Lesson video

Hello and welcome.

My name is Ms. Harrison.

I'm so excited to be learning with you today.

Today's lesson is called TNCs in Indonesia.

Grab everything you might need for today's lesson and let's begin our learning.

By the end of today's lesson, you'll be able to describe the role of TNCs in Indonesia's development and some of the advantages and disadvantages they bring to the country.

Before we can begin this learning, we need to define the keywords that we'll be using throughout today's lesson.

The keywords are transnational corporations, foreign direct investment.

Transnational corporations.

TNCs are large companies that operate in several countries.

They often have headquarters in one country and factories or offices in others.

Foreign direct investment.

This is when foreign countries and companies invest in businesses or industries in another country, often by setting up or buying local companies.

Now that we've defined these keywords, we can begin our learning.

We're going to begin this lesson by exploring the role of TNCs in Indonesia's development.

Transnational corporations are large companies that operate in more than one country.

They often set up factories, offices, or retail outlets abroad to produce goods, sell products, or assess natural resources.

TNCs usually have a headquarters in one country, often a high income or develop nation, but run operations in multiple countries around the world.

This allows them to reduce costs, reach more customers, and increase profits.

In countries like Indonesia, TNCs invest in industries such as manufacturing, mining, and energy.

This can bring benefits like job creation, technology transfer, and economic growth, but also raises concerns about low wages, workers' rights, and environmental impact.

Lucas said, "TNCs linked to globalisation, right?" Yes, TNCs do link to globalisation because they help the movement of trade and information to be much faster.

Laura said, "They're important in global trade, aren't they?" Yes, because they connect different countries by either exporting or importing goods from them.

Indonesia is a popular destination for transnational corporations because it offers a range of economic advantages that support business growth and global trade.

Firstly, Indonesia has a large young workforce, which provides companies with plenty of potential employees.

Wages in Indonesia as a newly imagined economy are also lower than in high income countries, making it cheaper for TNCs to operate.

Indonesia is also rich in natural resources, including nickel, which is essential for batteries and electronics.

This makes the country especially attractive for TNCs in industries like mining, technology and electric vehicles.

As one of the largest economies in Southeast Asia, Indonesia has a growing middle class and a strong domestic market offering opportunities not only for production, but also for sales and expansion.

Finally, its strategic location between the Indian and Pacific oceans make Indonesia an ideal hub for global trade, especially along key shipping routes like the Strait of Malacca.

These factors combined to make Indonesia a highly attractive destination for global businesses looking to invest, expand, and connect to Asian and global markets.

How many of the following are factors that make Indonesia attractive to TNCs? A, protected rainforest areas where no development or tourism is permitted.

B, valuable resources such as coal, nickel, gold, copper.

C, an Archipelago of over 17,500 islands of which many are small uninhabited and hard to access.

Or D, a large, useful skilled workforce who can be paid low wages than in a high income country.

Pause the video here whilst you decide and press play when you're ready to continue.

Excellent.

The answers are B, valuable resources such as coal, nickel, gold and copper, and D, a large, youthful and skilled workforce who can be paid lower wages than in a high income country.

Well done if you manage to identify those correctly.

TNCs bring in FDI, Foreign Direct Investment.

FDI is when a company or a country puts money into building or buying businesses in another country.

Foreign Direct Investment could be used to build factories, buy a local company, set up offices, build mines, invest in new infrastructure, build power plants, construct new hotels, partner with local firms, outsource production to local companies.

Indonesia's approach to foreign direct investment has changed significantly over time, reflecting shifts in both global demand and Indonesia's development priorities.

In 1967, foreign investment law was introduced.

Indonesia passed the Foreign Investment Law officially opening the country to international investors, and this marked the beginning of its efforts to attract FDI and modernise its economy.

FDI in the 1990s concentrated heavily on extracting natural resources, especially oil, gas, and mining.

Indonesia's rich resource base made it attractive to the global energy and mining companies.

As Indonesia's economy matured, FDI shifted to labour intensive manufacturing sectors such as textile, clothing, and electronics.

Investors were drawn by low wages and large workforces.

In recent years, FDI has increasingly focused on digital technology, E-commerce and startups.

Companies are investing in Indonesia's growing digital economy, supported by its young population and expanding internet access.

This timeline shows how Indonesia has evolved from a resource-based economy to one with a more diverse and tech driven investment landscape.

Which of these industries attracted most of Indonesia's FDI in the 1990s? Was it A, agriculture.

B, banking, insurance and pensions.

C, green technology and electric vehicles.

Or D, oil and gas extraction and mining.

Pause here whilst you decide and press play when you're ready to continue.

Fantastic.

The answer is D, oil and gas extraction and mining.

Well done on this task, you've done brilliantly.

The Indonesian government actively encourages transnational corporations to invest in the country through supportive policies and reforms. One major example is the 2020 Omnibus Law, which was designed to make it easier for businesses to invest and operate in Indonesia.

It simplified employment laws, reduced bureaucracy, and made the country more attractive to foreign investors.

When TNCs bring foreign direct investment, the government often uses some of its funding to improve infrastructure across the country, making Indonesia even more appealing for future investors.

Major infrastructure projects supported by FDI and the government funding include, the expansion of the Soekarno-Hatta International Airport, Indonesia's busiest airport, which now handles over 50 million passengers a year.

Modernization of ports such as the Tanjong Priok Port in Jakarta, improving trade flow and export capacity.

The construction of the Trans-Java Toll Road, which connects major cities and boosts transport, logistics, and regional development.

These investments not only supports economic growth and job creation, but also help Indonesia become a regional hub for trade and industry.

Over the last few decades, Foreign Direct Investment has become a major force behind Indonesia's economic development.

In the 1990, Indonesia tracked almost no foreign direct investment, but by 2024, investment had grown to around 23 billion US dollars, a sign of Indonesia's growing global relevance and improved business environment.

This sharp rise reflects how Indonesia has become an attractive destination for transnational corporations.

Investors are drawn by the country's large and young workforce, abundant natural resources, strategic trade location, and government reforms such as the 2020 Omnibus Law.

Foreign Direct Investment has helped build factories, improve transport networks, and expand digital and energy infrastructure, creating millions of jobs and helping to modernise the economy.

However, Indonesia's experience with FDI also shows that investment can be fragile and unpredictable.

At various points in its history, Indonesia has seen investments slow for decline, especially during times of global economic uncertainty.

In the late 1990s, the Asian financial crisis triggered a sharp decline in investment and led to widespread economic instability in Indonesia.

The 2008 global financial crisis caused another drop in FDI, as global investors became more cautious and shifted funds to safer markets.

More recently, the slow down in China's economy, one of Indonesia's major trade investment partners has raised concerns about future FDI levels.

Other factors like political uncertainty, inconsistent regulations, labour disputes or concerns over environmental practises have also made some investors more hesitant or cause them to relocate operations to countries with cheaper labour or more relaxed laws.

These examples highlight the risks of relying too heavily on foreign investment.

Despite these challenges, Indonesia continues to attract strong global interest, especially in emerging sectors like green energy, digital services, and automated manufacturing.

To maintain this momentum, the government must continue to focus on creating a stable and transparent investment climate, strengthening environmental and labour protections, building local industries that can thrive alongside for an investment.

In this way, Indonesia can ensure that FDI leads to sustainable, inclusive growth that truly benefits local communities and a national economy.

Toyota is well known example of a transnational corporation operating in Indonesia.

As one of the world's largest car manufacturers, Toyota has invested heavily in Indonesia as part of its global production network.

Toyota Indonesia now produces around 300,000 vehicles each year with approximately 250,000 of those exported to over a hundred countries.

This shows how Indonesia plays an important role in Toyota's global supply chain.

Toyota's presence in Indonesia has brought about many economic benefits.

It has created thousands of jobs in manufacturing, logistics, and engineering.

It has supported the growth of local suppliers and small businesses.

It has helped increase exports contributing to national income and trade growth.

It brings in foreign direct investment and technology supporting industrial development.

Toyota's investment also reflects why Indonesia's attractive to TNCs, a large workforce strategic location, and a growing domestic markets.

However, it also highlights the need for Indonesia to ensure that works are treated fairly, the environment is protected, and profits benefit the local economy, not just international companies.

Let's take a look at Toyota's timeline whilst in Indonesia.

In 1971, Toyota Astra Motor begins.

In 1973, Toyota begins manufacturing in Indonesia.

In 1996, 1 million in vehicles were made.

In 1998, the Karawang Plant was created.

In 2003, Toyota Motor Manufacturing Indonesia was created.

And 2011 Karawang No.

2 Plant was created.

2018, 1 million vehicles were exported.

And by 2022, 2 million vehicles have been exported.

so you can see the growth they've had in Indonesia and the possible benefits they've brought as well.

True or false.

TNCs have helped Indonesia to develop its own vehicle manufacturing companies.

Pause the video here whilst you decide and press play when you're ready to continue.

Excellent.

The answer is false.

I would now like you to explain why.

Pause the video here and press play when you're ready to continue.

Fantastic.

The reason why it's false is because, while TNCs like Toyota have been very important in developing vehicle manufacturing in Indonesia, the vehicles they make are not Indonesian brands and the profits for selling them in Indonesia or in export markets go to the TNCs and not to Indonesian companies.

Well done if you managed to explain that correctly.

I would like you to explain two ways in which TNCs have been important in Indonesia's development.

I would like to use relevant examples that will help to improve your answer.

As you can see on the screen, this is a satellite image which shows a car plant in Karawang in Java.

Pause the video here whilst you attempt this task and press play when you're ready to continue.

Excellent.

Let's check our answers.

Your answer may have included some of the following points.

"TNCs have invested a lot of money in Indonesia's economy.

For example, Toyota spends around 20 million pounds on its first factory complex in Karawang, Java in 1998, and then another 265 million pounds on Karawang No.

2 Plant.

These factory complexes meant that Indonesia could produce 180,000 vehicles a year, which has been very important for Indonesia's development.

Vehicle manufacturing now makes up to 10% of Indonesia's GDP.

A second way that TNCs have been important in Indonesia's development is in creating jobs.

For example, vehicle manufacturing in Indonesia employs more than 1.

5 million people.

Indonesia does not have its own car companies, so the TNCs from Japan, Korea, and China that makes cars in Indonesia are responsible for creating these jobs.

80% of the components in many of Toyota vehicles, for examples, are supplied by local Indonesian companies, so TNCs are not just creating jobs in their factories, but also creating jobs in Indonesian companies that supply them with parts." Well done if you manage to include some of those points in your answers, you've done very well.

We're now going to explore TNCs advantages and disadvantages.

What advantages and disadvantages of TNCs does this graph suggest? Pause the video here and press play when you're ready to continue.

Excellent.

Andeep said, "They can bring in billions of Foreign Direct Investment." That's an advantage.

Sam said, "They can also take away FDI, like in 2,000." And that's a disadvantage.

Well done.

Transnational corporations can bring many benefits to the countries they invest in, especially developing and emerging economies like Indonesia.

Here are some advantages.

TNCs set up factory offices, services that provide thousands of jobs for local workers and help to reduce unemployment.

TNCs also bring capital investment to the country, which helps improve infrastructure and supports long-term economic growth.

Local workers can gain training access to new technologies and experience in modern industries.

TNCs also produce goods for global markets, helping the country earn money from exports and improve its balance of trade.

TNCs often help improve roads, ports, and energy, and other infrastructure that benefits the wider economy.

Local supplies and service providers can grow by working with or supporting TNCs.

Overall, TNCs contribute to GDP growth, job stability, and the development of new sectors like manufacturing, technology and services.

Let's see if any of those advantages apply to what we know already about the Japanese TNC Toyota, which operates as a vehicle manufacturer in Indonesia as Toyota Motor Manufacturing Indonesia, and to vehicle manufacturing generally in Indonesia, which is dominated by foreign TNCs, mostly Japanese, but also including TNCs from South Korea and China.

Has TNC LED vehicle manufacturing increased economic growth? Yes, we know that vehicle manufacturing contributed to 10% of Indonesia's GDP in 2023, a huge amount.

Although TNCs are all foreign owned, have they helped to develop support industries? Yes, we know local companies supply 80% of components for many of Toyota's vehicles in Indonesia, a supply industry that would not exist without the TNC manufacturing.

Does the presence of TNCs help attract more FDI to Indonesia? Again, we can see that it does from the statistics that almost all investment in Indonesian vehicle manufacturing comes from FDI.

$1.

83 billion out of a total 2 billion in 2023.

TNCs do create jobs in vehicle manufacturing, over 1.

5 million in Indonesia.

We know too that TNC investment has helped to upskill Indonesian workers when Toyota was built its first plant in 1998, it was the most advanced manufacturing complex in Indonesia, so lots of skills would've been transferred there to the Indonesian workers, and that high tech investment has continued with some of Toyota's most valuable vehicles manufactured in Indonesia and new EV models in development there too.

Access to export markets, absolutely.

Toyota alone enabled Indonesia to export 2 million of its vehicles to over 80 countries by 2022.

And what's about lower prices? Well, we don't have the exact information on this yet.

We do know that Indonesia has not developed its own vehicle brand, which is probably because they would struggle to compete against huge TNCs like Toyota for quality and for price.

We do know that the Kijang model developed for the Indonesian market quickly became Indonesia's most popular car.

I would like you to match the TNC advantages with the relevant example from Indonesia's vehicle manufacturing industry.

Pause the video here whilst you attempt this task and press play when you're ready to continue.

Excellent.

Let's check our answers.

For increase in economic growth, its vehicle manufacturing is 10% of GDP.

For developed support industries, its local companies support 80% of parts.

Attract more FDI, its $1.

83 billion of $2 billion invested in vehicle manufacturing in 2023's FDI.

Create jobs, more than 1.

5 million Indonesian jobs.

Access to export markets, 2 million exports to over 80 countries.

Well done if you managed to get that correct, you've done brilliantly.

While TNCs bring investment in jobs, they can also create challenges for countries like Indonesia, and here are some examples.

Most of the jobs offered by TNCs are low skilled and low paid sectors such as factory work.

While the higher paid positions often go to works from TNCs home countries.

Relying too much on foreign direct investment can be risky, if a company decides to leave or cut jobs, it can have the local economy.

Large TNCs can dominate the market, making it hard for local companies to survive or grow.

This reduces diversity and competition.

Some TNCs have been linked to pollution, deforestation, and overuse of natural resources, especially in industries like mining, palm oil and manufacturing.

A large share of the money made by TNCs is often set back to their home countries, meaning fewer long-term financial benefits stay in Indonesia.

In some cases, workers face long hours, low pay and unsafe conditions, especially where labour laws are weak or not enforced.

These challenges show that while TNCs can help grow an economy, it's important for governments to regulate their activities, protect workers, and make sure the benefits are shared equally.

Let's see if any of those disadvantages apply to vehicle manufacturing generally in Indonesia, which is dominated by foreign TNCs.

Does TNC led vehicle manufacturing mean poor working conditions? While there are no publicly documented cases, specifically detailing poor working conditions or labour right violations at Toyota's own manufacturing facilities, there are concerns about working conditions in some companies supplying TNC manufacturers and in industries such as nickel mining, which supplies vehicle manufacturers with materials, there are some safety concerns about the lack of protective equipment, for example.

Fewer high skilled jobs.

Yes, it is true that in general, the tech jobs in vehicle manufacturing in Indonesia are assembly line jobs while research and development jobs, which are higher skilled jobs and higher paid, and more typically in the TNCs home countries such as Japan for Toyota.

Do profits leave Indonesia? TNCs pay tax on the money they make in Indonesia, and of course, they pay their works and suppliers.

However, TNCs are foreign companies and they repatriate or take away profits made in Indonesia so that money does not stay in the country.

Environmental impacts.

Vehicle manufacturing requires a lot of energy, so production in Indonesia increases Indonesia's carbon emissions significantly and increases demand for energy, which in turn increases coal production.

Vehicle manufacturing also creates air and water pollution.

TNCs will obey Indonesian law about environmental waste, but sometimes the countries where TNCs operate have weaker environmental protections than would apply in their home country.

And vehicle manufacturing is a customer for Indonesia's nickel industry, which is highly polluting industry.

Outcompeting local firms. We know that Indonesia does not have its own vehicle brands made by its own vehicle manufacturers, and a part of the reason for this is that such companies would struggle to compete against the scale of operation of TNCs.

Dependency on FDI.

We know that the vehicle manufacturing industry in Indonesia is highly dependent on FDI with $1.

83 billion out of the total $2 billion invested in an industry in 2023 coming from FDI.

That dependency makes the industry very vulnerable to decisions made in Japan, or South Korea, or China rather than by Indonesians.

I would now like you to complete the missing disadvantages of TNCs.

Pause the video here and press play when you're ready to continue.

Excellent.

The missing disadvantages are, dependency on foreign investment, environmental impacts, and profits taken out of the country.

Well done if you identified those correctly.

I would now like you to describe two advantages and two disadvantages of TNCs for Indonesia's Industrial Development.

I would like you to support your answers with relevant examples.

Sophia said, "Okay, so I need to relate this to Indonesia's industrial development, not just advantages and disadvantages in general." Yes, she's correct.

Alex said, "I'm going to try and give an example for each advantage and for each disadvantage." Fantastic.

That would be great.

Pause the video here whilst you attempt this task and press play when you're ready to continue.

Excellent.

Let's check our answers.

Your answer may have included some of the following points.

"One advantage for Indonesia's industrial development has been investment in new factories.

For example, Toyota, Chinese TNC, invested 265 million pounds in its second factory in Java, Karawang No.

2 Plant.

Another advantage for Indonesia's industrial development is that TNCs not only build their own factories, they also buy supplies from local companies, which develops local industry too.

For example, local companies supply 80% of the parts for many of the models to makes in Indonesia.

One disadvantage of TNCs for Indonesia's industrial development is that if industries rely on TNC investment, then they are vulnerable if conditions change and the TNCs decide to invest in somewhere else.

For example, 91% of the investment in Indonesia's vehicle industry in 2023 was FDI.

Another disadvantage for Indonesia's industrial development is that TNCs are so large and efficient that they can outcompete any local competitors.

This is likely to be the case in vehicle manufacturer in Indonesia where all the vehicles that are made are foreign brands for foreign companies." Well done if you managed to include some of those points in your answer.

You've done brilliantly.

We've now come to the end of our lesson on TNCs in Indonesia, and you've done fantastically.

Before we end this lesson, let's summarise everything we've learned today.

Transnational corporations and foreign direct investment have been crucial to Indonesia's economic development, especially in the 1980s and 1990s.

They've helped transform Indonesia into one of Southeast Asia's largest and fastest growing economies.

The Indonesian government has actively encouraged FDI through policies aimed at attracting global businesses.

The 2020 Omnibus Law, for example, reduced regulations and simplified employment rules to make it easier for foreign companies to invest and operate in the country.

TNCs have brought many important benefits to Indonesia.

They bring in capital, needed for large scale development projects like infrastructure and industrial zones.

They help build modern infrastructure such as ports, roads, airports, and energy systems. They offer access to global markets, helping Indonesia export goods like textiles, electronics, and vehicles.

And they create millions of jobs, particularly manufacturing, mining, and services, and they introduce new technologies and skills, helping to improve productivity and modernise local businesses.

However, there have also been some drawbacks and vulnerabilities that come with this independence on foreign investment.

Industries dominated by TNCs can be highly exposed to global market changes.

If global demand drops or costs rise, companies may relocate to other countries leaving behind unemployment and stall development.

Profits are often repatriated, meaning a large share of its money made is sent back to the TNCs home country instead of staying in Indonesia.

Local businesses may struggle to compete with large powerful corporations.

Some TNCs have been linked to low wages, poor working conditions, and environmental damage, especially when regulations are weak or poorly enforced.

For Indonesia, to sustain long-term growth, it must balance attracting FDI with building domestic industries, enforcing labour and environmental standards, and ensuring that the benefits of global investment are shared widely among its population.

TNCs and FDR are powerful tools, but they work best when combined with strong governance, fair policies, and are focused on inclusive and sustainable development.

Well done on today's lesson.

You've done brilliantly and I look forward to chatting with you again very soon.