Outsourcing Agencies and the Malaysian Government

Chapter 2 elaborated on the creation and development of outsourcing agencies, as well as the criticisms surrounding the exploitative practices faced by workers who worked under unscrupulous outsourcing agencies. Outsourcing firms have a binding contract with the Ministry of Home Affairs (MOHA). Between 2006 and 2010, the total number of outsourcing companies which were authorised to provide and manage foreign workers by MOHA increased steadily from 212 to 277.⁶⁰ Most of the listed outsourcing agencies are subsidiaries. Hence, the scenario of changing rules and regulations, instigated by the government, which has implications for the development of outsourcing agencies, will be discussed. The following analysis is based on four interviews⁶¹ I conducted with outsourcing agencies which are all subsidiaries controlled by a holding or parent company.

Initially, as of 2007, foreign workers were employed under outsourcing agencies.

Outsourcing agencies were required to comply with the quota which regulates numbers of foreign workers and the length of their stays, as permitted by the government. One outsourcing agency managed, for example, around 4,000 workers; it depends on the capacity of each outsourcing agencies, but most of them are responsible for more than 1,000 foreign workers. This includes the requirement to facilitate migrant labourers’ short term integration into the new environment for work purposes. Workers are distributed to various factories which have contracts with the respective outsourcing agencies to supply and manage workers (see Figure 3 below). Thus, foreign workers from several outsourcing agencies usually work in the same factory. However, their salary package is decided by the respective outsourcing agency that acts as the direct employer.⁶² Under the

60 Kwek, I. (2010). Nation in a dilemma: fitting migrant workers into a plural Malaysia, Penang Economy

Monthly, June 10, Retrieved December 24 2011, from

http://www.penangeconomicmonthly.com/v2_bk/selected/june10/PEM_MAG_JUNE_FA_cover_story.pd f

61 The interviews were sufficient for exploring and understanding the management and responsibilities of outsourcing agencies, and the representativeness is less important because the outsourcing system works in a similar way.

62 With regard to the legality of outsourcing agencies, Hector contended that the outsourcing concept gave the incorrect impression that the employers [e.g. factories] are no longer responsible for their workers, and

outsourcing system, workers can be transferred from one factory to another within the contract period of three years. The workers’ maximum work permit renewal period is up to 10 years.

Figure 3 Workers’ Permits⁶³ Registered Under Outsourcing Agencies (2005- 2012) Workers’ work permits registered under outsourcing agencies

Outsourcing Agencies

(Workers are distributed to different factories (A-J as displayed))

(Source: Own compilation based on Field Research 2012)

For the factories, the outsourcing system offers flexibility in the handling of workers.

As the supervisor of one of the outsourcing agencies with 300- 400 factory workers in Penang, Mr. Mohamad, explains,

[…] for instance, we receive demand from 10 factories to supply and manage 210 workers for them, but when the prospective workers arrive, some factories decide to reduce the intake of foreign workers. For example, factory A takes 50 workers;

factory B wants 70 workers instead of 100 workers; factory C takes 60 workers and so on. We can still give the ‘difference’ of 30 workers to new factories. We can utilise the number of workers at hand. This is not possible when the workers’

working permits are tied to the factory. They simply cannot be transferred to other factories. (08.10.12 personal interview)

it is even worse for workers as these employers [e.g. factories] are free from all duties and obligations as underlined by the law and the full rights of workers (Hector, 2011, p. 24).

63 The Immigration Department issues Visit Passes for Temporary Employment (VPTE) which are work permits for workers’ entry, residence, and employment.

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This more flexible use of labour can be seen as response to the former migration policy which deterred workers from transfer to other sectors facing labour shortages (World Bank, 2013, p. 113). When workers can be transferred to other sectors, the employers do not necessarily apply for the new intake of foreign workers. The system of labour outsourcing agencies also benefits the workers: in the past, prospective workers received faulty information from unlicensed labour recruiters and agents, which were found to have taken excessive migration fees (Kanapathy, 2006, p. 8). In the current outsourcing system, agencies receive a mandate from the government to systematically organise the migration processes of workers. According to an interim report, the outsourcing agencies pursue a two-pronged objective: ‘to overcome the problems of workers’ shortage and to help small companies which do not have the resources to manage foreign workers. It will also help companies which need large workforce from time to time especially to fulfil additional increase in contractual obligations, for peak seasonal collection of harvest and so on’.⁶⁴ Employers who recruit less than 50 migrant workers are obliged to hire the foreign workers through the outsourcing agencies (Fair Labor Association and Bar Council Malaysia, 2009). However, as Hector argues, the intention of the government was not ‘to make these outsourcing agents employers but mere suppliers of workers’ (Hector, 2011, p. 24). As suppliers, outsourcing agencies manage the workers’ welfare for the factories, but workers maintain their direct employment relationships with the factories.

Therefore, the government failed to record the total numbers of foreign workers in each factory through the outsourcing system. Mr. Mohamad acknowledges this shortcoming:

[…] the government did not have the exact number of local workers compared to foreign workers in all factories […] because we [outsourcing agencies] did not

64 The statement can be found in the Report of Foreign Worker Recruitment in Malaysia, held on 5 April 2007. ILO (2011), Meeting document on Amendment Proposal and Justification by MTUC IR Committee’s proposals & justifications, March 16-18, Retrieved June 12 2014, from

http://www.ilo.org/wcmsp5/groups/public/---asia/---ro-bangkok/documents/meetingdocument/wcms_154304.pdf

need to give this justification [ratio of foreign versus local workers] when we applied for the intake of foreign workers.⁶⁵ Further, we transfer workers from factory A to factory B, but the government remains unaware about the movement of workers. (08.10.12 personal interview)

Similarly to Hector’s argument as mentioned above, the practice of outsourcing agencies was criticised by NGOs; for example, Tenaganita, an NGO which actively addresses, protects and promotes the rights of women, migrants and refugees in Malaysia, because it shifts the direct responsibility of the employers [factories] onto the recruited migrant workers. Since migrant workers rely on outsourcing for contract-bound work permits, a large numbers of these low-status ‘unskilled’ workers have endured highly exploitative or abusive treatment (Amnesty International, 2010; Kaur, 2007; SOMO, 2013). Furthermore, Tenaganita claimed that it received 2,460 cases, for issues such as non-payment for job done, passports being withheld by outsourcing companies, workers being locked in their dormitories, unexplained wage deductions, and so on, of contract workers being abused under the outsourcing system over the past years 2008 – 2011 (Tenaganita Women’s Force, 2011b). The government stopped issuing new licenses for labour-outsourcing agencies in 2009 (Devadason & Chan, 2014, p. 26). At the time of my fieldwork, from 2012 onwards, the workers were only allowed to be registered to factories.

In response to the pressure and complaints of workers’ rights abuses, the outsourcing system was terminated at the end of 2013 by the government. However, the existing workers remain the responsibility of the outsourcing agency until their work permits expire. At the time of writing, companies and farms are required to hire foreign workers directly from their countries of origin.

65 The quota of applications for foreign workers can be totalling up to few thousands by outsourcing agencies.

As an example derived from my fieldwork, usually, they supply up to 100 (minimum) or over 500 workers, based on the costing calculation if they would like to take up the demand from a factory for less than 100 workers (23. 07.2012 Personal Interview). The quota system which was introduced in 2009 controls the ratio between foreign workers and local workers in factories.

Nevertheless, the factories which directly hire workers can opt to outsource the management of foreign workers to outsourcing agencies in relation to hostel arrangements, transportation services, payroll, and other related administrative matters (see Figure 4).

Figure 4 Workers’ Permits Registered Under Factories

(when) Workers’ work permits registered under factories

Factories

(Workers’ management are outsourced to outsourcing agencies (A-C as displayed below) )

(Source: Own compilation based on Field Research 2012)

The government is able to keep track of the numbers of foreign workers recruited through direct hiring by factory. The quota system, which based on the ratio of local workers to foreigners, was introduced in 2009. For instance, in the manufacturing sector dealing in exports the eligibility ratio is one local to three foreign workers; in non-export companies it is one local to one foreign worker, and for companies in the electrical and electronic sectors irrespective of whether they are exporting or non-exporting, it is one local to two foreigners (Kaur, 2015, p. 219). As such, the changes of registered employer of workers, formerly outsourcing agencies and currently factories, do not translate into practical changes on the ground, because factories are still allowed to outsource the supply and management of foreign workers to outsourcing agencies. As an interviewee of an outsourcing agency opines,

[…] maybe in the first year, the factory can manage a few hundred workers by their own. But the following years, they do not have the capacity to manage more than thousands of workers. Thus, I believe they [factories] will slowly pass on the management of foreign workers to us […] (08.10.12 personal interview)

The structure and management of outsourcing can be gleaned from the accounts of an outsourcing officer interviewed about his own company (23 July 2012).

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Outsourcing agencies have operated as subsidiary companies in Penang since 2009.

The establishment of subsidiary companies is helpful for getting the outsourcing license.

They have 120 staff and 3,000 foreign workers from Indonesia, Vietnam, Myanmar, Nepal, Cambodia, and The Philippines. They are interested in handling new workers, and less in favor of recruiting 6P workers because 6P workers are familiar with many places in Penang to which they can easily abscond and thus they are not easy to handle. The support team for tasks such as administration and staff payroll, as well as human resource management, are based in the same office. The Operations team is headed by the Operation Manager, who gives instructions to all supervisors; each supervisor is a front-line operative, who needs to be on standby 24 hours a day to deal with all workers’ issues, as well as the transportation team and hostel team. The Operations team has 20 supervisors and interpreters who live in the factory workers’ hotspots, such as Relau, Paya Terubong and Seberang Prai. The transportation team, and particularly the supervisor, are responsible for dealing with workers’ issues on a daily basis. Workers’ passport are deposited in the office. According to an interview with an outsourcing officer, the outsourcing agency lends between RM 2,000 and RM 3,000 (Euro 468- 702) to each Indonesian woman worker which their monthly salary will be deducted later for the repayment of loan. The loan is an advance payment for paying for visa, flight, and all related procedures. In addition, the outsourcing officer claimed that the total cost which is invested as the ‘seed’ money for preparing each worker to come and work in Malaysia is about RM 4,000 (Euro 936).