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The demonstrations on the 3rd October 2012 by labour unions in rejection of outsourcing have paralysed large parts of Indonesian industry and caused countless losses. Outsourcing accounts for an estimated 16 million people or 40% of Indonesia’s total workforce yet it has become a taboo topic as the abuse of the practice is symptomatic of the problems related to Indonesia’s rigid labour laws. Therefore, the elimination of outsourcing will not solve the issue of improving the welfare of labourers. Also, it does not tackle the issues of corruption, hidden costs and infrastructure which cause high costs for employers. Indonesia’s entrepreneurs and the private sector are also concerned with the welfare of the people and want to be an engine of growth which creates jobs and also provides protection for workers.
Firstly, it is necessary to understand why some jobs are outsourced to third parties which includes advantages such as improved efficiency and enabling a company to focus on its core business. This method is already a global trend as it provides solutions for dynamic, fast moving businesses. In countries such as India and China business outsourcing is a common practice; the Philippines is ranked the first provider of outsourced employment worldwide. In Indonesia, outsourcing has only been implemented on a small scale but it provides significant opportunities to secure work from overseas. The key is therefore for responsible bodies such as the relevant ambassador and chamber of commerce officials to seek out work that can be carried out in Indonesia such as within data input, information technology and administrative processes.
The demand that outsourced workers’ rights should be protected is fair and justified. It is true that the perception of outsourcing by many Indonesians is negative as the government has not been forthcoming in implementing outsourcing regulations. The number of job opportunities compared to the amount of labour available is also limited which is coupled with a lack of qualified workers so the bargaining position of workers is weak. This situation is exacerbated by certain businesses that are not concerned with workers rights and welfare in their business practices. However, current labour laws (Manpower Law No. 13 of 2003) are also at the root of the problem as they provide both employers and employees with little flexibility to end employment contracts and require high levels of severance pay making it difficult to lay off staff which is why many turn to outsourcing. The country’s unattractive labour laws also serve to put off investors in key sectors such as manufacturing which the country needs to create jobs and maintain GDP growth.
The Constitutional Court decision 27/PUU/IX/2011 on Fixed Term Employment has added to the complexity of the current outsourcing regime in Indonesia. The decision deems parts of the Manpower Law unconstitutional as it does not include a clause which protects the rights of workers if the company that engages the outsourcing company which employs them decides to change suppliers. By invalidating this article of the law, the court is effectively guaranteeing the rights of workers through requiring a permanent employment agreement or by the implementation of the Transfer Undertaking Protection of Employment (TUPE). The TUPE serves to transfer the employment obligations of a worker to the successor outsourcing company that chooses to use the worker in question.
The government needs to take strict action against the illegal practices related to outsourcing so that it may continue in a sustainable and fair way. The rules as per the Manpower Law of 2003 which limit the implementation of outsourcing to peripheral areas are clearly defined as cleaning, catering, security personnel, support services in mining and petroleum industries and transportation; yet many companies in Indonesia use outsourcing for core business areas to avoid paying for fringe benefits. Therefore these rules need to be strictly enforced by the government in all companies and without interpretation. The idea of banning outsourcing is not necessary to tackle the issue and it should be considered that if outsourcing was banned then upstream and downstream activities would have to be undertaken by large companies which shuts out smaller companies. Therefore, outsourcing actually has a role in encouraging entrepreneurship and the development of local companies. It is also important not to forget that outsourcing employs millions of people through mainly small and medium enterprises.
In conclusion, outsourcing must not be implemented with the goal of having lower wages; rather it is to direct work towards competent third parties in order to focus on a company’s core business. This focus allows a business to improve its efficiency and productivity which has a positive impact on the welfare of its employees. The government must ensure that outsourcing is implemented in such a way that it does not pit the interests of workers against that of employers. Without this, entrepreneurs may become reluctant to use local labour and prefer to mechanise their processes which would have a detrimental effect on the nation as a whole and especially on the youth.
The Ministry of Manpower and Transmigration announced its plans on 10th October 2012 after the strikes to issue a new ministerial regulation regarding outsourcing which take into account the demands of workers as well as employers. The new regulation will ensure that outsourced workers receive annual leave, holiday allowances and social security benefits. The regulation will also limit the amount of time that outsourcing and labour supply companies can hold a license from 5 years currently to 3 years. The licenses of such companies will also now be subject to review every 6 months to ensure that they are complying with the necessary laws and regulations.
APINDO - 2012
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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