Blog post sparks outsourcing debate

Some employers say they face dilemma of capping pay or losing out to cheaper rivals
By Olivia Ho, The Straits Times, 22 Feb 2016

A labour MP's blog post criticising certain aspects of outsourcing has resonated with some employers, but found disagreement with others.

In a post on the labour movement's website on Feb 13, National Trades Union Congress (NTUC) assistant secretary-general Zainal Sapari blamed outsourcing for keeping wages low for the likes of cleaners, security guards, parking wardens and landscaping workers.

“Do what you do best and outsource the rest!” was the advice given by the legendary business and management guru, Peter...
Posted by Zainal Bin Sapari on Friday, February 12, 2016

Companies that want to save costs, he wrote, outsource certain services to the cheapest service provider. These providers, however, keep prices low by suppressing the wages of their workers, "leading to market failure", he concluded.

Business and management guru Peter Drucker, a proponent of outsourcing, came in for particular criticism by Mr Zainal for his advice: "Do what you do best and outsource the rest!" He concluded his post with the wish that Mr Drucker had, instead, said: "Do what you do best, outsource the rest but don't outsource your responsibility!"

His words struck a chord with some employers in low-wage sectors. They pointed out how giving their workers steady increments, rather than cutting back their salaries to win tenders, has cost them contracts from buyers demanding the lowest prices.

Mr Milton Ng, managing director of cleaning and carpark solutions provider Ramky Cleantech Services, said service providers are at a disadvantage whencontracts they won have to be renewed after a few years. They must choose between cutting back on the raises they gave and losing the contract to a cheaper competitor.

Mr Ng, who is also president of the Environmental Management Association of Singapore, added that many buyers use managing agents who care only about delivering the cheapest rates. The buyers themselves are unaware of the toll this takes on workers.

"There's a lot of truth in what Mr Zainal is saying. Service buyers need to be made aware of their moral obligation towards low-wage workers, even if they're not their own staff," he explained.

But others argued that outsourcing was not the problem, but rather, cheap outsourcing in certain industries where the lowest tender wins.

Association of Small and Medium Enterprises president Kurt Wee said he was "taken by surprise" by Mr Zainal's post, as outsourcing is a successful means of reorganising resources. He said: "If outsourcing survived only on squeezing wages, that would be a market failure and it wouldn't be successful - but, it is."

Mr Chong Kee Hiong, MP for Bishan-Toa Payoh GRC, said companies do not necessarily outsource to cut costs, but rather, to optimally allocate resources. "It will not be efficient to keep more employees than necessary just to be ready for peak periods," said Mr Chong, who is also a member of the Government Parliamentary Committee for Manpower.

Service providers in the industries Mr Zainal named said their hands were tied when it came to fighting cheap outsourcing.

Said Security Association (Singapore) president T. Mogan: "If the buyer says he can afford to pay rates of only $3,000 a month, can I get all 240 security companies out there to say, 'No, the minimum is $3,500?' That would be price fixing. Then, the Competition Commission of Singapore would come after me."

He added that in the security industry, at least, he has observed a rather "tremendous increase" of about $300 to $400 in wages in the past decade. "We also have a serious shortage of manpower. How can we survive if we don't price competitively and attract people?"

When The Straits Times spoke to Mr Zainal last Monday, he said he was not against outsourcing per se, "but we need to introduce measures to mitigate the negative consequences that could be its unintended effects".

He reiterated that NTUC's Progressive Wage Model, which ties salaries to skills progression, should also guarantee annual increments and 13th-month bonus, and the Government should play a bigger role in ensuring private service buyers are "committed to responsible and sustainable HR practices".

But Singapore National Employers Federation (SNEF) executive director Koh Juan Kiat said: "We do not think intervening in a company's or industry's wage structure is helpful."

While SNEF supports the recent National Wages Council guidelines of $50 to $60 wage increases, he does not consider this a sustainable solution in the long run. Instead, he suggested helping displaced or affected workers to upskill and find jobs in other parts of the economy, while incentivising service providers to raise their productivity.