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Indonesia – Outsourcing remains a controversial necessity

09 December 2013

One of the key points raised by labour unions during the recent strikes and demonstrations in Indonesia has been the use of outsourcing. Last month, thousands of workers across the country took to the streets to demand that employers stop using outsourcing companies and guarantee that all of their workers receive benefits, reports Muhammad Shodiq, Head of Human Capital Development for Sampoerna Financial Group, for the Jakarta Post.

According to Mr Shodiq, the opposition to outsourcing stems from obscure Labour Law regulations, which have led to both employers and employees interpreting the law according to their respective interests.

Under the 2003 Labour Law, companies are not allowed to outsource core jobs and can only outsource five types of peripheral work; namely cleaning services, security, driving, catering and mining support services.

Yet, recent figures from the government reveal that Indonesia has millions of outsourced workers, accounting for approximately 40% of the country’s formal labour force of 41 million.

However, many firms outsource most of their workers, including core employees, and businesses have complained that the law is too strict and gives no flexibility to either employees or employers to end employment contracts. Which activities a firm can outsource remains a source of controversy as it is often debatable what is essential and what is auxiliary in the production process or in employment.

According to Mr Shodiq, concerning the present situation in Indonesia’s outsourcing industry, the government needs improve its capability in monitoring enforcement of the law to ensure that outsourced workers receive the appropriate benefits.

The Indonesian government also needs to focus on how to strengthen comparative advantages as an outsourcing supplier and push Indonesian firms to outsource. The government can promote successful outsourcing suppliers nationwide to strengthen the firms’ confidence in outsourcing.

“People and firms do not only need to know about what outsourcing is and what can be outsourced, but also why they should outsource,” Mr Shodiq concluded. 

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