FOREWORD 

FOREWORD 

I would like to thank everyone who has assisted and supported me during the writing of this dissertation. First of all, I would like to take this opportunity to thank my superior, Dr. Antonios Roumpakis, for his beyond and steadfast support on my research. With great patience, motivation, and encouragement, he helped me in doing this research. I give my credit to him for the opportunity he gave to mentor me. Without his in-depth guidance, this research would not have been possible. I also express my gratitude to the parties concerned, including the company and those who:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABSTRACT

 

 

The Indonesian and Philippine tobacco industries are faced with a dilemma. Its role in the national economy and its negative impact on public health and the environment are highly controversial. This dissertation discusses the implementation of SCR, inhibiting factors for implementing SCR, and its alternative solutions. The main contribution of Philip Morris International’s tobacco industry to the national economy is as a source of excise revenue. In contrast, its role in absorbing public health contributions is diminutive. The largest beneficiaries of the tobacco industry are the large-scale cigarette industry and multinational cigarette companies. At the same time, the community receives the harmful effects of smoking in the form of a massive reduction in health status and health costs. Without a firm policy, Indonesia and the Philippines will become potential markets for the Philip Morris International cigarette industry. Firm government policy is needed to minimize the negative impact of smoking. Philip Morris International companies in Indonesia or the Philippines shall work together to succeed in SCR in the local country. Philip Morris International’s State Law bounds the cooperation on tobacco control. Besides, the Government must protect the public against the negative impacts of cigarettes through the implementation of cigarette price policies, the determination of cigarette taxes/excise, controlling cigarette advertisements, promotional activities and sponsorship by cigarette companies, and the determination of smoke-free areas. With the increasing health and anti-smoking movements in the world, in the long term, the world cigarette industry is predicted to experience a decline. This condition needs to be anticipated and becomes the primary reference in the determination of cigarette production policies by Philip Morris International. If from the very beginning, Philip Morris International predicts, cooperates with, and cares for the health and the environment, the company will undoubtedly continue to run as it should. Apart from getting benefits, what is more valuable is that society will not be affected by tobacco.

 

Keywords: CSR Implementation, Cigarettes, Community Response

 

 

 

 

 

 

 

Chapter 1 Introduction

 

Chapter 2 Literature Review

2.1.    Social Responsibility (CRS)

2.2.    Cigarette Company Social Responsibility Forms

2.3.    World Community Acceptance of Cigarette Companies

2.4.   The Role of Tobacco Companies in the Economy

2.5.   PT Philip Morris International’s Policy Against Tobacco

2.6.  State Policy Against Tobacco by PT Philip Morris International

2.7.   The dilemma faced by PT Philip Morris International

2.8.    Asian Context of Cigarette or Tobacco Products

 

Chapter 3 Methodology

3.1.   Conceptualizing Research Questions

3.2.   Research Methodology

3.3.   Case Study

3.3.1. Scope of the Case Study  3.3.2. Data Collection

3.3.3. Data Analysis

3.3.4. Data Validation

 

Chapter 4 Case Study4.1.   Result: Distribution of Cigarette Production and Consumption in the World

4.2    Discussion

4.2.1. Myths of Smoking and Health

 

Chapter 5 Analysis of The Implementation of Corporate Social Responsibility

5.1    Corporate Social Responsibility Patterns in Indonesia and The Philippines

5.2.  CSR standardization in Philippines and Indonesia

• International level CSR standardization
• Discussion: Comparison CSR

5.4.1 CSR in Indonesia

5.4.2 CSR in the Philippines

 

Chapter 6 Findings

6.1.   Benefits of CSR for Philip Morris International

6.2.   CSR Success Factors for Philip Morris International

 

Chapter 7 Conclusion

7.1. Implication

• Suggestion

 

BIBLIOGRAPHY

 

 

Chapter 1 Introduction

 

One of the critical problems faced by companies in a country is how to deal with trade-offs between meeting community needs and company progress, as well as efforts to maintain environmental sustainability and the health of the community. Fauzi (2004) explained that economic development based on natural resources that do not pay attention to ecological sustainability aspects would ultimately harm the environment itself. Natural resources and the environment have limited carrying capacity. In other words, economic development that does not pay attention to the ability of natural resources and the background will cause development problems in the future.

 

Cigarette companies based on the sale of tobacco are considered by some people to be producing things that are highly polluting and damaging to health. Cigarettes are a world issue that never stops being discussed. The fact that cigarettes can damage health is not enough to prevent people from consuming them and companies to produce them. The World Health Organization (WHO) even continues to promote and carry out a “no tobacco day” campaign. Tobacco kills nearly six million people every year, of which more than 600 thousand passive smokers are victims of smoke inhalation from active smokers. The World No Tobacco Day (2016) is commemorated by the WHO to attract global attention and build global awareness of the dangers of tobacco use. This smoking habit has at least made 5.4 million people die every year.

 

The member of the World Health Organization (WHO) established World No Tobacco Day in 1987. Since 1988, WHO has awarded World No Tobacco Day (WNTD) awards to organizations or individuals who have contributed to reducing tobacco consumption. In 1987, The World Health Assembly passed Resolution WHA40.38, which designated April 7, 1988, as “a world no-smoking day.” Subsequently, in 1988, the United Nations passed Resolution WHA42.19, which established World No Tobacco Day every May 31. Currently, World No Tobacco Day is celebrated around the world every May 31. Most of the tobacco users are smokers or people who like to smoke. Although various regulations have been designed so that smokers do not smoke in public places and near school children, they do not mean anything since most people are not aware of the dangers of smoking.

 

Smoking in public places has long been practiced only by men. Research says that one in three adult men consume cigarettes. The smoking habit in Indonesia is very worrying. Not only consumed by adult men, but cigarettes are also consumed by children, adolescents, and even by women. It is ironic because these children and adolescents who are still in school are contaminated with the dangers of nicotine in cigarettes, which caused them to be the next generation of an unhealthy nation. The nicotine in tobacco causes the addiction experienced by smokers (which makes it challenging to quit smoking). The WHO study results show that cigarette/tobacco smoke contains more than 4,000 chemical compounds, of which 43 are carcinogens. There is no minimum level of exposure to “safe” cigarette/tobacco smoke. According to WHO, tobacco is the most significant cause of death by preventable diseases. The dangers of tobacco use include conditions related to the heart and lungs, such as heart attack, stroke, chronic obstructive pulmonary disease, emphysema, and cancer (especially lung cancer, laryngeal cancer, and pancreatic cancer). Reproductive disorders and pregnancy can also result from tobacco use. Secondhand smoke, even though they do not smoke, can also develop lung cancer. These diseases are the leading causes of death in the world, including in Indonesia.

 

According to the World Health Organization (WHO), smoking is the most familiar killer in society. The WHO estimates that tobacco caused 5.4 million deaths in 2004. Throughout the 20th century, 100 million tobacco deaths have occurred. Smoking is also a leading cause of infant and fetal death worldwide because of smoking parents. In the United States, approximately 3000 adults die from exposure to secondhand smoke as secondhand smoke. At least 46,000 passive smokers suffered from heart disease and died. Every second, one person dies from smoking. Smoking also kills half of a smoker’s lifetime, and half of the smokers die at the age of 35 to 69 years. Tobacco manufacturers must realize that tobacco has many benefits so that it is possible to make processed tobacco products that are more useful in other forms than cigarettes. The Government still thinks that foreign exchange from cigarettes will benefit the Government. Therefore, the Government shall start to see that there are still many things that can contribute to the state treasury apart from foreign exchange from cigarettes. Along with knowledge and technology, cigarettes can be replaced by other processed tobacco products that are much more useful than cigarettes. These products will contribute to the country’s customs, which are much better than cigarettes.

 

In this free trade and competition area, it cannot be denied that a company helps the economy in a country. However, the economy of a country that is carried out based on economic democracy with the principles of togetherness, fair efficiency, sustainability, environmental awareness, independence, and maintaining the balance of progress and national economic unity, ultimately aims to create the welfare of the people. One of the pillars of world economic development that can be expected to help the realization of people’s well-being is companies (Budi and Andi, (2000)).

 

The existence of a company plays an essential role in advancing and creating prosperity in the community, region, and country. With the presence of a company in an area, it will be able to absorb labor. In running its business, a company does have not only economic obligations but also has ethical commitments. A business ethic is a behavioral guide in the business world to differentiate between what is allowed and what is not. In fulfilling business ethics, profit should not only be the primary goal, but the empowerment of the surrounding community must also be the main goal for the company; this is one of the manifestations of Good Corporate by the Company towards Stakeholders. Referring to the 1999 UN Global Compact document, the eighth point of the paper states that taking the initiative is the way to promote responsibility in a more magnificent environment. Companies have the responsibility and obligation to support, respect and protect human rights (as recognized in international law and national law, including the rights and interests of indigenous people and other vulnerable groups), the UN has called for this matter below through Assembly Resolutions: General: Mrs.E / CN.4 / Sub.2 / 2003/12 / Rev.2 in 2003).

 

One of the efforts that a company can do is implementing Corporate Social Responsibility (CSR). In the 1990s, CSR was an idea that seized many groups, from the academic community, non-governmental organizations (NGOs), to business people. Consequently, it is not remarkable that the annual reports of several multinational companies that have implemented CSR practices for their success in gaining profits sare no longer used as the only measuring tool in developing the company’s existence. (Bambang Sulistiyo, “Fragrant Before There is Regulation.” Gatra, No. 44, Year XII, September 20, 2016, p. 81).

 

Ultimately, the talks about CSR are not new. The term CSR began to develop in the 1970s. In this era, it is sparked that the Government should intervene to expand the scope of CSR. The CSR scope does not only cover the company’s responsibility to shareholders, but also stakeholders; namely workers, consumers, suppliers, and society. These responsibilities include ensuring the creation of clean air, clean water, and other constituents where the company is located. (Douglas M. Branson, (2001), p. 606.

 

Corporate Social Responsibility (CSR) is implemented to strengthen the company by building cooperation between stakeholders, facilitated by the company by arranging development programs for the surrounding community. In another sense, the company can adapt to the environment, society, and stakeholders associated with the company, both local, national, and global. The development of corporate social responsibility in the future shall refer to the concept of sustainable development.

 

Several things motivate companies to carry out CSR. The following explanation describes three different stages or paradigms, namely: (Abdul Rasyid Idris, 2008, p. 4)

 

1. The first stage is a corporate charity, which is the encouragement of charity based on religious motivation.
2. The second stage is corporate philanthropy, namely generous assistance, which usually comes from universal norms and ethics to help others and fight for social equity.
3. The third stage is corporate citizenship, namely citizenship motivation, to achieve social justice based on the principle of social involvement. In connection with the widespread issues of corporate social responsibility.

 

In several countries such as America (with Canada as its country of origin), England, Australia, and ASEAN, where each of these countries has a history of different CSR arrangements, it turns out that there has been no regulation that obliges implementation CSR for companies. Although one of the developments in the topic of CSR is the debate about whether or not CSR should be regulated, currently, various forms of CSR “regulation” are still broadly voluntary. In Europe and America, which are often used as reference points for the development of CSR, CSR practices, in general, are still voluntary. However, the development of CSR practices in each country is different. In Europe and America, which are developed countries, without any CSR regulations, CSR practices are ingrained for most of the companies there. Much literature proves that public awareness is part of a society that has done the method of being implemented (Saidi, Zaim, and Hamid Abidin. 2004).

 

CSR is a corporate action that embodies the organizational mission. However, it seems that the existence of regulations is still being explored. It has been proven individually in several European countries such as Italy, Germany, Sweden, and the United Kingdom, which have proactively prepared their standards. France became the first country in the world to oblige all public companies to issue a CSR report since May 2001. The existence of CSR regulations in the Asia Pacific develops differently in each country. A report from CPA (Certified Public Accounting) in September 2005 stated that Australia revealed several interesting things about the development of CSR reporting, which were included in the form of sustainability reporting. The report is based on a survey of 12 countries: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, and Korea (www.csrreview-online.com, Regulation in CSR, 10 Mei 2009, p. 1.)

 

Of the 12 countries surveyed, it is evident that Australia, Malaysia, and Korea are already in the highest stage to establish the regulation immediately. They are now in the process of “introduction to mandatory requirements.” However, Indonesia and the Philippines are two countries that are proven to have not had a definite “direction” regarding CSR practices, even in the guidelines stage. CSR arrangements in ASEAN are the same as in other western countries, which are still voluntary. Even in countries that use a socialist economic system, they adopt and attend CSR courses in European countries (with a capitalist economic system). It reveals that the “lagging” behind Indonesia and the Philippines in CSR practices need to be scrutinized. The implementation of corporate social responsibility in Indonesia is necessary for a company, considering that the development and pace of the Indonesian economy are increasingly rapid. It can be seen from the number of established companies; national companies whose capital comes from the state, private companies whose capital is owned by private parties, joint ventures between national private parties and any country, and joint ventures between foreign parties and the state in the form of foreign investment companies in Indonesia. In implementing CSR, many companies are still thinking since they are afraid that CSR will harm the company in a short time.

 

During their operations in Indonesia and the Philippines, these various types of companies have helped support the economy in their respective countries in the form of profits provided to the state and taxes that must be paid to the state. In carrying out its activities, a company must interact with various components associated with it. In general, there are two components involved in company activities, namely shareholders and stakeholders. Shareholders are a component related to the internal company, which in this case, is known as transnational cigarette companies. Meanwhile, what is meant by Stakeholders are all parties outside the cigarette companies that are related to company activities. (www.csrreview-online.com, Regulation in CSR, 10 Mei 2019, p.1.

 

The role of the stakeholder component determines the survival of the company. The existence of a company in a community environment must be able to make a positive contribution to the community concerned. Many values ​​and orders existed in society shall be maintained by the emergence of the new element in their environment. The impact of a company’s establishment by tobacco companies incorporated in a corporate is the emergence of a gap between the company and the local community, which can affect State stability. Meanwhile, the Government sometimes cannot do much in fulfilling all the demands of people who feel their rights are being violated.

 

In Indonesian or Philippine joint regulations, provisions regarding corporate social and environmental obligations can be found as a form of social responsibility. The Community Social Development (CSR) program plays a vital role in the cigarette company’s sustainability with the surrounding community. In the ASEAN Workshop on CSR held in Balikpapan 1-2 October, ASEAN representatives explained how the CSR program is implemented in ASEAN countries, especially in cigarette companies. Sharing experiences about the implementation of CSR in each ASEAN country became the main list of the workshop. A representative from the Philippines, Katherine Velasquez, explained how cigarette companies in her country participate in managing CSR funds’ transparency. The Philip Moris International Department of the Philippines itself encourages its companies to be transparent by presenting their activities through the EITI Institute in their country. The percentage of companies that report CSR funds to the Government is quite large.

 

Meanwhile, Indonesia was asked to explain the regulations in Indonesia. The regulation is a provision regarding corporate social and environmental obligations, which can be found in Law Number 40 of 2007 concerning Limited Companies. The provision referred to is contained in article 74 (1), which reads: “Companies that carry out their business activities in fields and related to society are obliged to carry out social and environmental responsibility.”

 

The joint Community Social Development (CSR) program between the countries, as mentioned earlier, is a company obligation that is budgeted and calculated as a corporate cost whose implementation takes into account reasonableness and appropriateness. Companies that do not fulfill this obligation will be subject to sanctions under applicable laws and regulations. The issue that has yet to be clarified is the range of CSR allocations and which legal provisions will be used as a reference if a violation occurs.

 

The Millennium Development Goals (MDGs) are a form of a millennial declaration from the agreement between heads of state and representatives of 189 countries, consisting of eight goals to be achieved by 2015. Since it was agreed in September 2000, MDGs have become a development paradigm for almost all countries. Although the goals and targets of the MDGs are not legally binding, many countries continue to monitor their achievement through several indicators. It shows the commitment of the global community to the implementation of the MDGs. Many parties evaluate the implementation of the MDGs that have been implemented for fourteen years around the world. Although there are still many things that have not been achieved, it must be acknowledged that by far, the MDGs have brought significant changes in the world. The MDGs have witnessed the history of the most substantial poverty reduction process in human history. The population living below the international poverty line, which is $ 1.25 a day, has been reduced by half a billion. The child mortality rate has fallen by more than 30 percent, with about three million children saved each year compared to 2000. Deaths from malaria also fell by a quarter (PBB, 2013). A UN task force report, preparing for the 2012 UN conference on sustainable development (also known as Rio + 20), praised the rapid progress in achieving the MDGs. The report, however, still highlights unresolved obstacles and challenges. In the MDGs framework, the environment is only mentioned under one goal, namely the 7th goal: Ensuring Environmental Sustainability. It is better if the next development agenda can strengthen environmental factors’ central role and treat ecological factors as the basis for all development outcomes. The MDGs only focus on the results that should be achieved by developing countries, such as fighting poverty and hunger, and limit the role of developed countries to provide development assistance and technical assistance. For the next agenda, many parties voiced responsibility that could be applied in developed countries. The MDGs also emphasize the only action in developing countries and traditional aid frameworks. Cooperation between essential sectors such as the private sector and transnational NGOs has rarely been realized. Besides, many objectives focus solely on quantity rather than the quality of results. For example, food safety is measured by access to food, not by nutrition. Education is regulated by the number of students attending, not the passing rate.

 

The companies role in the society which has begun to be enhanced with increased sensitivity and concern for the environment, ethical issues (such as environmental damage issues, improper treatment of employees, and production defects that cause inconvenience or danger to consumers) have always been the main topic in various media. There are multiple forms of CSR, namely, Community Development, Community Relations, and Partnership Programs. (CSR Program 2011-2017 PT. Soemporna (Persero) Cilacap IV Processing Unit). The CSR offered by PT Pertamina (Persero) is a form of the company’s sensitivity in social development and community capacity building.

 

The existence of CSR that can be carried out by companies with the aim of sustainable development will foster a sense of trust and ownership from the community, where the company’s existence can reduce friction between the company and the community. If we look at the cultural cultures in Indonesia, people will usually feel reluctant if they have received kindness and feel part of their lives is fulfilled. With this, several cases that occur between the company and the surrounding environment can be minimized as little as possible.

 

The practice of human rights violations related to national and international companies’ presence shows a lack of attention to corporate responsibility to society (CSR). Normatively, various conventions on human rights have contained provisions regarding the obligations of companies (transnational and other business activities) to respect, protect, and fulfill human rights. The scope of these three things includes the right to security, labor rights, obligations relating to consumer protection, and obligations relating to the environment.

 

The Open Working Group (OWG) aims to be a means of sustainable development with 30 members, where OWG has held 13 meetings and proposed 17 sustainable development goals. Besides, the Sustainable Development Solutions Network (SDSN) under the leadership of Jafrey Sach proposed ten goals, 30 targets, and 100 indicators to be used as an agenda in sustainable development. As an effort to bridge the proposals from OWG and SDSN, SDSN has prepared a draft report entitled “Mapping The SDSN Illustrative Indicators Against Zero Goals Identified by The Open Working Group.” Until now, SDSN has also conducted further studies in order to accommodate these proposals. Currently, the world is still trying to provide input and formulate a sustainable development agenda.

 

Nevertheless, there are essential things to support the successful implementation of the sustainable development agenda, including the availability of data that can be used to support, monitor, and implement the sustainable development process. Although the availability of data has been improved, the implementation of the MDGs still requires better data. There are two things in the data revolution issue: the integration of statistics, both in the public and private sectors, and building trust between the public and the Government through transparency and accountability.

 

Compared to ASEAN, the company’s competition in European countries is much better since they also pay attention to CSR. Philip Morris International companies in Indonesia or the Philippines have slightly different Sustainability Reporting in their CSR implementation. Therefore, the author is interested in raising a dissertation entitled “ANALYSIS OF THE IMPLEMENTATION OF SOCIAL RESPONSIBILITY (CRS) OF TRANSNATIONAL CIGARETTE COMPANIES IN INDONESIA & PHILIPPINES (STUDY: PHILIP MORIS INTERNATIONAL.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter 2 Literature Review

 

2.1. Social Responsibility (CRS)

The implementation of corporate social responsibility programs becomes a forum for companies to demonstrate their existence for the community and their concern for the surrounding environment. Therefore, corporate social responsibility is an obligation for companies that carry out business activities in fields related to natural resources.

 

Corporate Social Responsibility (CSR) is a form of an effort to care for the business world for the environment around it. CSR activities are carried out in various fields, ranging from education, health, economy, environment, and even socio-culture. CSR’s concept as a form of corporate social responsibility has been recognized since the 1970s, but only started to develop rapidly in Indonesia in 2000.

 

In Indonesia and the Philippines, the Philip Morris International carries out CSR activities in various approaches, including corporate charity, corporate philanthropy, corporate public relations, and community development. Community development activities, or what is also known as ComDev, are a form of CSR implementation that is most often carried out in Indonesia, even now ComDev has been identified with CSR. However, CSR is not merely community development. (J. Ambadar, 2012.p. 3)

 

In several aspects, this community development (ComDev) activity is still colored by the concept of philanthropy, which is more of a doing good to look good and is ad hoc in nature. Along with the times, most companies have started to abandon CSR activities that are ad hoc in nature. They began to realize that the spearhead of innovation and the way to benefit from CSR activities were to participate in overcoming social and environmental problems integrated from the start in the company’s business. (J. Ambadar, 2012.p.43)

 

As many concerns prioritize stakeholders, awareness of CSR’s importance has become a global trend. Apart from implementing the principles of good corporate governance, TSP is also an effort to support the Millennium Development Goals (MDGs) achievement. These efforts include reducing the poverty rate every year. As a business entity that is required to realize the interests of shareholders, companies are also required to pay attention to stakeholders’ interests.

 

In this era of reform and democracy, companies can no longer ignore ethics or moral values ​​and human rights. Companies are required to participate in paying attention to the importance ​​of order, justice, community welfare, and maintaining the sustainability of the environment by avoiding things that may cause environmental damage. The demands and ideal conditions described above still have to be fought. There is still disharmony between the company and the community and between the company and its environment.

 

Yoserwan, as quoted by (Hasim Purba, 2011), stated that the phenomenon that could be witnessed was the frequent clashes between companies and the community. Companies that are motivated by profit-oriented frequently ignore the principles of CSR. Things like this can be seen in various regions in Indonesia, from cities to villages.

 

There are many series of case data regarding the negative impacts of business practices that have an effect on social and environmental structures. These include the leak of the Chernobyl nuclear reactor, Ukraine (1986), the execution of Ken Saro-Wiwa (1995) followed by the separatist movement MOSOP (Movement for the Survival of the Ogoni People) as a representation of civil society’s disillusionment with the injustice of the Nigerian Government and Shell, Blockade of Greenpeace activists on the sinking of Shell’s former rig in the North Atlantic Ocean during the Brent Spar incident (1995), to the dehumanization and environmental destruction that occurred in Indonesia. (Hasim Purba, 2010.p.114)

 

Therefore, the Government asks explicitly for the private sector’s commitment as a form of responsibility for the negative impacts it has caused. CSR is a form of the company’s commitment to establishing a better quality of life with related stakeholders, especially with the community where the company is located. CSR plays a role in encouraging the expansion of corporate social responsibility to create a balance of development, both economically, socially, and environmentally.

 

Apart from being an economic institution, companies also act as social institutions. In other words, the company is expected to progress and develop in harmony with the community around the company. This commitment is reflected in the Decree of the Minister of Finance of the Republic of Indonesia No. 316/KMK 016/1994 on Guidelines for the Development of Small Business and Cooperatives by State-Owned Enterprises. Through this policy, SOEs are required to improve the community’s welfare and the surrounding environment through the PKBL (Partnership and Community Development Program) program by setting aside a portion of the company’s profits. (PT. Soemporna’s 2017 Partnership and Community Development Program Report).

 

This policy was later updated with the issuance of the Decree of the Minister of State-Owned Enterprises no. Kep-236 / MBU / 2003 on SOE Partnership Program with Small Business and Community Development Programs, previously stated in the Decree of the Minister of Finance of the Republic of Indonesia No. 316 / KMK 016/1994 on the Guidelines for the Development of Small Businesses and Cooperatives by State-Owned Enterprises. (PT. Soemporna’s 2017 Partnership and Community Development Program Report).

 

Not all companies carry out their CSR obligations. Many companies consider CSR a waste because the company budget is absorbed for activities that do not bring profit. If implemented, current CSR practices are indicated by mere public relations practices, so that it seems image-centric and prioritizes programs that can be seen by the public (as a communication strategy). Many companies claim that they have raised social and environmental standards in their operating processes. However, they turn a blind eye to violations of labor or environmental standards by their subsidiaries or companies in their supply chain.

 

Another negative implication arises when the community does not correctly utilize the CSR program itself. The financial assistance received by the community is not used for business capital purposes, but for meeting and buying other needs. It has resulted in no improvement in the quality of people’s lives. The indication is that the poverty rate has not decreased.

 

Laws that strictly regulate CSR issues have been stipulated in Law Number 25 of 2007 concerning Investment (UUPM) and Law Number 40 of 2007 on Limited Liability Company (UUPT). When these two laws elaborate CSR, some controversy related to CSR’s concept or related to responsibility derived from business ethics arises.

 

Law Number 40 of 2007 on Limited Liability Company, which regulates Social and Environmental Responsibility, aims to realize sustainable economic development. It aims to improve the quality of life and the environment that is beneficial for the company itself, the local community, and society. This provision is intended to support establishing a harmonious, balanced, and appropriate relationship between the company and the environment, values, norms, and culture of the local community. Therefore, Companies whose business activities are in fields related to natural resources, are obliged to carry out Social and Environmental Responsibility. Article 15 letter b UUPM states that every investor is required to carry out corporate social responsibility.

 

Article 74 of Company Law states: (1) Companies that carry out business activities in fields related to natural resources are required to carry out social and environmental responsibility; (2) The social and environmental responsibility as referred to in paragraph (1) is a company obligation which is budgeted and calculated as company costs, whose implementation takes into account appropriateness and fairness; (3) Companies that do not carry out the responsibilities as referred to in paragraph (1) shall be subject to sanctions under the provisions of laws and regulations; (4) Government regulations regulate further requirements regarding social and environmental responsibility.

 

Currently, there are still many companies in Indonesia that interpret Corporate Social Responsibility (CSR) only as a charity and philanthropic activities that are temporary or short term. CSR activities contribute to the community around the company and involve the community in business activities in the company.

 

The existence of CSR makes the dichotomy paradigm of the public and private sectors obscured. Management of problems and public interest is no longer the obligation of state administration. In some instances, it also involves the non-government sector, namely the business sector and the third sector (NGOs and non-profit organizations). In order for companies to properly carry out their social responsibilities, the Government or public organizations must provide an “enabling environment” for CSR. The World Bank classifies four roles of the public sector in CSR: mandating, facilitating, partnering, endorsing (Sri Yuliani. “Corporate Social Responsibility (CSR): Public Accountability of the Business Sector and Its Implications for Public Administration Studies.” https://sriyuliani.staff.fisip.uns. AC ID. Accessed on November 1, 2011).

 

 

In carrying out their “mandating” role, government agencies formulate minimum standards of business performance as stipulated in the legal framework. For example, they are setting emission limit value rules for specific industrial installations or setting requirements so that certain factors are taken into account in company directors’ decisions. In carrying out the role of “facilitating,” government agencies facilitate or provide incentives so that companies want to carry out the CSR agenda or become involved in social and environmental improvement programs. The Government’s role here is as a catalytic or supporting role, for example, by providing funds for research, dissemination of information, training, or awareness campaigns. The purpose of the Government as a “partnership” plays an essential role in the CSR agenda. Strategic partnerships are a means of sharing skills and input from the public, private, and civil society sectors in overcoming complex social and environmental problems. In this case, the Government can play a role as a participant, convenor, or facilitator. The fourth role is the role of providing political support and endorsement or legitimacy for CSR. The role of ratification can take many forms, namely through policy documents, public sector management practices, or awards for companies that carry out CSR; for example, holding a CSR Award event.

 

The description of the Government’s role in CSR, as reported by the World Bank, illustrates that the business sector’s role in profit-oriented economic activities and the public sector in socio-political activities oriented to the public interest at the practical level cannot be separated. The Government plays an essential role in creating conditions conducive to healthy business activities and facilitating Corporate Social Responsibility (CSR).

 

The description above shows that in discussing CSR, many aspects must be considered. When viewed from its implementation, there are still many challenges for CSR implementation in Indonesia, given the absence of standardization of CSR, unity of terms, concepts, forms, and Government Regulations on CSR. Besides, the regulation of CSR in legal products raises different opinions between pros and cons.

 

Many arguments reject CSR as an obligation only because they see CSR from the obligation views only. These business actors do not heed the underlying philosophy and impacts that have been ongoing so far. Business actors often do not see in terms of responsibility to the next generation, for what they have done, and what they will pass on to future generations. (Isa Wahyudi and Busyra Azheri. 2011, p. 186).

 

2.2. Cigarette Company Social Responsibility Forms

Corporate Social Responsibility (CSR) is a global issue in addition to issues of democracy and human rights. According to Edi Suharto, CSR is a global demand where the success of a company is not only judged by its financial performance and product marketing, but also on its social and environmental performance. Conceptually, CSR also intersects and is often exchanged with other phrases, such as corporate responsibility, corporate sustainability, corporate accountability, corporate citizenship, and corporate stewardship. (Edi Suharto, 2018)

 

The definition of corporate social responsibility is divided into 2 (two) definitions, namely, in a broad sense and a narrow sense. In a broad sense, corporate social responsibility is closely related to achieving sustainable economic activity. The sustainability of economic activity is not only related to social responsibility, but also the company’s accountability to society, the nation, and the international community. Corporate social responsibility can be described as a form of cooperation between companies (not only limited liability companies) and all things (stakeholders) who directly or indirectly interact with the company to ensure the existence and sustainability of the company’s business.

 

Normatively, the definition of a company, as stated in Law Number 40 of 2007 on Limited Liability Company, is a legal entity that is a capital partnership. The company is established based on an agreement, conducts business activities with authorized capital, which is entirely divided into shares and meets the requirements stipulated by this law and its implementing regulations. Social and environmental responsibility in this law is defined as the company’s commitment to play a role in sustainable economic development in order to improve the quality of life and the environment that is beneficial to the company itself, the local community, and society in general.

 

The provisions related to corporate social responsibility are clearly stated in Article 74 of Law Number 40 of 2007 on Limited Liability Company, whereas “Companies that carry out their business activities in the field of and related to natural resources are required to carry out social and environmental responsibility.” Social and environmental responsibility is a company obligation that is budgeted and calculated as company costs, the implementation of which is carried out with due regard to appropriateness and fairness. Companies that do not carry out their obligations will be subject to sanctions under the provisions of laws and regulations.

 

The same thing is also regulated in Government Regulation Number 47 of 2012 concerning the Social and Environmental Responsibility of Limited Liability Company. Corporate social responsibility is carried out by the Board of Directors based on the company’s annual work plan after obtaining approval from the Board of Commissioners or GMS, under the company’s articles of association. In the case of approval of the work plan given by the GMS, the articles of association cannot determine the work plan approved by the Board of Commissioners or vice versa.

 

The company’s annual work plan contains the activity plan and budget required for corporate social responsibility implementation. In carrying out its business activities, the company must pay attention to appropriateness and fairness, namely company policies adjusted to the company’s financial capacity and potential risks. This potential risk can lead to responsibilities that must be borne by the company under its business activities and do not reduce the obligations as stipulated in the provisions of laws and regulations related to company activities. Budget realization in the implementation of corporate social responsibility is carried out by the company and is calculated as company costs. The implementation of corporate social responsibility is included in the company’s annual report and is accounted for at the GMS.

 

Companies that do not carry out corporate social responsibility will be subject to all forms of sanctions under the provisions of the relevant laws and regulations. Corporate social responsibility does not prevent the company from playing a role and carrying out its corporate social responsibility. It means that the company can still carry out its corporate social responsibility and what has become its obligation. The competent authority can award companies that have played a role in carrying out corporate social responsibility, such as facilities or other forms of appreciation.

 

There are 2 (two) perspectives on corporate social responsibility. These two perspectives do not just appear but arise from 2 (two) points of view, one of which is the role of business in society. (Manuel Castelo Branco and Lύcia Lima Rodriguez, Vol. 12, No.1 2007, p. 6)

 

The first point of view is the classical view. This perspective comes from neo-classical economic theory, namely by looking at the role of business in pure society as a profit-seeking; benefits for shareholders (shareholder). This perspective is also known as a shareholder perspective.

 

In contrast, the stakeholder view, based on stakeholder theory, believes that companies have social responsibility. This social responsibility requires companies to have a social responsibility and requires companies to consider the interests of all parties affected by their actions. A brief description can be seen in the following table:

 

Table 1 – Views Related to CSR

View	Position on the Business Role in Society
Classical	Pure profit-seeking rules: a. business has lower ethical standards than society. The business has no social responsibility except in compliance with the law. b. a limited profit-seeking view: business must maximize the wealth of its shareholders, comply with the law, and have an ethical aspect.
Stakeholders	Regulation of social awareness: a. business must be sensitive to the potential damage to various stakeholder groups. b. social activism: business must use all their resources for the public benefit.

 

2.3. World Community Acceptance of Cigarette Companies

Tobacco is a plant that produces pleasant ingredients, generally consumed for cigarettes. Cigarettes are processed tobacco products produced from the Nicotiana tabacum, Nicotiana rustica, and other species containing nicotine and tar with or without additives. Nicotine is a substance or pyrrolidine compound found in Nicotiana tabacum, Nicotiana rustica, and other species or synthetics that are addictive and can lead to addiction. Tar is an aromatic hydrocarbon polynuclear compound which is carcinogenic.

 

The World Health Organization reports that smoking is the number one killer in the world. In its annual report, WHO (2018) states that in the 20th century, around 100 million people died from smoking. If there is no effort to control tobacco/cigarettes, during the 21st century, at least one billion people will die in vain. It is a 10-fold increase compared to cigarette deaths in the 20th century. Currently, around 5.4 million people die from smoking every year. By 2030, the population who die from tobacco is predicted to increase to 80 million people each year. Eighty percent of the population who died will occur in developing countries. The death rate from tobacco is much higher than from tuberculosis, HIV/AIDS, and malaria. Various diseases can be caused by smoking and attack almost all parts of the human body. The adverse effects of smoking can be felt directly for smokers (active smokers) and non-smokers (passive smokers).

 

The World Lung Foundation and the American Cancer Society (ACS) estimate the costs to be borne by tobacco in the world to reach $500 billion per year. It can be found in the form of direct health spending, decreased productivity, and environmental damage.

 

A study conducted by Hasbullah (2009) found an estimate of the health cost of smoking in Indonesia in 2001, which was around $2.4 billion or Rp.20 trillion. In some other countries, the estimated social costs of smoking are: (a) Australia: between 2.1 percent – 3.4 percent of GDP; (b) Canada: 1.3 percent – 2.2 percent of GDP; (c) USA: 1.4 percent – 1.6 percent of GDP; (d) China: 0.06 percent of GDP; (e) Hong Kong: $688 million; (f) Taiwan: $397.7 million; and (g) Vietnam: 0.22 percent of GDP. Indonesia and the Philippines are the countries with the largest smoking population after China and India.

 

WHO data (2018) shows that Indonesia is a country with the second-largest proportion of male smokers after Russia. The proportion of the Indonesian male population who smoke is 65.3 percent, while Russia is in the first place, namely 70.2 percent. Other countries in the top ten countries with the highest proportion of male smokers are Belarus, Ukraine, Greece, Laos, Jordan, Tonga, China, and Korea. Most Indonesian women are also smokers, but with a relatively small proportion of 4.20 percent below.

 

Younger smokers also need attention. From the WHO data, the participation rate of male adolescents in Indonesia is relatively high, namely 24.10 percent higher than the world average of 21.44 percent. At the world level, the proportion of young women who smoke is also relatively large, namely 14.9 percent. However, the percentage of female adolescents who smoke in Indonesia is quite low, namely only 4.0 percent of the table.

 

Table 5. The proportion of Smokers in Indonesia and by region in the world, 2018

Country Group	Number of Country	Tobacco Product Smokers1) (%)		Cigarette Smokers (%)
		Male	Female	Male	Female
Africa	46	19,99	3,48	19,99	3,48
America	35	29,72	26,66	28,58	14,01
Middle East	22	32,82	3,48	31,07	2,66
Europe	53	40,83	20,9	40,83	20,90
Southeast Asia	11	40,24	7,41	39,79	6,00
West Pacific	27	45,01	13,93	44,3	13,67
World	194	33,52	14,10	33,00	11,61
Indonesia	–	65,30	4,20	61,80	3,70

Source: Manpower, WHO, 2018

 

 

Tabel 6. The proportion of Adolescent Smokers in Indonesia and by region in the world, 2018

Smoker		Smoker		Smoking
Total Tobacco1)		Cigarette Smokers		Outside
Country	(%)	(%)		The House
Male	Female	Male	Female (%)	(%)
46 19,59	12,11	12,98	5,37 29,73	49,26
35 21,49	17,54	15,59	13,27 39,59	51,64
22 23,37	13,65	11,37	3,84 42,45	45,84
53 21,99	16,67	19,86	15,57 77,7	83,93
11 21,30	10,94	15,61	5,48 45,77	61,28
27 21,94	15,45	16,77	10,36 48,19	56,52
194 21,44	14,90	15,82	10,11 49,54	60,46
– 24,10	4,00	23,9	1,90 64,7	81,50

Source: Manpower, WHO, 2018

 

Tobacco products include clove cigarettes (known as kretek), white cigarettes, cigars, and other types of cigarettes manufactured by PT Philip Morris International. It seems that the cigarette industry prioritizes the production of kretek cigarettes. The proportion of kretek cigarette production continues to increase, from 87.19 percent (in 1999) to 93.10 (in 2007). Kretek cigarettes are typical Indonesian cigarettes. In general, kretek cigarettes are only consumed by Indonesians. Increasing the production of kretek cigarettes and reducing white cigarettes means that the cigarette industry has concentrated on exploiting the more significant potential of the domestic cigarette market. From its structure, the Indonesian cigarette industry is an oligopoly. A total of 77.9 percent of Indonesia’s cigarette production and the market is controlled by four major cigarette companies, namely PR Gudang Garam (31.7%); H.M. Sampurna (25.9%); PR Djarum (17.2%), and PR Bentul (3.1%). The remaining 22.1 percent is contested by hundreds of small cigarette companies and households.

 

Currently, multinational cigarette companies have entered and controlled the domestic cigarette industry’s ownership where BAT has bought PR Bentul, and PT Philip Morris International has bought HM Sampurna. With these conditions, small scale cigarette companies and households will be increasingly pressed because they are less competitive and will undoubtedly narrow. The big cigarette company is the only one that enjoys the most significant benefit from the cigarette industry development. At the same time, the community only gets the negative impact of cigarettes and bears significant health costs. The benefits of the cigarette industry for the community are only enjoyed by satisfied tobacco farmers and cigarette factory workers.

 

It can be clarified that millions of farmers carry out the world’s tobacco leaf production activities. Meanwhile, the cigarette industry (tobacco market) is controlled by only a few large companies. This situation has lead to an oligopsony and oligopoly pattern of trade in tobacco and cigarettes. It means that cigarette companies can jointly regulate the price of raw materials (tobacco leaves) and the price of output (cigarettes).

 

2.4. The Role of Tobacco Companies in the Economy

The role of tobacco in the national economy can be seen from several indicators: its role in state revenue (GDP), sources of employment, and community income. The tobacco industry broadly includes the primary raw material sector for tobacco leaves and cloves and the cigarette processing industry. Based on the Input-Output analysis results in 2005, the tobacco industry contributed 1.66 percent to the total national GDP. The most substantial contribution came from the cigarette industry with 1.56 percent, while the tobacco and clove raw material sector only contributed 0.036 percent and 0.067 percent. However, the cigarette industry is one of the most prominent agricultural industries (agro-industry) in Indonesia. Against the agro-industry, the role of the cigarette industry reached 13.13 percent in the table below.

 

Table 2.5 Tobacco Companies in Supporting the Economy

Sector	Value (Million IDR)	Total GDP	Percentage (%) of Total Agro-Industry	Cigarette Agribusiness
Tobacco (Sector 11)	1.043.243	0,03	0,31	2,18
Cloves (Sector 14)	1.920.290	0,07	0,57	4,02
Cigarette Industry (Sector No. 34)	44.783.773	1,56	13,33	93,80
Cigarette Agribusiness (Sector 11,14 & 34)	47.747.306	1,66	14,21	100,00
Total Agro-Industry	335.850.665	11,67	100,00
Total Indonesian GDP in 2005	2.876.891.630	100,00

 

Source: Processed from Santoso et al. (2009) based on data from Table I-O 2015

 

The role of primary raw materials for tobacco and cloves in total plantations and agriculture is relatively inadequate. The production value of tobacco and clove farming to the value of plantation products is 1.54 percent and 2.83 percent. Meanwhile, the value of business products to the value of agricultural products is only 0.27 percent and 0.49 percent. This condition is in line with the small role of the planted area and the number of tobacco farmers in Indonesia. In 2007, the tobacco area reached 198 thousand hectares (about 0.9% of Indonesia’s total plantation area). Meanwhile, the number of farmers involved in tobacco farming is only 554.5 thousand farmer households or about 8.0 percent. The farmer households are 6880 thousand RT, or only 2.1 percent of the total 25,579 thousand RT (BPS, 2018).

 

Table 2.  The Contribution of PT Philip Morris International in the Plantation and Agriculture Sector in Indonesia, 2015.

		Percentage
Sector	Value (Million IDR)	Plantation Sector	Total Agriculture
Tobacco	1.043.243	1,54	0,27
Clove	1.920.290	2,83	0,49
Plantation	67.736.887	100,00	17,29
Agriculture	391.782.680		100,00

Source: Santoso et al. (2009) based on data from Table I-O 2015

 

In employment, the tobacco industry absorbs labor in the tobacco industry of around 4.154 million workers, of which 93.77 percent is absorbed in farming activities, including post-harvest. The workforce in the cigarette processing sector only absorbs around 6.23 percent of the table below.

 

 

 

Table 2.5      The Contribution of PT Philip Morris International in the Labor and Agricultural Sector in Indonesia, 2015.

 

Field of Activity	Tobacco Labor
	Total Workers (in thousand)	Percent
1. Farming	3895,775	93,77
a. Farmer 1)	1109,000	26,69
b. Farmworker 2)	1857,850	44,72
c. Post-Harvest 3)	928,925	22,36
2. Cigarette Industry 4)	258,678	6,23
3. Total	4154,453	100,00

 

Information:

• Calculated from the number of tobacco farmer households multiplied by two people (assuming that husband and wife of farmers only carries out tobacco management activities);
• Calculated from the area of ​​tobacco area (ha) multiplied by the number of workers involved in tobacco farming per hectare, around ten workers per hectare;
• Calculated from the number of workers involved in post-harvest tobacco activities (such as chopping, drying, sorting, oven), which is five people per hectare quoted from Barber et al. (2018).

 

The results of the study by Santoso et al. (2009) show that the multiplier value of the cigarette industry sector’s income has the second smallest amount compared to other agro-industry multipliers. The multiplier value of 0.127 indicates that if there is an increase in agricultural output of Rp. 1 million, it will cause an increase in income in the economic sector of Rp. 127 million. This condition occurs because the cigarette industry is a single industry with small links. Furthermore, the results of the study by Sudaryanto et al. (2009) in the national economy stated that the role of the tobacco agribusiness and cigarette industry in creating output value, added value, and absorption of labor is less significant. However, both sectors have a multiplier effect of output. The multiplier for the tobacco agribusiness workforce is higher than for the cigarette industry. It occurs because, in international trade, tobacco and cigarette commodities drain more than generate foreign exchange. Meanwhile, the tobacco agribusiness can attract the upstream sector and encourage the downstream sector to develop, and the cigarette industry is only able to promote the downstream sector.

 

The role of the tobacco commodity, which is quite evident in the national economy, is as a source of state revenue from excise. The value of these revenues has continued to increase from year to year, from Rp. 11.1 trillion in 2001 to around Rp. 47.0 trillion in 2018 (Table 4). The excise value revenue of 47 trillion in 2018 is the value of one percent of the total state revenue. The increase in tobacco excise occurred due to increasing the retail selling price of cigarettes, while cigarette production showed a downward trend.

 

Table 2.5 The Contribution of PT Philip Morris International in Excise, 2015.

Year	Cigarette Excise (trillion IDR)
2000	11,1
2001	17,1
2002	22,8
2003	25,8
2004	28,6
2005	33,3
2006	37.8
2007	44,7
2018	47,0

Source: 2000- 2018: Bank Indonesia Annual Report, 2018

 

Estimated tobacco excise 98.2% of total excise tax 2005-2018: RAPBN 2009, Ministry of Finance, 2018. Besides being an exporter of tobacco products, Indonesia is also an importer of both tobacco leaf products and cigarettes. Overall, Indonesia’s position in world tobacco trade is a net exporter, in the sense that the export value is higher than the import value. The foreign exchange comes from cigarette exports since cigarette exports are higher than the number of cigarette imports. In 2007, the cigarette trade surplus was $253.87 million (cigarette export value was $304.45 million and cigarette import value was $50.58 million); while for tobacco leaves, there was a deficit of $ 96.94 million (export value was $120.27 million and import value was $217.21 million). Thus in 2007, the Indonesian tobacco trade encountered a surplus of US $ 156.93 million.

 

2.5. PT Philip Morris International’s Policy Against Tobacco

 

In line with the strengthening of the public concern norms for health and the environment, the opposition to smoking is becoming more comprehensive in almost all countries to varying degrees. Awareness of the dangers of smoking in developed countries causes the level of public opposition in developed countries to be relatively stable compared to developing countries such as Indonesia and the Philippines. The enormous pressure on tobacco of community groups in both countries has caused the Government to no more extended support tobacco development, both politically, economically (protection, subsidies), and regulations (restrictions on tobacco use). In fact, in the past few years, the two countries’ governments have issued laws on tobacco control and the protection of families from smoking. With the existence of this law, the Government regulates the circulation and trade of cigarettes. This condition will cause a decrease in the production, consumption, and trade of tobacco products from PT Philip Morris International and affect the cigarette industry in that country. The dynamics taking place in countries around the world also occur in Indonesia and the Philippines, where opposition to anti-smoking has grown stronger.

 

In tackling the tobacco endemic, WHO issued six recommended steps, namely: (1) monitoring tobacco use and prevention; (2) protect the public from smoking tobacco; (3) assisting solutions to stop tobacco use; (4) warn of the dangers of tobacco; (5) prohibits tobacco company advertising, promotion, and sponsorship; and (6) increased tobacco tax. The WHO recommendations are spelled out in five central policies, namely: (a) cigarette price-fixing; (b) cigarette tariff setting; (c) restrictions on cigarette advertising (d) prohibitions and restrictions on promotion and sponsorship by tobacco companies; and (e) restrictions on smoking-free areas.

 

One of the WHO recommendations to reduce the number of smokers is to apply high cigarette prices. The average price of cigarettes worldwide in 2018 was $ 3.50 per pack of 20 cigarettes. On average, the highest cigarette prices are in the ASEAN region, while the lowest prices are in the Middle East. The highest cigarette price was found in Lesotho ($ 12.86 / pack) and the lowest in Laos at $ 0.22 / pack. The price of cigarettes in Indonesia is ($ 2.35 / pack) below the world average of $ 3.50 per pack. The trend of increasing the number of smokers is closely related to the lower prices of cigarettes.

 

One of the steps to increase cigarette prices is to develop cigarette taxes/excise. The determination of tax/excise is generally in the form of an ad valorem sales tax as it is also applied in Indonesia. The world average cigarette tax of 41.81 percent of cigarette prices, with a range between 2 percent and 84 percent of cigarette prices, is explained in the table below. The lowest cigarette tax/excise (2%) is found in (Benin, S. Vincent, and Libya 2016), while the country with the highest cigarette tax (84%) is found in Niue, West Pacific region. In general, the region with the highest cigarette taxes is in Southeast Asia, spearheaded by Thailand, which imposes a cigarette tax at 79 percent of the price of cigarettes. Indonesia imposes a cigarette tax of 22.0 percent, which is relatively low compared to the world average. In Southeast Asia, the cigarette tax in Indonesia is the lowest. On the other hand, Thailand applies a high cigarette tax to protect its people.

 

 

 

 

Table 7. Amount and Range of Cigarette Taxes / Excise in the World

Country Group	Number of Countries	Tax on cigarette prices (%)	Cigarette Ta Range ($)	The country with Tax Rate
				Lowest	Highest
Africa	46	32,48	2 – 79	Benim	Seychelles
America	35	35,41	2 – 79	St. Vincent	Uruguay
The Middle East	22	41,13	2 – 70	Libya	Bahrain &Kuwait
Europe	53	50,67	2 – 79	Moldova	Israel
Southeast Asia	11	55,12	2 – 70	Indonesia	Thailand
West Pacific	27	43,77	2 – 79	Cambodia	Niue
World	194	41,81	2 – 70	Benin, Libya	Niue
Indonesia	–	22.00	2 – 79	–	–

Source: Manpower, WHO, 2018 (processed)

 

The prohibition and restriction of cigarette advertisements in the mass media have also become the demands of society and world countries’ policies. The mass media includes TV, radio, magazines, newspapers, billboards, and the Internet. According to the information compiled by WHO, policies on restrictions/prohibitions on cigarette advertisements are mostly carried out by countries in the Middle East, Europe, and Southeast Asia. Apart from TV and radio, restrictions on cigarette advertising in the Middle East are also placed on Magazines and Billboards. Although cigarette smoking restrictions in Southeast Asia are quite significant, it is not performed in Indonesia. These tobacco products include cigarettes, pipe cigarettes, bidi, kretek, clove flavored cigarettes, smokeless cigarettes, cigars, or others.

 

In the XIV World Conference on Tobacco or Health (WTOH) held in Mumbai India, March 8-12, 2009, India strongly warned against the dangers of tobacco consumption, particularly cigarettes, which invade developing countries. Since October 2018, India has banned cigarettes from being advertised and promoted in the mass media, outdoor media, as well as sponsoring sports and music events. In May 2009, India also imposed an obligation for cigarette packets to post warnings about the health hazards of smoking and sought to ban smoking scenes in Indian films.

 

Health workers also pay attention to the content of cigarette advertisements that seem safe for health. These advertisements are advertisements on Mild, light, low tar, full flavor, fruit-flavored, chocolate flavored, natural, additive-free, organic cigarettes, PREPS (Potentially Reduced-Exposure Products) cigarette products, harm-reduced or others. Health workers reminded that tobacco products of any kind, with any name and any taste, are equally dangerous.

 

In many countries, especially developed countries, smoking bans are also imposed in offices and public places. In the United States, although not federally ratified the Framework Convention on Tobacco Control (FCTC), several states have severely restricted the promotion of cigarettes and smoking freedom in workplaces and public places. This policy also applies to the prohibition of promotions and sponsorship activities of tobacco companies, free distribution, discounts, and others below.

 

Another policy adopted by many countries is restricting smoke-free environmental areas, especially in areas of public facilities such as health facilities, education, government offices, restaurants, bars, and other closed places, especially those using air conditioning. Some hotels also apply as non-smoking areas by providing designated smoking areas.

 

Table 2.8. World Country Policy on the Prohibition of Cigarette Promotion and Sponsorship

			Promotion and Sponsorship Prohibition
				Non-Tobacco	Non-Tobacco	Tobacco Product
Country Group	Number of Countries	Free Distribution	Discount	Product	Merk	On TV/Film	Sponsor Events
Africa	46	30,43	23,91	28,26	21,74	28,26	39,13
America	35	17,14	8,57	14,28	8,57	2,85	11,42
The Middle East	22	63,64	50	54,55	50	63,64	63,64
Europe	53	47,17	39,62	33,96	26,42	54,71	41,51
Southeast Asia	11	81,8	18,2	63,6	18,2	63,6	54,4
West Pacific	27	29,63	33,33	25,93	11,11	11,11	29,63
World	194	39.173	29.380	31.956	22.167	34.531	37.104
Indonesia	–	None	None	None	None	None	None

 

2.6.  State Policy Against Tobacco by PT Philip Morris International

Socially, the smoking culture has become part of the community heritage in ASEAN. Hence, Indonesia’s policy towards tobacco tends to focus on maintaining the tobacco and cigarette industries as national assets. It can be seen from the nonexistence of any intention of the Indonesian Government to ratify the Framework Convention on Tobacco Control (FCTC), which was adopted at the World Health Assembly in May 2003. The FCTC is a binding international legal treaty that regulates cigarettes as an addictive substance. Of the 193 countries in the world that are members of the WHO, 161 countries have signed and ratified the FCTC. Meanwhile, Indonesia has not signed and ratified the FCTC together with Columbia, Eritrea, Guinea Bissau, Monaco, Russia, Siera Leone, Somalia, Tajikistan, Uzbekistan, Zambia, and Zimbabwe.

 

In controlling the dangers of smoking, ASEAN’s policies are considered to be relatively more compromising on the cigarette industry. The steps taken by the Indonesian Government are only at the stage of reminding the public of the dangers of tobacco/cigarettes. The warning is only limited to the obligation to implement warnings on cigarette packets about the dangers of smoking. Compared to other countries such as the Philippines, Indonesia’s vigilance against the threats of tobacco is considered very far behind the Philippines since the Philippine Government applies strict rules against smokers. In 1989, the Philippines was suppressed by the United States and reported to the WTO regarding smoking restrictions. Two years later (1991), the Philippine parliament passed regulations on cigarette marketing restrictions and advertising on the pretext of protecting the health of millions of its citizens.

 

Under those conditions, many countries consider Indonesia as a potential market. Some of the underlying conditions associated with those conditions are: (1) the population of Indonesia is large, and the participation rate of the population who smoke is also tremendous; (2) high population growth rate and quite high participation rate of young smokers; (3) cigarette price and cigarette tax policies in Indonesia are relatively low compared to the world average; (4) the discretion of cigarette companies to promote because there are no restrictions on advertising, promotion, and sponsorship; and (5) Nationally, there is no policy on stipulating smoke-free environmental areas.

 

Indonesia’s vast potential as a cigarette market makes Indonesia a production target and market for multinational cigarette companies. It is reflected in the entry of multinational companies such as Phillip Morris International (PMI) and BAT (British American Tobacco), which bought major Indonesian cigarette factories, namely PT HM Sampurna and PT Bentoel, more freely develop their cigarette business in Indonesia and the Philippines. If this happens, the foreign company will enjoy the most significant benefit from the cigarette business. Meanwhile, the community and the state will only receive negative health impacts that arise in the form of enormous health costs that must be borne by the community. With a large enough promotion fund, the cigarette industry continues to expand the market, targeting young smokers. The promotions are mostly in the form of music performances, sports, and other activities involving young people.

 

Due to the growing negative impact of smoking, opposition to smoking in Indonesia has emerged by several groups who care about the health and environment. This opposition is increasing in line with the increase in the anti-smoking movement, and resistance is more significant in developed countries. In developed countries such as the United States and European countries, the opposing action received a response from the Government. It is proven by no longer providing economic, political, and legal support.

 

Although considered controversial, the step taken by Indonesia in stating that smoking is “haram” for children and women is regarded as a good step. Nevertheless, this rule is deemed to be problematic and anti-gender in nature because, in this regulation, there is no prohibition for grown-up men. Another step forward taken by Indonesia is the enactment of Law No. 36 of 2009 concerning Health, which states that nicotine is an addictive substance. This paragraph can become the basis for tobacco regulation and restriction in Indonesia.

 

Although the central Government has not issued a regulation on smoking restrictions, some local governments, such as in big cities in Indonesia, began to issue a ban on smoking in public places. The ban on smoking in public places has been in effect since 2006, with a priority on smoking bans in offices, religious facilities, educational facilities, health facilities, children’s playgrounds, public transportation, and public places such as terminals, restaurants, cafes, and malls. This step is considered favorable to protect society from the negative impacts of smoking.

 

On the other hand, some groups expect the opposite and wish that the cigarette industry can develop more rapidly because it is a national asset. They are the ones that have been engaged in the tobacco and cigarette industry, such as tobacco farmers, the cigarette industry, and tobacco industry workers. There have been many attempts to protest activities that lead to restrictions on the tobacco industry. The opposition is related to the future of employment and sources of household income.

 

2.7. The dilemma faced by PT Philip Morris International

The amount of public opposition to tobacco will affect the world tobacco business and transform the Indonesian tobacco agribusiness system. Several studies have shown that in the last decades, the demand for and production of tobacco leaf products has decreased. Rachmat and Nuryanti’s (2009) research results show that since the 2000s, global tobacco agribusiness has declined. It is indicated by a decrease in the tobacco acreage rate, a decrease in the rate of production and consumption of tobacco and cigarettes. This condition is the impact of increasing pressure by the world community, which is increasingly concerned about the health and the environment so that the anti-smoking movement is expanding, especially in developed countries. Developed countries responded to this dynamic by implementing cigarette restriction policies, which led to a shift in tobacco production to developing countries.

 

Indonesia is a target for industrialized countries to move their industrial and market base. It causes the cigarette industry in Indonesia to show enthusiasm. In the last decade, Indonesian cigarette production still shows an increase. This fact shows that if there is no change in policy, Indonesia can become the basis for the world cigarette industry by multinational cigarette companies. This, of course, will have positive and negative impacts on Indonesia. Possible positive impacts are the benefits of excise tax and an increase in the cigarette and tobacco industry. However, the most significant benefit will only be enjoyed by large and multinational tobacco companies. Meanwhile, by being used as an arable market, the number of smokers in Indonesia will increase. It is clear that the negative impacts will increase, and that public health and other social costs will inevitably increase. Large and multinational cigarette companies located in Indonesia intend to make Indonesia the primary market. It is reflected in the increasing proportion of kretek cigarette production, while the percentage of white cigarettes decreases (Rachmat et al., 2009). As is known, kretek cigarettes are a typical Indonesian cigarette that is generally only consumed by Indonesians.

 

With the increase in the health movement and the anti-smoking movement, it can be predicted that the demand for world cigarettes will decline in the long run. Long-term tobacco policies need to take this situation seriously. With the harmful impact of cigarettes on human health and the environment, it is necessary to make efforts to minimize the effect of cigarettes by substituting the cigarette industry and tobacco cultivation with other more beneficial industries and crops.

 

Efforts to minimize the negative impact of smoking are reducing the number of smokers and the level of public cigarette consumption. Several policies can be implemented through increasing cigarette prices, increasing cigarette excise taxes, regulating cigarette promotion in a responsible manner (such as cigarette advertisements and sponsorship activities involving young people), and limiting smoke-free areas.

 

Tobacco plant substitution can be done through alternative plants that have at least equal economic value. Even so, this is not an easy thing, because: (a) technically, tobacco plants have the advantage to be cultivated in dry land and climate; (b) economically, the tobacco commodity has a relatively high level of farm income and not many commodities match this level of income, even though it has a high degree of risk; and (c) socially, in certain areas, tobacco commodity is a commodity that has been cultivated from generation to generation so that it becomes a cultural part of its agricultural pattern.

 

2.8. Asian Context of Cigarette or Tobacco products

The above facts are still in the spotlight of the National Commission on Tobacco Control on World No Tobacco Day, commemorated every May 31. In its official statement, the National Commission on Tobacco Control stated that the number of smokers of children aged 10-18 years has increased from 7.2 percent (2013) to 9.1 percent (2018), or nearly 1 in 10 Indonesian children smoke. According to Hasbullah Thabrany (2018), the cigarette industry’s manipulative methods to perpetuate its bad business are very dangerous and threaten the future of developing countries.

 

However, in World No Tobacco Day, the National Commission on Tobacco Control has submitted several recommendations to the ASEAN Government. First, stop all cigarette manipulation by tightening tobacco control regulations, among others, by implementing a ban on cigarette advertising, promotion, and sponsorship. The National Commission on Tobacco Control has also suggested increasing cigarette excise taxes and implementing simplification of excise rates to prevent the affordability of cigarette prices in the community. Second, close any opportunities that could allow the cigarette industry to intervene in the policy. It includes not placing the cigarette industry as a stakeholder in policymaking and stopping open endorsing activities such as the cigarette industry’s CSR. Third, emphasize development attention to the protection and development of Human Resources, especially in the Public Health and Education sectors, so that “Excellent Human Resources in Indonesia and the Philippines, especially ASEAN in general,” is not just an empty catchword. Finally, applying the term “New Normal” version of tobacco control through new normalities in the lives of the two nations. This new normal is free from manipulating the cigarette industry and the trap of deadly opium products. “We are a nation that is proven to have compassion and protect each other when facing the COVID-19 Pandemic Disaster. This strength should also be the soul of the Government in building its society” (Hasbullah, 2018).

 

Currently, the focus of the new normal is to restore public protection from the side of public health by not clashing people’s interests with harmful industries. The National Commission on Tobacco Control assesses many tactics used by the cigarette industry to attract young people into starting smoking and become addicted. For example, make advertisements in the style of cool young people, place advertisements around schools, and make the price per stick promotions in their ads. “Through programs such as CSR which are very incessant, the cigarette industry legitimizes itself with policymakers and the public to counter the negative attention surrounding its deadly products, and to build a good image among policymakers and society,” stated the National Commission on Tobacco Control. From the Tobacco Industry Interference Index published by the Southeast Asia Tobacco Control Alliance, it appears that the intervention by the tobacco industry in the Philippines and Indonesia is very high and has always been the highest in ASEAN since 2014. “In their findings, the tobacco industry is using various tactics such as bringing the industry closer to the government, joining in government programs such as CSR, positioning former government officials as company commissioners, and various other tactics on a massive and open basis, which in turn affect the policies that govern cigarette industry,” he explained. The National Commission for Tobacco Control said that until now, tobacco control regulations are still very weak. This ultimately has an impact on the high number of smokers, including child smokers. “This then triggers various problems in ASEAN, such as the high number of non-communicable diseases which then has an impact on the deficit of Public Health Costs, the difficulty of poverty alleviation programs, the high prevalence of stunting, and an impact on macroeconomic losses.” (https: //mediaindonesia, accessed in 2019)

 

In ASEAN, there are an estimated 122 million smokers, which continues to increase among young smokers. This number exceeds 10 percent of the WHO version of world smokers in 2015, which reached more than 1.1 billion smokers. Each year, it is estimated that there are 5.6 trillion cigarettes sold. It is the same as each person spends an average of 5,000 cigarettes per year or 13 cigarettes per day, the equivalent of more than one pack per day. The number is contested by the top 10 global cigarette industry players. Statistics notes that China National Tobacco Corporation (CNTC) still holds the largest market share, which is up to 42 percent. Meanwhile, Philip Morris International (PMI) and British American Tobacco (BAT) hold a market share of 14 percent and 10 percent. Gudang Garam, which originates from Indonesia, is plastered with a 1.2 percent market share in the global cigarette industry.

 

 

 

 

 

 

 

Table 3.1. Cigarette Consumption in ASEAN

 

 

 

 

 

 

 

 

 

 

 

 

Source:  Porbes, Coindesk, Bicoin Index, 2017

Gudang Garam’s entry into the list of top global cigarette manufacturers is not surprising. In the Euromonitor International report, per August 2016, it was founded in 1958 by Tjoa Jien Hwie, a.k.a Surya Wonowidjojo, the largest holder of the cigarette market shares in Indonesia, with a 28.8 percent score, or only slightly ahead of HM Sampoerna by 28.7 percent. Djarum trailed the two with a market share of 12.4 percent. The rest is Bentoel (British American Tobacco), with 7.4 percent. Then there is PMI 6.6 percent, Nojorono 6.4 percent, Wismilak 0.7 percent, KT&G 0.4 percent, and others 8.4 percent. The reality in Indonesia is relatively opposite to the countries in ASEAN. For example, the Cambodian market is fully controlled by British cigarette manufacturers, namely the Imperial Tobacco Group, which takes 38 percent of the portion. On the other hand, BAT controls the Malaysian cigarette market up to 62 percent, and PMI controls Singapore up to 47 percent.

Besides being preferred in local brands, in 2015, cigarette sales in Indonesia were still the largest in the region, with 248 billion cigarettes per year, followed by the Philippines with 90 billion sticks and Vietnam with 79 billion sticks. Until 2020, it is predicted that Indonesia will continue to dominate cigarette sales in the region, up to 281 billion cigarettes.

Accordingly, it is widespread that Indonesia is listed as the country with the fourth-largest cigarette market share in the world, along with the Philippines, which is among the top nine global cigarette markets. Indonesia is the ASEAN country with the most cigarette exports, up to 31.5 billion cigarettes, followed by Singapore and Vietnam, with 27 billion cigarettes and 23 billion sticks. This, of course, has the potential to increase the state treasury more than in other countries, which significantly benefits the Government. The Indonesian Government’s cash income from cigarettes is indeed the largest in the region. In 2015, supplies totaled $ 10.6 billion, compared to Brunei’s only $196,000.

In terms of taxes, Indonesia is still slightly below other countries in determining the cigarette tax on the price of cigarettes sold at retail. In ASEAN, Thailand is the country that applies the highest cigarette taxes, which is up to 70 percent of the retail price, followed by Singapore and Brunei, with 66 percent and 62 percent. Hence, cigarette prices in Indonesia are still relatively “friendly” to consumers’ pockets. The price of cigarettes in Indonesia is around $ 1.4 per pack for foreign brands. Meanwhile, the price of cigarettes in Singapore can reach $9.6 per pack, and Brunei can reach $5.1 per pack.

Due to the relatively low price of cigarettes and the prevalence of smokers in Indonesia, which is the highest in ASEAN, Indonesia must bear the consequences of health costs due to cigarettes, which are unequal with tax revenues from cigarettes. The Southeast Asia Tobacco Control Alliance (SEATCA) report, November last year, revealed that in 2015, health costs due to smoking reached $28 billion, while the average tax revenue from cigarettes was only $7.9 billion per year. It can be said that Indonesia is one of the most underdeveloped countries in ASEAN countries.

 

 

Chapter 3 Methodology

 

3.1. Conceptualizing Research Questions

This study uses a comparative analytic approach complemented by a literature study to examine different corporate social (CRS) implementation policies in Asia, namely Indonesia and the Philippines. This study also uses a parallel study of a welfare state regime typology that incorporates gender dimensions. The last five societies have developed sophisticated social welfare systems and are always considered the most advanced in the East Asia region (Kwon, 1998). Patten (1998, p.15), explains that one of the reasons for the success of tiger economy (the four Asian Tigers; South Korea, Taiwan, Hong Kong, and Singapore), is “investment in people and their well-being.” Although China, Japan, South Korea, and Singapore have had very fast-developing economies over the past half-century, they are faced with the challenges of an aging population and meager birth rates (Shin et al., 2013). Thus, the family policies in these four East Asian countries need to be considered. As members of the OECD countries, Japan and South Korea have recently developed welfare states that are comparable to OECD countries, and also serve as reference points for further researching the differences between East Asian and European societies. To gain a better understanding of the complexity and plurality of East Asian societies and to broaden the broader context of Greater China, this study also includes the Hong Kong and Taiwan regions. In doing so, the author attempted to examine the similarities and differences between these Chinese societies. Although Singapore is geographically categorized as a Southeast Asian country, the author decided to include it in this study to consider a more comprehensive comparison between Greater China.  It is also because Singapore is often mentioned in the literature studying the East Asian background. (see for example Goodman et al., 1998; Holliday, 2000; Gough, 2001b; Walker and Wong, 2005; Ochiai, 2009)

 

 

The main questions of this research are:

 

(i)      How is the arrangement of PT Philip Morris International regarding Corporate Social Responsibility in Two Countries in the Effort to Realize Good Corporate Governance?

(Study: Implementation of CSR, Philippines, and Indonesia)

Before reviewing the role of companies in the state towards welfare, the alternative forms that allow us to consider the health dimension in the way of ASEAN countries or related shareholders must also be considered.

(ii)      What are the restrictions for PT Philip Morris International in implementing Corporate Social Responsibility in both countries in the Effort to Realize Good Corporate Governance?

 

Therefore, the main emphasis is placed on understanding the companies role in social policy (especially in health and welfare policies and the part of the state in the provision of welfare in the context of the views of ASEAN countries), and the differences in typological construction in the application of different CSR to related stakeholders.

 

3.2. Research Methodology

According to the Cadburry Committee (2011), GCG is a principle that directs and controls a company to achieve a balance between the company’s power and authority in providing accountability to shareholders in particular and the state in general. Of course, this is the authority of directors, managers, shareholders, and other parties related to the company’s development in a particular environment.

 

The Organization for Economic Cooperation and Development (OECD) defines GCG as the ways company management is accountable to its shareholders. Decision-makers in the Company must be accountable, and these decisions can provide added value for other shareholders. Therefore, in this case, the main focus is related to the company’s decision-making process, which contains the values ​​of transparency, responsibility, accountability, and fairness. (Yusuf Wibisono, Membedah Konsep dan Aplikasi Corporate Social Responsibility, 2007: 10)

 

3.3. Case Study

According to Yin (2002), the Case Study approach is used by considering the focus and research foundation to answer questions. The focus questions that the author make are:

(i)      How is the arrangement of PT Philip Morris International regarding Corporate Social Responsibility in the two countries in the Effort to Realize Good Corporate Governance?

(ii)      What are the restrictions for PT Philip Morris International in implementing Corporate Social Responsibility in both countries in the Effort to Realize Good Corporate Governance?

(iii)    the boundary of this research is to look at the phenomenon regarding policies and people’s views on cigarette or tobacco products from Indonesia and the Philippines, particularly ASEAN and the world in general.

Yuliawan & Himam (2007) on the grasshopper phenomenon, stated that case studies are professional in the cases raised, which try to determine the reasons of professionals for the instances. The author chose a case study because the cases in this study were professionals highlighting CSR issues. However, such cases cannot be considered without the context in which the author will analyze them. The author cannot get an accurate picture of CSR’s professional reasons without studying or considering the context in which it occurs.  3.3.1. Scope of the Case StudyThe scope of the case study used in this research is when the case study investigates the phenomenon of the context of tobacco company activities, especially when the boundaries between the event and the framework cannot be separated clearly. Second, case study investigations relate to typical situations, where many new variables depend on multiple sources of evidence or data sources with data requiring triangulation and checking with other results. The preceding theoretical prepositions are useful for guiding data collection and analysis (Yin, 2002). Hartley (2004) explains that case studies can be used in several contexts. First, in a broader context, such as an organization. For example, when explaining job insecurity in cases of organizational setbacks, the author can explore job insecurity. It takes the form of how employees experience differently in this regard and how they take action to improve these conditions. Thus, case studies can be useful for exploring emerging processes or behaviors. “Case studies have an important function in generating hypotheses and building theory” (Hartley, 2004). Second, case studies are used to explore cases that are “strange” or extreme, for example, in radical organizational change. Third, case studies are useful for capturing emerging and changing characteristics in an organization, which cannot be obtained through a survey because of the fast process or flow of activities, such as high employee turnover. Fourth, case studies are techniques for exploring informal, unusual, secret, and even forbidden organizational behavior. Fifth, case studies are used to understand daily practices, where the people involved cannot be explored in a short contact or time. 3.3.2 Data Collection Sources of evidence used in data collection come from various sources. Yin (2002) suggests that researchers use: (1) Documents can be in the form of letters, memoranda, agenda, administrative records, newspaper articles, or any documents related to an investigation. Triangulation of evidence through documents serves to corroborate evidence from other sources. Documents can also be used to make conclusions on an event, leading to false leads if the researcher is inexperienced. Documents can be in the form of archives, such as service records, organizational records, lists of names, survey results. (2) An interview is an essential source. Open interview form, where participants comment on specific events, can propose solutions or provide insight into an incident, corroborating evidence from other sources. Researchers must avoid relying on one participant and seek the same data from other sources to verify its correctness. Focused/structured interviewing is used in situations where participants are interviewed for a specific time to answer a specified question. (3) Direct observation, conducted during field visits during the case study and is more reliable if more than one person carries it out. Participant observation can be done to make researchers actively involved. (4) Artifacts in the form of other physical evidence collected during field data collection. Meanwhile, Stake (1995) suggests using observation, interviews, and document review in case study research.   3.3.3. Data Analysis Data analysis can use qualitative and quantitative analysis. Quantitative means numbers or numbers that may be used as data descriptions. Yin (2002) defines analysis as “consists of examining, categorizing, tabulating, testing, or otherwise recombining both quantitative and qualitative evidence to address the initial proportions of a study.” Yin recommends data analysis by categorizing the data and organizing the data in four ways, namely pattern matching, building explanations, finding model logic, and performing time-series analysis. Additional techniques can be used in some cases; this technique is referred to as a synthesis to seek repetition in cases. The last technique is a narrative that tells about the case, which allows the reader to understand the situation that occurred entirely.  3.3.4. Validasi Data Researchers who use case studies need to ensure data validity through several things, namely the validity of the constructs obtained through triangulation of various sources of evidence, the chain of evidence, and data checking. Internal validity is obtained by using predefined analytical techniques by the Psychology Bulletin, such as pattern matching. External validity is obtained through analytic generalization and reliability through protocols or sequences of conducting case studies.  Therefore, this study will apply a case study methodology to analyze case comparisons’ categorization at their level and type. Moreover, the case study methodology is preferred to allow for the combination of the library data. The observations will be analyzed by identifying the CSR implementation carried out by PT Philip Morris International in Indonesia and the Philippines concerning welfare and health based on a literature review.

 

1