People Innovation Excellence

Outsourcing and Apprenticeship Employment Systems in Indonesia

Outsourcing and Apprenticeship Employment Systems in Indonesia

1.      Introduction

Outsourcing is a problem for labor force in this case especially in Indonesia that has been present till now, longing to be dispose off. In may 5th or mostly well known as mayday where Indonesian Workers Union Confederation (known as KSPSI in Indonesia) held a demonstration want to claim their rights to get protection that included prosperity, safety, and health both mentally and physically. The rights of labor in Indonesia are protected by constitution UUD 1945. But companies avoided their liabilities to providing their workers needs as mentioned in the constitution UUD 1945 about labor rights by using this outsourcing system.

This practice becoming more comman nowdays according to the statement of KSPSI’s president Said Iqbal. Beside the outsourcing issue, in the demonstration that held in West Medan Merdeka street with total of participants around 10.000 people, they also demanding the goverment to crack down companies that using apprenticeship system to employ their worker. They said this apprenticeship is far more worse than outsourcing since this employment system is not recognize wage system.

The idea behind why a companies using outsourcing is to fully utilize one competitive advantage to gain more market share and more profit, as simple as that. The concept itself isn’t new it’s already present since 1900’s. The globalization has change how should a business operate from the old concept where they need to employ labor or worker to work on production to the new concept where they prefer to outsource the jobs to the third world countries such as India, Indonesia and China where the labor cost is cheaper there compare to the developed countries such as Europe and U.S. also the regulations and the rules is far more flexible and relax there. Also the working hours in the third world countries is longer than in the developed countries that adopt 24 hours workday concept. So they gain increase in their productivity also with cheaper cost. More reason for companies around the world to adopt this employment system.

2.      History of Outsourcing

To be able to see the source of why outsourcing becoming more massive in Indonesia we need to see in macro lens. In early 2000s the great recession happened to significantly decline the economy of developed countries such as U.S and European Union, although some of developed countries such as U.K, Australia, and Canada are managed to avoid the damaged that being caused by this recession. America along with other countries have been fall in to pit of reccession in the mid of 2007 till 2009 and early 2010. This event has been contribute to the development of national culture that later affect how the companies or organizations operating their business.

NAFTA(North-American Free Trade Agreement) is an agreement that come into effect in January 1st 1994. Creating world largest free trade zones which will bring prosperity for U.S, Canada and Mexico. This North-American Free Trade Agreement help many U.S organizations to through the great recession in early 2000s. They outsources most of the job to Mexico since Mexico has lower labor wage rate, compare to labor wage in it’s own country. With the flow of FDI from U.S, Mexico infrastructure development has been going well but not so well with the employment rate in U.S. Many white collar job outsourced to Mexico by companies that caused many people in U.S lost their job.

3.      Analysis

With fierce global competition that Indonesia face off right now, for example with Asean Economic Community or AEC (also known as MEA in Indonesia). And as border between ASEAN country become vague, more foreign business or organization has been expanding their operation to Indonesia. So how local business react to this situation? And there outsourcing come out as the response to the situation (Schein, 2004, p.4).

Since physical environment forcing companies to find ways to be more competitive and also from history that we learn from U.S with NAFTA it’s only natural for businesses to adopt outsourcing to gain competitive advantage against global competitor. Slowly outsourcing become an organizational culture that widespread around businesses in Indonesia.

If we conclude the whole situation with Hofstede culture dimensions we can say that Indonesia have a High Power Distance Index(PDI). In country with high PDI governments allow inequalities to grow( Also Indonesia has high uncertainity avoidance index which normally indicate that a country is rule oriented society which is true for Indonesia and other third world countries. In order to reduce the amount of uncertainity people in that kind of society tend to clinging to rules or law.

From how labor force come together into one vessel called Indonesian Workers Union Confederation and held a demonstration demanding their rights as they believe was taken by unfair employment system, we can conclude that Indonesia society is particularistic, communitarian, internalistic oriented culture.

It’s show how rules is second to human relationship, since Indonesia is a democratic country and adopted concept that goverment is servent of the citizens (laws number 25 year 2009 about public service). This concept of government make society is more vocal and open about their mind through demonstration. Indonesia society believe that through their action government will answer their demand which show internalistic culture. Also labors around Indonesia come together into one big community which show Indonesia society is communitarianism.

4.      Conclusion

From the analysis above we can finally pick potential solutions to the issues that emerging between companies and labor force in Indonesia because of outsourcing and apprenticeship system. As stated in analysis above Indonesia have high power distance index which mean society will always ask for increase in prosperity. High uncertainity avoidance index is the key to solve the problem, with high uncertainity avoidance index society is tend to clinging with rules, and the rules are made by government.

Which mean Indonesia government have to investigate and re-evaluating the employment system that adopted by companies to give assurance to the labor force about their future and give back their rights, without fully removing the outsourcing system that become a way for companies in this globalization era to compete against competitor from another country especially from ASEAN with AEC already take into action.

Also it’s important for both parties to understand each other. Companies is using outsourcing system because of national condition that forced them to adapt to new organization culture to be more competitive with their products or services. But companies should not just focus on macro scale, but also on micro scale. Companies also need to pay attention to their relationship with employee, because their relationship will affect their business process. Also if companies happened to go down it won’t be good for their workforce either.


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