

remained “unscathed” by the Indonesian market. However, according to a recent

survey conducted by the renowned Lowy Institute (Australia), Indonesian public

sentiment have grown cold towards Malaysian participation in the Indonesian

economy motivated by (continual) lingering mistrust set against the wider backdrop

of the bilateral relations.112

112

“Survey: Malaysia no longer Indonesia’s favorite country.” Asian Correspondent (20 May 2012).

Source: <http://asiancorrespondent.com/78479/survey-malaysia-not-high-regarded-by-indonesia>, accessed 3 July

2012. Singapore has emerged to be the better received or regarded neighbour just behind Japan and ahead of

69

4.3.16. Despite the remarkable “turnaround” in economic prospects particularly under the

leadership of Susilo Bambang Yudhoyono, it is the opinion and observation of this

paper that the Indonesian regulatory environment has (consistently?) displayed

“unpredictability” – where the regulatory and policy pendulum swings from one

“extreme” to the other. Indeed, this understanding has been confirmed in an article

by Lin See Yan in The Star entitled, “Indonesia losing its footing?”113

Although

Lin’s focus was more on the resource industry, indeed, the scenario is reflective of

the recent wider Indonesian attitude towards foreign investment.114

4.3.17. So far, AirAsia, CIMB and Sime Darby115

are not currently embroiled in any legal

dispute with their Indonesian counterparts or run afoul of the Indonesian

government. This is notwithstanding that BI’s move to introduce a lower cap for

Australia. Here one can detect a rather ambivalent attitude (in contradistinction to perception) by Indonesians

towards Malaysia. 113

Lin See Yan. “Indonesia losing its footing?” The Star (21 April 2012).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2012/4/21/business/11138659&sec=business>, accessed 1

July 2012. Nicholas J White is of the view that the Indonesian bureaucracy in the Orde Lama (Sukarno) and Orde

Baru (Suharto) remained essentially unchanged – continuity rather than discontinuity. He contends that there was a

bias towards autarky (economic self-sufficiency) which still lingers on in the institutional psyche until today. Hence,

this explains the somewhat periodically “intransigent” attitude of the bureaucrats towards FDI. Source: A 15-minute

interview with Professor Dr Nicholas J White (Liverpool John Moores University) on the sidelines of his public

lecture entitled “The settlement of decolonisation and post-colonial economic development: Malaysia, Singapore

and Indonesia compared” (5 July 2012), organised by the International Institute of Public Policy & Management

(INPUMA), University of Malaya. 114

For a monetary policy analysis of the Indonesian regulatory attitude towards FDI, see Wayne Arnold. “Indonesia

rediscovers the Faustian bargain of FDI.” Reuters (11 June 2012).

Source: <http://blogs.reuters.com/breakingviews/2012/06/11/indonesia-rediscovers-the-faustian-bargain-of-fdi/> ,

accessed 3 July 2012. 115

Sime Darby was involved in a legal tussle over a 48000 hectare of oil palm plantation in 2010. See “Indonesia

promises help with Sime Darby land.” The Malaysian Insider (2 August 2010).

Source: <http://www.themalaysianinsider.com/business/article/indonesia-promises-help-with-sime-darby-land>,

accessed 1 July 2012.

70

foreign stakes in local banks might just be targeted at both CIMB and Maybank116

(which holds 97 per cent of Bank Internasional Indonesia/ BII117

).

4.3.18. However, it should be highlighted here that some Malaysian companies are

beginning to feel the heat from their presence in Indonesia. This has included Astro

(Malaysia’s satellite television service provider) which is owned by one of

Malaysia’s corporate elites, T Ananda Krishnan (one of the country’s well-known

“politically-exposed persons”).

4.3.19. Astro’s deputy executive chairman, Ralph Marshall, has been accused of

commercial impropriety by allegedly engaging in documentation forgery and

manipulation of financial records by the Indonesian authorities on the

representation by Lippo conglomerate.118

On the other hand, Astro has countered

that Lippo has consistently refused to honour a USD300 (RM906) million

arbitration award over a failed joint venture.

4.3.20. Both Ananda Krishnan and James Riady (Group CEO) of Lippo Group are said to

enjoy close ties with Indonesia’s political elite.119

Yet in this case, it seems that the

Malaysian tycoon could not rely on their (i.e. the Indonesian political elite’s)

intervention to resolve the dispute. Perhaps underlying the corporate dispute is (the

broader) economic rivalry between the countries. The impression being economic

nationalism “trumps” cosy political-business nexus involving a foreign interest. As

one news report puts it:

116

See also “Indonesia to unveil single shareholding cap.” The Edge Financial Daily (3 May 2012). 117

See “Maybank hopes Indonesian central bank’s plan for regulation will not affect the group.” The Borneo Post

(30 May 2012).

Source: <http://www.theborneopost.com/2012/05/30/maybank-hopes-indonesian-central-banks-plan-for-regulation-

will-not-affect-the-group/>, accessed 1 July 2012. 118

“Astro’s troubles with Lippo turn ugly.” The Edge Financial Daily (3 May 2012). 119

See “Ananda pushes ahead with revamp.” The Edge Financial Daily (30 April 2012).

71

“... [L]ong-standing rivalries between Malaysia and

Indonesia can complicate business deals because

governments and companies are reluctant to yield their

markets to outside competition.”120

c) The economic rivalry between Malaysia and Indonesia with general reference

to the airline (AirAsia), banking (CIMB) & palm oil (Sime Darby) sectors

4.3.21. Both countries are vying for FDI especially in an uncertain and strongly

competitive external environment. And despite Indonesia’s “unpredictable” policy

and regulatory regime (which have become slightly protectionist as mentioned

earlier), the country continues to be a magnet of FDI. Indonesia recorded USD5.6

billion worth of FDI in the beginning of Q2 2012, particularly in mining,

transportation, telecommunications and real estate.121

Within ASEAN, Indonesia

has consistently maintains its rating as the most favoured investment destination.122

120

Ibid. 121

Singapore has emerged to be the leading investor in Indonesia most recently. See “Foreign investments jump in

Indonesia.” The Wall Street Journal (23 April 2012).

Source: <http://online.wsj.com/article/SB10001424052702303592404577361672344559982.html>, accessed 3 July

2012. 122

“ASEAN survey rates Indonesia, Vietnam as best investment destinations.” The China Post (12 April 2012).

Source: <http://www.chinapost.com.tw/business/asia/vietnam/2012/04/12/337660/ASEAN-survey.htm>, accessed 3

July 2012. However, Indonesia has its share of disappointment too (from time to time) when certain foreign

investors bypass the country in favour of Malaysia. In 2011, Research in Motion (RIM), the producer of the

Blackberry smart mobile phone decided to locate its manufacturing plant to Malaysia rather than Indonesia even

though the Indonesian market was expected to reach four million units with a value of USD300 per unit in 2012 as

compared with the annual sales of only 400000 units in Malaysia. “Indonesian investment unit disappointed with

Rim choosing Malaysia for its blackberry factory.” Malaysian Digest (7 September 2011).

Source: <http://www.malaysiandigest.com/business/30746-indonesian-investment-unit-disappointed-with-rim-

choosing-malaysia-for-its-blackberry-factory.html>, accessed 3 July 2012.

72

Chart 2. GDP growth of Malaysia & Indonesia compared123

4.3.22. Whilst MNCs such as AirAsia, CIMB and Sime Darby play a critical role in

Malaysia’s outward direct investment (ODI) – where foreign earnings can be a

catalyst for corporate growth (at home) and by extension the national economic

development – there is the “downside” of an imbalance in investment relations.

This is particularly true of Malaysia-Indonesia investment ties.124

123

“Southeast Asia: Growth remains solid in the medium term – 5.6% in 2012-2016, says OECD.” Organisation for

Economic Co-Operation & Development (OECD).

Source: <http://www.oecd.org/dataoecd/44/48/49133791.pdf>, accessed 9 July 2012. The figures for 2012-2016

refer to projected average growth. 124

At the level of ASEAN (i.e. in terms of ASEAN member states), Malaysia ranks the 2nd

largest investor in

Indonesia for the year 2010. See “Malaysia-Indonesia relation can not be broken – Muhyiddin.” (27 September

2010).

Source: <http://www.kbrikualalumpur.org/web/index.php?option=com_content&view=article&id=525:malaysia-

indonesia-relation-can-not-be-broken-muhyidin&catid=57:news&Itemid=180>, accessed 3 July 2012. Original

source: Bernama News Agency. This marked an improvement from 4th

place in 2008. See “Malaysia-Indonesia

bilateral relations.” Ministry of Foreign Affairs (MOFA), Malaysia. Source:

<http://www.kln.gov.my/web/idn_jakarta/history>, accessed 3 July 2012. From 1998-2002, Malaysia was ranked 6th

amongst main foreign investors in Indonesia. Seminar on Malaysia-Indonesia Business Opportunities (Jakarta,

Indonesia), 26 February 2003. This was the equivalent to USD3.7 billion worth of investments. For the same period,

Indonesian investments only amounted to USD63.3 million.

Source: <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_121517aa-7f000010-40ff40ff-

91235c7f>, accessed 3 July 2012.

73

4.3.23. As mentioned in Chapter 1, Malaysia wants to balance the investment deficit it

currently has with Indonesia but incipient economic nationalism may prove to be a

hindrance or obstacle. Moreover, compared to the domestic labour market, wages in

Malaysia are not as competitive. Countries comparable or even with a more flexible

wage levels than Indonesia such as Cambodia and Vietnam should have greater

business appeal.

4.3.24. And as the scholarly article “Managing Malaysia–Indonesia relations in the context

of democratization: the emergence of non-state actors” (Khadijah & Shakila, 2012)

shows, the greater the economic inter-dependence, the greater the (potential)

intensification of rivalry and conflict.

4.3.25. There will inevitably be also higher bilateral expectations. Indeed, as its

neighbour’s economy surges ahead, the desire by Malaysia for more of Indonesia’s

investments is precisely indicative as such. However, at the same time, Malaysia

may have to brace for “demands for concessions” as condition for more Indonesian

investments.

4.3.26. It has to be highlighted that in terms of “bargaining power,” the situation favours

Indonesia more, particularly as the country holds the “trump card” in relation to

manpower (labour) issues (being the exporter). Indonesia did impose a two-year

moratorium (2009-2011) on maids to Malaysia which has since been lifted (but

only recently the Indonesian Embassy recommended that a new one be introduced

as a result of fresh allegations of abuse).125

125

“Indonesian embassy seeks new moratorium following fresh maid abuse claims.” The Malaysian Insider (4

March 2012).

74

4.3.27. Currently at least two of the Malaysia’s key economic sectors overlap with

Indonesia’s, namely banking and plantations/ commodities (up- mid- and

downstream) which are represented by the Malaysian MNCs of CIMB and Sime

Darby, respectively. Hence, it is to be expected that the intensification and

escalation of economic rivalry between Malaysia and Indonesia will be focussed in

these two sectors/ industries at least.

4.3.28. Whilst the decision by BI to lower the levels of foreign ownership in local banks

can be said to be a type of covert rivalry (ostensibly aimed at Malaysian

shareholders), to date, one of the most overt form of economic rivalry has been the

reduction of palm oil export duty (downstream) by Indonesia in an effort seen to

out-compete and out-price Malaysia.

4.3.29. Unsurprisingly, the Indonesian move has elicited an immediate response by

Malaysia to counter (riposte/ parry) the effect. Malaysian industry insiders have

urged the government to “mimic Indonesia” by “cutting the export tax on crude

palm oil and abolish a quota for tax-free exports of as much as 3.5 million tons

Source: <http://www.themalaysianinsider.com/malaysia/article/indonesian-embassy-seeks-new-moratorium-

following-new-maid-abuse-claims/>, accessed 9 July 2012. See also “Maid arrival falls short.” New Straits Times (3

June 2012).

Source: <http://www.nst.com.my/top-news/maid-arrival-falls-short-1.90447>, accessed 9 July 2012.

75

annually.”126

Plans are afoot to revise and update Malaysia’s palm oil export tax

structure which has remained unchanged for many decades.127

4.3.30. Other than losing market share to Indonesia, Malaysia could also see its share of

export volumes fall after reports of certain foreign-based firms indicating interest to

relocate their palm oil refineries across the border.128

Both countries are bracing for

intense competition in the years to come as global demand/ appetite particularly

from countries such as China and India remained strong and upbeat.129

4.3.31. Perhaps, the question is raised whether reduction of foreign stakes in Indonesian

banks would also be extended to oil palm/ palm oil companies also in the near

future (mid-term? to long-term), particularly if Sime Darby “goes on a buying and

acquisition spree”130

to leverage on the low export duty and relieve/ reduce the

pressure on Malaysian producers (thereby indirectly “conceding” to Indonesian

competition but) whilst consolidating its overall plantation assets to boost processed

126

“Malaysia plans steps to counter Indonesia palm oil tax cut.” Bloomberg (7 June 2012).

Source: <http://www.bloomberg.com/news/2012-06-07/malaysia-plans-steps-to-counter-indonesia-palm-oil-tax-cut-

1-.html>, accessed 3 July 2012. See also “Malaysia aims to parry Indonesia palm tax change.” The Malaysian

Insider (4 June 2012).

Source: <http://www.themalaysianinsider.com/business/article/malaysia-aims-to-parry-indonesia-palm-tax-

change/>, accessed 3 July 2012. And “Malaysia seen countering Indonesia’s palm-oil export tax reform.” Jakarta

Globe (7 May 2012).

Source: <http://www.thejakartaglobe.com/business/malaysia-seen-countering-indonesias-palm-oil-export-tax-

reform/516498#Scene_1>, accessed 3 July 2012. 127

“Move to revise crude palm oil tax.” The Star (10 May 2012).

Source: <http://biz.thestar.com.my/news/story.asp?file=/2012/5/10/business/11261022&sec=business>, accessed 3

July 2012. 128

“Investors in Malaysia may shift palm refining ops to Indonesia.” The Malaysian Insider (29 February 2012).

Source: <http://www.themalaysianinsider.com/litee/business/article/investors-in-malaysia-may-shift-palm-refining-

ops-to-indonesia>, accessed 3 July 2012. 129

“Palm oil exports forecast to increase.” The Jakarta Post (1 May 2012).

Source: <http://www.thejakartapost.com/news/2012/01/05/palm-oil-exports-forecast-increase.html>, accessed 3 July

2012. 130

“Sime Darby expanding plantations biz in Indonesia.” The Edge (25 January 2012).

Source: <http://www.theedgemalaysia.com/index.php?option=com_content&task=view&id=199924&Itemid=79>,

accessed , accessed 3 July 2012. See also “Sime Darby acquires Indonesian forestry company for RM13.52m.”

MySinChew.com (25 January 2012).

Source: <http://www.mysinchew.com/node/69360>, accessed 3 July 2012.

76

products in the long-term (with the export of crude palm oil from the Indonesian

plantations to the Malaysian refineries).

4.3.32. Then again, such strategy and tactic on the part of Sime Darby would definitely(?)

roused the ire of the Indonesian authorities and put some strain on bilateral relations

with perhaps the accusation levelled at the Malaysian MNC for being “ungrateful”

to the host country.

4.3.33. On the one hand, Sime Darby – in the short- to medium-term – is fulfilling a critical

and pivotal role in Indonesia’s socio-economic development, and playing a positive

role in Malaysia-Indonesia bilateral relations (as a non-state actor). On the other,

the firm might – in the long-term – encounter policy turnabouts/ “U-turns”

(motivated in part by public perception) which would complicate its own role as a

non-state actor and jeopardise the bilateral good-will that has been cultivated/ built

over the years.

4.3.34. As such, it would be highly unlikely for Sime Darby to covet a “place” at the

forefront of bilateral relations between Malaysia and Indonesia in its role and

capacity as a non-state actor. The consequences would be tantamount to a loss of

face and reputation should things turned sour in the future. This is particularly so

when Sime Darby has been striving to be accommodating to the Indonesian

government.

4.3.35. By implication, what could be a heightened role as a non-state actor – in the

background – would also result in Sime Darby deciding to “cut back” subsequently

on the role and reduce involvement/ participation for the sake of corporate integrity

77

and interests. This would mean less non-state players in bilateral relations – or at

least bilateral diplomacy proper.

4.3.36. And therefore, perhaps bilateral economic cooperation leading to greater economic

integration (as part of the wider regional integration process epitomised by e.g. the

ASEAN Community Single Market 2015) would be bereft in scope and perspective

and input.

4.3.37. After all, intra-ASEAN relations (as between the member-state and the regional

body) and bilateral relations cannot be separated. Moreover, the presence of

Malaysian MNCs particularly AirAsia, CIMB and Sime Darby, in Indonesia is

integral and critical to their regionalisation plan.

4.3.38. This is all simply to (re)state that: The regionalisation goals of AirAsia, CIMB and

Sime Darby are integral and critical to the regionalisation goals of ASEAN – as a

key component and driver the integration process. And since bilateral relations are

building-blocks to multilateralism, a negative role “attributed” to a non-state actor

Sime Darby would have a similar impact at the regional level. Could this factor,

thus, severely constrain Sime Darby and by extension the other two MNCs –

AirAsia and CIMB – from playing a more effective role as a non-state actor?

4.3.39. The answer would be in the affirmative (yes) if governments, particularly host

countries and in this case that of Indonesia, refused to recognise the role played by

Malaysian MNCs or even if it does, is reluctant for a more pro-active and

participatory involvement. Given the prevailing (current) attitude on the part of

Indonesia, and the relative strengths and advantages in bilateral positions,

78

Malaysian MNCs have no other option but pursue the course of “low profile” in

bilateral relations but “high profile” business strategies/ investment targets.

4.3.40. In relation to the low cost/ budget airline industry, as of yet, AirAsia is not

threatened by the spectre of local competition – from Indonesia’s LionAir and

Mandala or even other regional competitors (such JetStar and Tiger Airways).

AirAsia remains the “undisputed heavyweight of low-cost flying in the region”131

and is expected to be backed by a massive fleet of 500 planes in the short-term

(when the orders arrive).

4.3.41. Such being the case, could it be inferred that there is a lack of third-party pressure/

competition (e.g. from LionAir), if at all, towards gaining access to the domain of

policy-making relevant to the industry concerned? By extension, should conditions

are ripe for close linkages between AirAsia and policy-makers, would not a

“revelation” or “exposure” in due course arouse the nationalistic sentiments of

Indonesians such as to affect the budget carrier’s presence in the country?

4.4. The Future of Malaysian MNCs and Malaysia-Indonesia Bilateral

Relations:

a) AirAsia, CIMB & Sime Darby as non-state actors and corporate stakeholders in

Malaysia-Indonesia bilateral relations

4.4.1. In what could be an interesting inter-section and (possible) collision, friction and

tension between Malaysian corporate interests operating in a liberal(ised)

131

“Competition takes off in Asia's budget-airline market.” The Wall Street Journal (22 July 2011).

Source: <http://online.wsj.com/article/SB10001424052702304567604576453651762471330.html>, accessed 3 July

2012.

79

investment climate and latent but deep-seated (suppressed?) nationalism, the role of

non-state actors as countervailing influences/ forces threatens to recon-figurate the

challenge and intrigue of managing bilateral relations.

4.4.2. That is to say, the governments’ institutional control and dominance over bilateral

relations will become increasingly tenuous and undermined by the assertive role of

non-state actors. Specifically, the scope and space for policy contestation by the

competing non-state actors would present an enormous challenge to the

management of bilateral relations.

4.4.3. There is a compelling case to argue and contend for an emerging role of corporate

entities as non-state actors in bilateral relations especially given the “special

relationship” between Malaysia and Indonesia; and the strategic importance of the

Indonesian market in terms of demographics and geographical proximity.

4.4.4. No doubt it remains to be seen whether Malaysian MNCs – and in this regard,

AirAsia, CIMB and Sime Darby – can and do play a more visible/ conspicuous role

unlike civil society and the mass media, particularly on the Indonesian side. The

question, therefore, is whether there will be an extension of the political-business

nexus outside the domestic context (as outlined in Chapter 3) vis-à-vis Indonesia (as

enjoyed by a few Malaysian corporate figures).

4.4.5. Nonetheless, the strategic presence of AirAsia, CIMB and Sime Darby would give

rise to speculation that these MNCs are well-poised to plot and hatch long-term

plans for securing access to the Indonesian policy marketplace. After all, for

example, with a regional base headquarters in Jakarta, AirAsia under Tony

Fernandes, is well-positioned to forge and foster ties and develop linkages with the

80

political and policy making elite – in a quid pro quo – to expand market penetration

in a country that is critically in need of improving its infrastructure and

transportation system.

4.4.6. What is indubitably certain, however, is that at the same time AirAsia, CIMB &

Sime Darby would prefer to shun the “limelight” or publicity and rather avoid any

impression of meddling or interfering in the internal affairs of Indonesia. As such,

these MNCs would be at pains to prevent public scrutiny and attention to any

relations with policy-makers as questions raised concerning propriety and

transparency necessarily results in the corporate reputation at stake.

4.4.7. Hence, it is difficult as such to separate (or even to distinguish) firms as domestic

and international actors where they operate in a cross-border situation given the

intermestic nature of public policy (both domestic and foreign). Thus, at the

minimum level of analysis, the situation is definitively open for an expectation/

anticipation/ projection of the emerging role of MNCs as specific non-state actors in

(Malaysia-Indonesia) bilateral relations.

4.4.8. As such, this area of MNCs as non-state actors in bilateral relations presents a

fertile ground for a deeper and comprehensive research in teasing and unravelling

the nuances and complexity of IR and IPE studies. As a promising – and on-going –

project (including a PhD research), this paper can only offer an intellectual and

conceptual glimpse – an academic “thumbnail” version” – of the much larger, richer

and diverse landscape and milieu.

81

b) Some Policy Recommendations

The following are some brief policy recommendations to promote the role of the

selected Malaysian MNCs (AirAsia, CIMB and Sime Darby) in Malaysia-Indonesia

bilateral relations:

The government of Malaysia should define and clarify the role of the selected MNCs

– AirAsia, CIMB & Sime Darby – as non-state actors and stakeholders (and input

providers) in the agenda-setting and policy-making (formulation, planning) processes.

Currently, there are no formal (and official) roles for these prominent Malaysian

MNCs as such. After all, figures such as Musa Hitam, the Chairman of Sime Darby,

co-chairs the Eminent Persons Group (EPG) and a prominent non-governmental

individual (NGI) vis-à-vis Indonesia. Both Tony Fernandes and Nazir Razak

represent their respective industries or sectors in the corporate world.

By extension, there is, thus, a need for a hybrid of Track 1 & 2 diplomacy –

combining government-to-government and people-to-people diplomacy/ public

diplomacy (formal & informal) – in short, multi-track diplomacy for both state and

non-state actors of which AirAsia, CIMB and Sime Darby can play a vital part as

input providers and advisers. The success of the bilateral template/ format and

framework can serve as a “model” at the regional level in the drive towards closer

integration.

Air Asia should be included in any high-level bilateral forums – such as the Eminent

Persons Group (EPG) and other joint-advisory groups – to enhance people-to-people

(P2P) relations – tourism, culture, education, etc. Indeed, given his profile and

relations.

82

In any drive towards regional integration, a “common currency” has always been

regarded as “imperative”/ desirable or convenient. In the case of ASEAN, this does

not necessarily entail the adoption of an optimal currency area (OCA) as in the case

of the Economic & Monetary Union (EMU) under the European Union (EU) that is

expressed by a single currency, namely the euro. But that there is a need to boost the

use of bilateral currencies (as part of the process of regional integration) vis-à-vis the

ringgit and rupiah in the promotion of greater economic cooperation and inter-

dependence.132

CIMB is well-poised and positioned to play this role in currency

convertibility as well as support currency swaps (both government-to-government

and business-to-business) between the two countries to help boost imports and

exports (trade) – and cut intermediate costs associated with fluctuations in exchange

rates, particularly in relation to the US dollar (USD) as the preeminent currency for

settlement of trade obligations.

The General Border Committee (GBC) between Malaysia and Indonesia should

recognise the contribution that Sime Darby in Kalimantan can offer in terms of cross-

border issues such as monitoring and managing labour movement, forest fires & haze

(Regional Haze Action Plan – RHAP133

), and other types of environmental

degradation. At the same time, Sime Darby should be encouraged to engage in joint-

132

In a move to further strengthen bilateral economic cooperation and exchanges, both China and Japan have

recently decided to trade their currencies (yuan and yen, respectively) directly. This would also have implications

for East Asian regional economic integration. See “China, Japan begin direct currency trading.” The China Post (2

June 2012).

Source: <http://www.chinapost.com.tw/business/asia/japan/2012/06/02/343090/China-Japan.htm>, accessed 9 July

2012. 133

See “Regional Haze Action Plan,” The Association of Southeast Asian Nations (ASEAN).

Source: <http://www.aseansec.org/9059.htm>, accessed 9 July 2012.

Sime Darby’s plantation can be a site for a research (meteorological intelligence) and “horizon scanning” (risk

assessment) centre to detect emerging hazards and act as an “early warning system” (EWS) for haze. The Malaysian

MNC can also cooperate in fire-fighting activities.

83

projects/ ventures (such as public-private partnership initiatives) with the local

Indonesian authorities (provincial government), as for example, in promoting cross-

border trade via the construction of roads, bridges and tunnels.

4.5. Concluding Remarks

4.5.1. Whilst it may still be somewhat premature to indicate definitively whether

Malaysian MNCs do – in fact – play a role (major or minor) in the foreign policy

and diplomacy of Malaysia towards Indonesia, it cannot be denied that given their

status as GLCs and corporate prominence, AirAsia, CIMB and Sime Darby are (in

their right and capacity) non-state actors in bilateral relations per se.

4.5.2. Thus a distinction is to be made that even though these Malaysian MNCs have no

official standing (locus standi) and indeed are (not yet?) recognised as advisers

(providing policy inputs) to Wisma Putra, nonetheless, they are (integral)

stakeholders in the government-to-government and people-to-people dimension of

bilateral relations with Indonesia.

4.5.3. As such, AirAsia, CIMB and Sime Darby can, therefore, be “enlisted” or called

upon (analogous to the reserves in the military context) to conduct “brainstorming”

and related forums/ sessions to resolve any future disputes that may arise. Hence, at

least in the abstract sense, the potential of AirAsia, CIMB and Sime Darby as

stakeholders in the foreign policy formulation, agenda-setting and implementation

processes cannot and should not be overlooked or discounted – even as the profile

of bilateral issues are anticipated or expected to develop to the extent that

84

Malaysian MNCs would perhaps feature prominently/ conspicuously (as non-state

actors), inter alia.

4.5.4. This is especially so since their position/ place within the dynamics of Malaysia-

Indonesia bilateral relations is already a given. Obviously, there will in all

probability a high degree of variation and dissimilarity amongst the three MNC in

relation to their influence and roles, i.e. not all possess the same level of influence

or acquire a uniform degree of importance in foreign policy decision-making.

4.5.5. In conclusion, this paper contends and predicts that the future of Malaysia-

Indonesia bilateral relations will definitively be – to a critical extent – influenced

and shaped by Malaysian MNCs in what can be described as the paradox of

economic inter-dependence where rivalry and cooperation co-exist simultaneously.

85

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APPENDIX A

Selected Interview Questions:

a) Sime Darby: Request for email interviews declined

b) Dr Lily Yulyadi: Responded to queries within 24 hours

c) Indonesia Desk, Wisma Putra: Request for responses have not been forthcoming

despite assurances to contrary

89

RESEARCH QUESTIONS – CORPORATE*

(*All responses are to be quoted unless specified by the respondent(s). The purpose

of these research questions are strictly intended only for use in the paper on “The

business of diplomacy: The case of Malaysian multinational firms in Indonesia.”

Therefore all contents will be treated with confidentiality. Thank you)

SIME DARBY

BOARD OF DIRECTORS

YABhg Tun Musa Hitam (Chairman)

Despite retiring completely from politics, Tun has been in the forefront – in your

capacity as a prominent non-governmental individual (NGI) and Joint-Chairman of

the Malaysia-Indonesia Eminent Persons Group (EPG) – in forging and fostering

closer bilateral relations between Malaysia and Indonesia. As a government-to-

government initiative, the EPG was intended to retrieve the historical and cultural

roots (serumpun), i.e. the non-diplomatic (or people-to-people) dimension,

underpinning the “special relationship” between the two countries.

Thus, it is interesting that both the government-to-government and people-to-people

aspects of bilateral relations intersect in your role as Joint-Chairman of the EPG. It is

also interesting that this is further complemented by your appointment as Chairman of

90

Sime Darby where you have oversight of a Malaysian multinational corporation that

has business interests in Indonesia.

Questions:

1. In this regard, how can Sime Darby – as a multinational corporation – promote

Malaysia-Indonesia bilateral relations?

2. Has Sime Darby provided any policy input/ feedback to the Government of Malaysia?

If so, can you please elaborate? Is it reasonable or accurate to say that Sime Darby is

in a position to influence or contribute to the shape and nature of Malaysia-Indonesia

ties?

3. Is Sime Darby a stakeholder (official, semi-official or unofficial) for the Government

of Malaysia in agenda-setting and (foreign) policy-making (processes) between

Malaysia and Indonesia given that the nature and scope of its business interests? Or

has Sime Darby been consulted over matters pertaining to Malaysia-Indonesia

diplomacy? Does the Government of Malaysia regard Sime Darby as an important

stakeholder in the management of bilateral relations (with Indonesia)?

4. Lastly but not least, can you please also describe Malaysia-Indonesia relations over

the years (both in your capacity as Deputy Prime Minister and politician, and now in

the corporate world)?

91

YBhg Tan Sri Samsudin Osman

1. As former Chief Secretary to the Government, what have been your observations and

reflections on Malaysia-Indonesia relations?

2. Now as a Member of the Board of Directors of Sime Darby, what are your views

concerning Sime Darby as a (government-linked) non-state actor in Malaysia-

Indonesia bilateral relations?

3. Please offer your perspective on how Sime Darby can be an effective non-state actor

(public diplomacy) in the promotion of Malaysia-Indonesia bilateral relations, rather

than e.g. develop a reputation or image as an “irritant” for latter (i.e. Indonesia,

particularly in respect of public perception and the mass media – both of which are

also non-state actors in international relations)?

4. The issue of Indonesia migrant labour (tenaga kerja Indonesia) is a critical factor in

Malaysia-Indonesia bilateral ties. Have or are there any policy proposals from Sime

Darby to the Government of Malaysia (and or the Government of Indonesia) in

relation to the mitigation of “over-reliance” on Indonesian migrant labour (especially

in respect of the plantations sector)?

5. On what issues can Sime Darby best help the Government of Malaysia in dealing and

managing bilateral diplomacy with Indonesia?

92

EXECUTIVE LEADERSHIP

Dato’ Mohd Bakke Salleh (President & Group Chief Executive)

1. Sime Darby is a classic representative of Malaysian conglomerates with diverse

operations, portfolios and assets spanning different continents. In this regard, Sime

Darby is not only a leading Malaysian multinational company (MNC) but also multi-

sectoral. Sime Darby Plantation through its subsidiary Minamas maintains extensive

(upstream) presence in Indonesia. In the plantations sector particularly, Sime Darby

has not only provided employment to Indonesian migrant labour in Malaysia but also

Indonesians in their home country.

Local or host communities have also benefitted tremendously from the socio-

economic “spill-over” in the form of infrastructural development. Furthermore,

human resource development, including the promotion of self-sustainable local

communities, has also been integral to Sime Darby’s plantation business in Indonesia

(via e.g. the Plasma scheme). This augurs well for Malaysia-Indonesia bilateral ties

and acts as a counter-balance to any negative perceptions of Malaysian businesses in

Indonesia. What other ways can Sime Darby do to further build confidence and

enhance good-will in Malaysian businesses in Indonesia?

2. Please describe Sime Darby’s relationship with the Government of Indonesia. How

does that impact bilateral relations? And how does that also affect Sime Darby’s

orientation and accountability towards both the home and host countries?

93

3. Does the Government of Malaysia consciously regard Sime Darby as an important

partner in the country’s foreign policy and diplomacy towards Indonesia?

4. Are there any issues/ problems/ challenges encountered by Sime Darby in its business

dealings in Indonesia? To what extent, if so, are these issues/ problems/ challenges

impacted by the dynamics of bilateral relations? And conversely, how do they affect

bilateral relations?

Questions for the Top Management of Minamas Plantation:

1. Please give your assessment on the reputation and perception of Sime Darby (and that

of other Malaysian businesses operating) in Indonesia by the non-state actors i.e.

political parties, non-governmental organisations (NGOs), mass media, and the

Indonesian public in general.

2. Are there any issues/ problems/ challenges encountered by Sime Darby in its business

dealings in Indonesia? To what extent, if so, are these issues/ problems/ challenges

impacted by the dynamics of bilateral relations? And conversely, how do they affect

bilateral relations?

3. Is there scope and potential for Sime Darby to extend its influence and contribution

(if any) beyond the economic and business dimension in Malaysia-Indonesia bilateral

relations? Can Sime Darby play a more visible and leading role in promoting

diplomatic ties?

94

4. On what issues can Sime Darby best help the Government of Malaysia in dealing and

managing bilateral diplomacy with Indonesia?

95

RESEARCH QUESTIONS – ACADEMIC

Dr Lili Yulyadi

Department of Southeast Asian Studies,

University of Malaya

1. The emergence of non-state actors in Malaysia-Indonesia bilateral relations can no

longer be ignored or overlooked. Much attention has been focussed on the role played

by “main” non-state actors such as non-governmental organisations (NGOs), political

parties and mass media in highlighting grievances and injustice that contribute to

bilateral tension, especially at the people-to-people level. To what extent, however, is

the role of these non-state actors influential in impacting Malaysia-Indonesia

relations (as contradistinguished from the perception within the respective countries

towards each other)?

2. Malaysian multinational companies (MNCs) maintain a strong (if not “visible”)

presence in Indonesia. Institutions such as Air Asia, CIMB Niaga and Sime Darby

Minamas Plantation have become “household” or at least familiar (“brand”) names to

Indonesians. Malaysian MNCs are both capitalising from and contributing to the rise

of the Indonesian middle-class. Can these Malaysian MNCs be also considered as

non-state actors? Are they in a position to influence or contribute to the shape of

bilateral relations given their extensive business interests in the airline, banking and

plantation which are key industries in (both) the (Malaysian and Indonesian)

economy?

96

3. Do you think that these entities, namely the MNCs as mentioned are suitable to

advise the governments of Malaysia and Indonesia in managing bilateral ties?

97

RESEARCH QUESTIONS – MINISTRY OF FOREIGN

AFFAIRS (MOFA), MALAYSIA/ WISMA PUTRA

Indonesia Desk:

Mr Adlan Mohd Shaffieq

Principal Secretary

Mr Mohd Ariff

Assistant Secretary

Mdm Nur Ezira

Assistant Secretary

1. The emergence of non-state actors in Malaysia-Indonesia bilateral relations can no

longer be ignored or overlooked. Much attention has been focussed on the role played

by “main” non-state actors such as non-governmental organisations (NGOs), political

parties and mass media in highlighting grievances and injustice that contribute to

bilateral tension, especially at the people-to-people level. Based on your experience,

to what extent is the role of these non-state actors influential in impacting Malaysia-

Indonesia relations (as contradistinguished from the perception within the respective

countries towards each other)?

98

2. Malaysian multinational companies (MNCs) maintain a strong (if not “visible”)

presence in Indonesia. Institutions such as Air Asia, CIMB Niaga and Sime Darby

Minamas Plantation have become “household” or at least familiar (“brand”) names to

Indonesians. Malaysian MNCs are both capitalising from and contributing to the rise

of the Indonesian middle-class. In the opinion of the Ministry of Foreign Affairs

(MOFA), Malaysia: Are they in a position to influence or contribute to the shape of

bilateral relations given their extensive business interests in the airline, banking and

plantation which are key industries in (both) the (Malaysian and Indonesian)

economy?

3. Do you think that these entities, namely the MNCs as mentioned are suitable to

advise the governments of Malaysia and Indonesia in managing bilateral ties? Is there

a place for MNCs, in this case that of Malaysian firms, to engage in confidence-

building measures, crisis management, inter-mediation, etc.? Or they already engaged

as stakeholders/ consultants/ advisers to the Government of Malaysia, particularly

MOFA/ Wisma Putra? Are these MNCs part of the agenda-setting and (foreign)

policy-making (processes) in Malaysia-Indonesia bilateral diplomacy given that the

nature and scope of its business interests?

4. Is business diplomacy set to increase in importance in Malaysia-Indonesia bilateral

relations? Can it actually play a part in supporting people-to-people ties which also

includes other aspects of diplomacy such as in the realms of cultural, education and

social? How can business diplomacy be expanded, if ever?

99

5. Lastly but not least, can you please also describe Malaysia-Indonesia relations since

the beginning of the new millennium (i.e. year 2000)?

100

APPENDIX B

Malaysia’s foreign policy formulation structure and

process:134

Primary Role

Complementary Role

High-Level

Bilateral

Framework

High-Level Bilateral Mechanisms 134

Source: <http://www.kln.gov.my/web/guest/formulation>, accessed 8 July 2012.

Annual Consultation

between

Malaysia and Indonesia

Joint Commission for

Bilateral Cooperation

Meetings

(JCBC) General Border Committee

(GBC)

Joint Trade Investment Committee (JTIC)

CABINET

(officially the highest-

level decision-making

body)

Ministry of

Foreign Affairs

(Wisma Putra)

Ministry of

International

Trade & industry

Other

Ministries

Prime Minister’s

Department

Think-Tanks

Private Sector

International

Organisations

(World Bank, WTO,

UN, etc.)

Regional Organisations

(ASEAN, APEC, etc.)

101

APPENDIX C

Top ASEAN FDI (USD million) in Indonesia from 2010-Q1 2012135

135

Indonesia Investment Coordinating Board (BKPM/ Badan Koordinasi Penanaman Modal Indonesia) Source:

<http://www2.bkpm.go.id/file_uploaded/public/PMA-NEGARA.pdf>, accessed 8 July 2012.

102

103

APPENDIX D

Exports from Malaysia to ASEAN countries, January-April 2012

(RM 61.1 billion) with particular reference to Indonesia136

136

Source: <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_f0efbf6d-c0a8156f-

42084208-5c3ebca0>, accessed 9 July 2012.

104

Imports from ASEAN countries to Malaysia, January-April 2012

(RM54.9 billion) with particular reference to Indonesia137

137

Source: <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_f0ee0753-c0a8156f-

42084208-5bf30e7c>, accessed 9 July 2012.

105

Exports from Malaysia to ASEAN countries, January-December 2011

(RM171.5 billion) with particular reference to Indonesia138

138

Source: <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_dc6805b4-c0a8156f-

6f346f34-d8c6c91b>, accessed 9 July 2012.

106

Imports from ASEAN countries to Malaysia, January-December 2011

(RM159.3 billion) with particular reference to Indonesia139

139

Source: <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_dc67bf2e-c0a8156f-6f346f34-

e655d6d7>, accessed 9 July 2012.

107

APPENDIX E

“The Wall Street Journal’s Southeast Asia Power List”140

The Wall Street Journal in 2011 released its Southeast Asia’s Power List

of the 30 most influential corporate figures in Southeast Asia. The top

five people on the list are Indonesians while positions 6 to 10 on the list

are all Malaysians.

1

Aburizal Bakrie

Aburizal Bakrie, owner of Bakrie Group, He is one of Indonesia’s most prominent

business and political leaders. The billionaire’s business group is part-owner of

Bumi Resources Group, Indonesia’s biggest coal producer by output, of which he

is also the Chairman. He also is chairman of Indonesia’s Golkar political party, a

member of the ruling coalition.

140

Source: <http://online.wsj.com/article/SB10001424053111904265504576565571015098858.html>, accessed 9

July 2012. Sourced also from <http://www.cy8cy.com/the-wall-street-journals-southeast-asia-power-list>, accessed

9 July 2012.

108

2

Putra Sampoerna

Putra Sampoerna is the Chairman of Sampoerna Group. He is estimated to be

worth more than $2 billion. After selling his tobacco businesses in 2005, he has

been focusing on online gaming and agricultural businesses.

109

3

Anthoni Salim

Anthoni Salim is CEO of Salim Group which has interests in everything from real

estate to agriculture. Its Indofood Sukses Makmur has grown into one of the

world’s largest instant-noodle makers.

110

4

Eka Tjipta Widjaja

Eka Tjipta Widjaja is the founder of Sinar Mas Group with interests in paper pulp,

property and palm-oil empire. He is now one of Indonesia’s richest men thanks to

his holdings in everything from Asia Paper and Pulp Co. to Golden Agri-

Resources.

111

5

James Riady

James Riady is the CEO of Lippo Group. The Lippo Group has interests in retail,

real estate and media.

112

6

T Ananda Krishnan

T. Ananda Krishnan, Usaha Tegas group chairman, was the highest-ranked

Malaysian on the list at no. 6. He is one of the biggest players in Malaysia’s

broadcasting and telecommunications sector through satellite Astro and Maxis

Communications Bhd., respectively.

113

7

Robert Kuok

Robert Kuok, the richest man in Southeast Asia and often referred to as “Sugar

King” has business interests ranging from sugar plantations to palm oil, hotels

and publishing. He now resides in Hong Kong.

114

8

Tony Fernandes

Group CEO of AirAsia, Tony Fernandes, has also branched out into other

businesses, including hotels and telecommunications. In August 2011, he bought

London soccer club Queens Park Rangers.

115

9

Lim Kok Thay

Lim Kok Thay, Chairman & CEO of Genting Group is the son of Genting founder

Lim Goh Tong. Expanding gaming outfit Genting Group from its base in Malaysia,

Lim oversees a multinational business with interests from Australia and Singapore

to the United States.

116

10

Nazir Razak

Nazir Razak, CEO of CIMB Group, is a banker by profession. He has turned

Malaysia’s CIMB Group into one of the most powerful banking groups in

Southeast Asia. His late father Abdul Razak was Malaysia’s second Prime

Minister, while elder brother Najib Razak is the country’s current Prime Minister.