Jobs
Outsourcing hits town
Luckily most remain in Singapore rather than exported elsewhere. By Seah Chiang Nee.
Sep 27, 2004 (updated).

FACED with a rising competitive challenge, high-cost Singapore is moving into a new, painful strategy to reduce costs - job outsourcing.

In recent weeks, this trend has become evident with the government - the civil service, statutory boards and government-linked corporations - taking the lead.

But there's a difference from the model adopted by US and Europe, where the outsourced jobs travel abroad. Much of the action in Singapore remains at home - at least for now.

They are merely transferred to local contract firms, without a significant drop in employment - only in wages.

Larger savings could naturally come only from moving to foreign countries where wages are a fraction of Singapore's own but that would invoke a high political price.

So far, it has hit thousands of IT, finance and low-level employees in government-linked companies, including Singapore Airlines and Changi Airport operator SATS (Singapore Airport Terminal Services).

SIA announced transferring out 130 IT jobs without mentioning whether where. Some believe it's a contract company in Bangalore, India.

But in most others involved, the work will remain here, which the retrenched workers paid compensation and offered re-employment by the new companies at lower salaries, hence the savings.

The spate of announcements has come shortly after Lee Hsien Loong, who has a reputation for firmness, became Prime Minister. Reducing business costs and improving the job market are among his most pressing problems.

The practice is more extensive in the US where, unlike here, the jobs are exported a foreign country where wages are 75% to 80% lower, resulting in millions of lost jobs.

Still, it leads to a sense of job insecurity among Singaporeans, higher unemployment and lower wages for the short term. But in the longer term it will strengthen competitiveness, attract more investors and create more jobs.


The practice is bound to spread to the private sector. Some 63 percent of Singapore companies are considering outsourcing over the next five years, According to Gartner research fimm. Its survey says 72% hasn't dont it yet, according to CNA.

In recent years, employers - including SIA, SATS, and Port of Singapore Authority (PSA), had "downsizing" manpower to stem increased competition from Malaysia and others in the region.

The restructuring at SIA is the most widespread because of competition from budget airlines and pressure from rising oil prices.

The airline earlier announced it would outsource some 70 finance jobs over the next three months and transfer an undisclosed, possible large, number of IT jobs this year. It has a total of 14,010 employees, of whom 30% perform IT and other administrative tasks.

The 130 are the first batch. "Sometimes, these changes may involve difficult decisions," a statement said.

Following in its footsteps was SATS, which controls 80% of the ground-handling work at Changi. It has to lower charges to meet lower-cost regional airports.

The company shed 108 workers and will ask 1,064 others to join companies that would be taking over their operations. When completed, SATS will have a staff of 7,692, down 16% from last year's peak of 9,200.

A cleaner, for example, told The Straits Times her new salary would be less than S$1,000 a month, compared to S$1,400 now, without referring to compensation.

"It is quite a big cut, especially if you have bills to pay and children to feed. But I need the job, so I will probably sign up anyway," she said.

Even at the Ministry of Manpower, 23 IT staff had also been retrenched and signed up with contract firms, which are taking over their work

Twelve Government services are targetted to be affected by outsourcing, including IT, library and legal services, human resource, training, call centres, project management, security and finance and accounting.

Singaporeans hope all these will lead to lower public service charges, especially in health, housing, and public transport, areas where increases had caused much public anguish in recent years.

But the civil service and statutory boards will probably adopte a cautious stance, keeping the work at home rather than moving them overseas. A professional job that pays S$90,000 here will cost only S$20,000 in India.

Too aggressive a move will create a job crisis among graduates, the most vocal group and push more people to migrate. For years, they had been encouraged to get a degree.

Despite the short-term pain, Minister Mentor Lee Kuan Yew has been a strong advocate of the strategy. "If you deprive yourself of outsourcing and your competitors do not, you're putting yourself out of business," he said.

Outsourcing is, of course, not a one-way street. Singapore can also benefit from higher-value contract work like chip design, consultancy or research.

In a parallel move, the government is pushing for a flexible wage structure by this year, in which 70% of a worker's salary is fixed and 30% determined by his performance and company profits.

For middle managers, the ratio is 60-40 and top management, 50-50. If all these measures are in place, Singapore's workforce will become leaner and hungrier.

In the months ahead, there will likely be more outsourcing announcements from the private sector and Temasek's stable of companies - including SingTel, Sembcorp, Singapore Technologies, the state-controlled banks and so on - are exempted.

In other words, worse news is ahead. Economists agree that non-action is not an option.

The Yale Centre for the Study of Globalisation (Yaleglobal) says the current spate of outsourcing suggests no oasis on the horizon. But Singapore has to resort to drastic options.

"Singapore doesn't need to worry about workers leaving but whole businesses," it said. "With a maturing economy based largely on IT, finance, and trade, Singapore no longer attracts budding entrepreneurs looking for the next big thing."

Understandably, Singaporeans who were already worried about job prospects don't like utsourcing.

One cynic said: "The airlines outsource their ground-handling requirements to SATS, and SATS outsources more and more functions to other agencies that in turn outsource them further."

(Updated article that was first published in The Sunday Star on Sep 26, 2004.)