Outsourcing: Yes, but with a heart

Outsourcing has come to be accepted as a common business practice for good reasons.

It lowers labour costs, contributes to economies of scale, frees companies to focus on their core competencies, and allows them to tap into a wider knowledge base that encourages innovation.

However, there are some disadvantages as well, as noted by Flatworld Solutions, a technology services outsourcing and software engineering company.

These include the possible loss of control over a company's business processes, problems related to quality and turnaround time, and an " irate customer base coupled with enraged employee unions".

Of these, it's the interests of workers that invoke key issues of social responsibility which companies must address when taking decisions on whether and how far to outsource work.

Naturally, this concerns Singaporean workers as well, particularly those at the lower-wage end.

National Trades Union Congress assistant secretary-general Zainal Sapari articulated their sentiments recently when he highlighted the practices of businesses that have outsourced their work without caring for the lot of low-wage workers, many of whom were hurt in the process.

Cheap outsourcing forces contractors to lower their bids to win contracts, and lower bids translate into lower salaries for workers, he noted in outspoken criticism of the practices of these employers.

The conservative response to such complaints of labour leaders - that firms must stay competitive for their workers to be employed - is correct, but it does not capture the whole picture.

First, corporate competitiveness might not be affected substantially if indispensable services provided by low-ranked workers, such as cleaners and security officers, are not outsourced.

Second, what happens when outsourcing takes place is that there is a risk of a race to the bottom by contractors. This depresses wages and causes them to stagnate.

Third, this forces workers to get support like Workfare which is meant to help them get out of the low-wage trap by raising their skills and productivity.

However, the net effect of this sequence of events is that taxpayers indirectly help private companies which adopt socially unconscionable practices to make profits.

There is no reason why society at large should subsidise private profit in this way.

The larger point is that for Singapore's tripartite system to function well, capital and labour must work together to secure the economic future charted by the State.

The labour movement has embraced its role by adopting negotiating practices that abjure the adversarial trade unionism seen elsewhere which ultimately hurts workers and employers alike.

Companies must keep their side of the bargain by ensuring that in outsourcing work, they do not at the same time outsource the welfare of the vulnerable to society.

This article was first published on March 2, 2016.
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