In this BPO Corner:
Managing Outsourcing Business in Indonesia
by Yardley Young

The term of “outsourcing” refers to business process provider instead of manpower supplier to the companies. This is more into the job functions that are being outsourced by the company to the outsourcing agent, such as Call Centers, Payroll, Courier Service, Collection, IT, etc. In fact, some companies do not outsource personnel, but what they do is employ people from agents on a contractual basis. In Indonesia, some companies only hire people sourced from an agent on a contractual basis and describe it as outsourcing, even though there are other, more accurate definitions for the term outsourcing.

According to the survey of 360 HR professionals from the top leading companies in the US (2003), the business value of outsourcing in US has increased yearly. As the estimated total business for outsourcing reached USD 60 billion a year in 2001, in the coming years, the value is forecasted to reach up to USD 100 billion per year.

The case is not very much different with Indonesia; an HR management specialist from University of Indonesia cites that the outsourcing business is also blooming in this country. According to him, several reasons supporting the growth of outsourcing are essentially the challenges for companies to speed up their processes and escalate production capacity to be able to compete in the market. Under these circumstances, companies are obligated to expand their business, resulting in the greater complexity of tasks and the large number of skilled manpower required. In order to fulfill the need for more skilled manpower, the companies may take longer time and allot a larger budget for recruitment and the training process, which really opposes the fact that they need to move faster. The scarcity of skilled manpower becomes the main reason for companies to outsource several functions through a third party.

Aside from that, the rigid manpower regulations in terms of compensation and benefits for the permanent employees are also one of the reasons why many companies prefer to engage the outsourcing agent. The more items on compensation and benefits for permanent employees result in a higher operational budget. By outsourcing their employees partially, the company focuses more on the core business. Based on the 2003 data, surveyed from 360 of the world’s professional HR, the companies decide to do outsourcing due to the fact that it saves the cost of the companies and it allows them in to focus on their business strategy.

In Indonesia, the Man Power Department has formed its regulation on Contractual Manpower based on the period of time the project takes. The regulation explains that the outsourced job functions may only be applied to the type of job which is scheduled for selected times and projects, not the permanent type of job. Permanent job refers to a job which is constantly continued for an unlimited time and part of the production process department within a company. The employment contract may be extended or renewed with the maximum of contract of 2 years, which shall be extended for once with the maximum period of 1 year.

In setting up an outsourcing agent or company, an organization must be legally entitled to operate in Indonesia and hold the legal permit from Indonesia Manpower Department. The outsourcing company may also apply the labor rights and protection to the employees according to Manpower regulations. If not, then the relationship between the employees and the outsourcing agents is no longer employee-employer, but shifting to direct employees of the companies (those who engage the services of outsourcing companies).

Industry sectors which most likely utilize outsourcing agents in fulfilling their HR personnel needs come from IT, Manufacturing, Consumer Goods, and Banking Finance. To name a few, they are ABN Amro, Citibank, and American Express, Bank Niaga and Bank Danamon, the last two being prominent local banks in Indonesia. Specifically in the banking area, jobs that could be outsourced are operation staffing, programming, collection, service assistance, HR services, tele-reps, operator, sales, and secretary. Function-wise, HR becomes one of job functions that has enough potential to be outsourced, as well as payroll processing, benefits information, recruiting, tax filing, training, performance review tool, and so on.

Several outsourcing companies in Indonesia operate their affiliations throughout cities as the market demand increases. For some local banks, they operate in big cities of the country and the agents are also required to meet the requirements for their district offices.

To manage the business of outsourcing there are several steps to be taken:

1. The outsourcing agents must settle the manpower department legalization to run the business, to avoid any dispute that may occur with the employees
2. In the future, the outsourcing term may refer to the outsourcing of job functions and business processes instead of “employee contracting”. This will lead to a better professional business climate and to look at the larger picture, outsourcing may be one of the biggest country’s income contributors.
3. Outsourcing is a strategic plan for companies to increase their productivity level. Hence, there should be a solid mutual Strategic Partnership Pattern for the employees, the companies and the outsourcing agents.

Though the outsourcing business is projected to grow rapidly in the years ahead, the hotly debated issue within the industry is the uncertainty of the laws covering it. In other words, outsourcing business practice remains in the grey area even though it has been put in practice for several years. Labor strikes are most likely to take place if the vague law regulations on outsourcing are not firmly established. This happened on 2003 with one of the biggest local Indonesian banks which ran against the labor law on Temporary Employment Contracts. They terminated approximately 400 outsourced employees after the duration of their contracts without giving them any job security, such as an absorption contract status into permanent status.

The above case is surely the thing that we would like to avoid. As stated previously, outsourcing is a business strategy that intends to develop the mutual benefits among companies, outsourcing agents, and employees in order to achieve advantageous goals. The Indonesian government, specifically the Manpower Department, is now expected to fix the regulations into a win-win solution term for all parties engaged.