Highlighted Topic: Rethinking Labor Flexibility: Implications of Prabowo‘s Plan to Eliminate Outsourcing in Indonesia
Introduction: A New Era in Labor Policy?
President-elect Prabowo Subianto’s proposal to abolish outsourcing in Indonesia has sparked nationwide debate. Framed as an effort to address long-standing grievances over worker rights and job security, this campaign promise has been met with both optimism and skepticism. While it resonates with labor unions and advocates, the broader economic implications and governance challenges of such a policy warrant closer examination.
Understanding the Outsourcing Landscape in Indonesia
Outsourcing has long been a critical employment model within Indonesia’s labor framework. It refers to the transfer of certain business functions to third-party providers, allowing companies to achieve cost efficiencies and operational flexibility. However, its implementation has often been criticized for exposing workers to poor wages, job insecurity, and minimal workplace protections.
Legal Framework and Evolution
Indonesia established its outsourcing framework with Law No. 13/2003 on Manpower, which restricted outsourcing to non-core business activities such as cleaning services, catering, and security. However, the introduction of the Omnibus Law (Law No. 11/2020) expanded outsourcing practices to all forms of work, sparking widespread protests from labor unions. The labor community’s objections amplified concerns about the erosion of job stability and equitable treatment of outsourced workers.
The Current State of Outsourcing
The Indonesian Outsourcing Business Association (ABADI) estimates that over 3 million workers are employed through officially licensed outsourcing companies. Nonetheless, unofficial statistics suggest the real number could be far greater, as enforcement of regulations remains weak. Outsourced workers often endure lower wages, limited access to benefits, and restricted opportunities for career development.
Impacts of Eliminating Outsourcing
The plan to abolish outsourcing has far-reaching implications. While Prabowo’s policy aims to address labor inequality and safeguard workers, the sudden removal of this labor model may create significant economic and social disruptions.
Employment and Job Security
Indonesia’s labor market remains under strain. With unemployment at 7.28 million as of February 2025 and layoff rates increasing year-on-year, such a transition could exacerbate job losses. Outsourcing currently supports millions of jobs across various sectors. Abruptly eliminating this model without offering a structured transition plan risks leaving large segments of the workforce without immediate alternatives.
For example, in the Business Process Outsourcing (BPO) sector, rapid growth has contributed significantly to job creation. Industry forecasts project the Indonesian BPO market to reach USD 1.93 billion by 2025. Removing outsourcing mechanisms without exploring alternative job models may stifle this growth and hinder foreign investment.
Economic Competitiveness at Risk
Outsourcing has been a key driver of economic efficiency for Indonesian industries coping with volatile global markets. By reducing wage costs and delivering operational flexibility, outsourcing allows businesses to remain competitive internationally. Eliminating outsourcing wholesale could deter foreign investors who favor Indonesia as a cost-efficient labor hub, negatively impacting the country’s economic growth trajectory.
For instance, the S&P Global Manufacturing Purchasing Managers’ Index (PMI) for Indonesia declined below 50, (46.7 in April 2025 and 47.4 in May 2025), signaling contraction in the manufacturing sector. Imposing additional structural changes in such an uncertain economic climate could compound challenges for industries reliant on flexible labor arrangements.
Governance is the Real Challenge, Not the Model
Rather than viewing outsourcing as inherently exploitative, it is more productive to hone in on the governance issues surrounding its implementation. Indonesia has historically struggled with enforcing labor regulations, particularly in ensuring minimum wage compliance, occupational health standards, and fair contracts for outsourced employees.
Regulatory Oversight and Reforms
Critics argue that inadequate supervision is the root cause of exploitation in outsourcing practices. Strengthening enforcement mechanisms and reforming regulations could mitigate malpractice while preserving the benefits of the outsourcing model. Recommendations include:
- Mandating equal pay and benefits for outsourced and directly employed
- Requiring social security coverage and occupational hazard insurance for outsourced
- Establishing stringent penalties for non-compliant outsourcing
Institutional Support
Prabowo’s pledge to establish the National Labor Welfare Council is a step toward inclusive policymaking. Collaborating with stakeholders—including labor unions, outsourcing companies, and industry associations—to craft practical solutions can ensure a balanced approach. This council should focus on designing sector-based standards for outsourcing while enabling smoother workforce transitions.
Lessons from Global Experiences
Indonesia can draw valuable insights from other countries that have successfully implemented outsourcing while safeguarding worker rights and maintaining economic growth.
Poland: A High-Standard Outsourcing Destination Within the EU
Poland has become a European hub for IT services, financial outsourcing, and shared service centers, attracting major global firms such as Google, IBM, and Accenture, and many more. Despite this, Poland maintains strong labor protections:
- EU-compliant labor standards, the highest standards around the globe, mandates formal contracts, fair wages, and social security
- Workers in outsourced roles enjoy similar rights to in-house employees due to collective agreements and sectoral regulations.
- Government oversight ensures that outsourcing contributes to employment growth without exploiting labor.
Indonesia could emulate Poland’s focus on governance and labor oversight to minimize exploitation.
India: The World’s BPO Powerhouse
India’s success in Business Process Outsourcing (BPO) is globally recognized. The sector employs 5.4 million people and contributes over 8% to the country’s economy, led by firms like TCS, Infosys, and Wipro.
- Labor cost competitiveness is a key advantage, but large firms often offer formal employment, health benefits, and training to attract and retain
- The outsourcing industry has helped lift millions into the middle class, particularly in urban areas.
- Despite challenges in the informal sector, leading BPO firms maintain global labor compliance standards to meet client expectations. Indonesia could adopt similar industry-led standards to foster job creation and skill
Philippines: World Leader in Voice-Based Outsourcing
Known as the ”BPO Capital” for more than a decade, The Philippines tops the list of the best outsourcing destinations that international companies prefer, especially for the call center and voice-based customer support outsourcing, and excellent English proficiency, rank 18th globally.
- Strong and robust government support, through agencies like the IT and Business Process Association of the Philippines (IBPAP), helps develop talent pipelines and enforce labor compliance.
- The BPO sector of Philippines is valued at USD 38.7 billion, employing over 1.3 million workers, many of whom receive above-average wages, formal contracts, and access to healthcare and training.
- Cultural alignment and English proficiency give the Philippines a comparative edge, but labor practices remain key to sustaining
A supportive regulatory ecosystem remains key to this success, a strategy that Indonesia can replicate.
Skylight’s Opinion
Instead of an outright ban on outsourcing, Indonesia must focus on modernizing its regulatory framework and enhancing enforcement. A gradual, collaborative effort will sustain economic momentum while improving labor conditions. By learning from global successes and adapting these strategies locally, Indonesia can position itself as both a hub of labor efficiency and a champion of workers’ rights.
Now is the time for policymakers to create a labor system that fosters fairness and economic growth side by side. Progress lies not in dismantling outsourcing but in transforming it into a regulated, equitable practice that uplifts workers while securing Indonesia’s place in the global economy.
Latest Update
- Sumitomo Corporation Becomes The Sales Agent of Subang Smartpolitan
- On May 20, 2025, PT Suryacipta Swadaya (Suryacipta) and Sumitomo Corporation signed a Marketing Agreement in Tokyo to facilitate Japanese investments in Suryacipta’s new industrial park in West
- Subang Smartpolitan is a 2,700-hectare industrial city in West Java, developed by Suryacipta, integrates industrial, commercial, residential, and educational zones, aiming to support modern industrial Sumitomo will leverage its extensive network of Japanese businesses to attract tenants to Subang Smartpolitan. Beyond promotion, Sumitomo will also provide strategic input to enhance tenant services, ensuring that the facilities and infrastructure align with the evolving needs of global investors and industries.
- Djarum Group, through its subsidiary PT Puri Bumi Lestari, holds a 36% stake in PT Surya Semesta Internusa, Suryacipta’s parent company, through a recent transaction in This connection reflects the broader involvement of one of Indonesia’s largest conglomerates in the development of industrial and infrastructure projects.
- Indonesia QRIS Expanding to Japan and China
- Bank Indonesia (BI) announced that the cross-border Quick Response Code Indonesian Standard (QRIS) system will be available for use by Indonesian citizens in Japan and China starting August 17,
- The cross-border QRIS system allows direct transactions in local currencies without the need for currency Users can simply scan a QR code to complete payments when shopping abroad.
- QRIS cross-border payments are already in use across several Southeast Asian countries, particularly within the ASEAN regional payment system cooperation, including Malaysia, Thailand, Singapore, and the Philippines.
- In Japan, technical preparations have progressed to the sandbox stage, in coordination with the Japanese payment system authority, as of mid-May
- In China, cooperation is advancing positively, with finalized agreements on business, technical, and operational matters between UnionPay International and the Indonesian Payment System Association (ASPI).
- With India, QRIS integration remains under technical discussion between ASPI and NPCI (National Payment Corporation of India) International
- For South Korea, cross-border QRIS collaboration is still under industry-level study and finalization.
- In Saudi Arabia, BI has held initial discussions with the Saudi Arabian Monetary Authority to explore future cooperation on QRIS-based payments.
- Intiland Collaborates With ION Network To Build Data Center In Surabaya
- PT Intiland Development Tbk officially signed a strategic cooperation agreement with ION Network (PT Solusi Data Cepat) for the management of a data center located in Surabaya.
- The signing became Intiland’s first step in entering the Information and Communication Technology (ICT) sector, especially the data center Further information was not disclosed.
- Banyumas Local Governor Intends to Establish an Industrial Park
- The government of Banyumas Regency, Central Java, plans to develop an Industrial Park in Wangon, preparing 84 hectares of land, as the asset of the local government.
- The Industrial Park will be named Seti Madukoro Smart-Green Industrial Cluster, located in three villages in two sub-districts, namely Randegan Village and Wangon Village, Wangon Sub-district; and Parungkamal Village, Lumbir Sub-district.
- The Industrial Park will be located near the planned construction of Pejagan- Cilacap Toll Road via Banyumas.
- 8,000 Hectare Land For Industrial Park Development In Majalengka
- The Majalengka district government is proposing a revision of the Regional Spatial Plan (RTRW) to accommodate industrial growth. An area of 8,000 hectares in the northern region of Majalengka is prepared to be used as an Industrial Park.
- By preparing 8,000 hectares as an official Industrial Park area, the government wishes that all industrial activities can be more organized, safe, and integrated with long-term development plans. To achieve this, they are committed to revising the Regional Spatial Plan and Detailed Spatial Planning (RDTR).
- Majalengka already has Industrial Park operating in its district, where the first Industrial Park is Kawasan Industri Kertajati Majalengka or KIEM, with a total land of 400 hectare. Then another new development in Kertajati-Jatitujuh, spanning 374 hectare, which is still on initial development.
- Petronas, Pertamina and Inpex Acquires New Indonesian assets
- On May 22, 2025, Malaysia Petronas, through its local subsidiaries, signed production sharing contracts (PSCs) for the Serpang and Binaiya working areas (WK) as part of Indonesia’s 2024 petroleum bid The Serpang WK, located offshore East Java, spans 8,498 square kilometers, while the Binaiya WK, in Eastern Indonesia, covers 8,484 square kilometers.
- The initial three-year commitments for both blocks include conducting three geological and geophysical (G&G) studies and acquiring and processing 400 square kilometers of 3D seismic data. These activities aim to assess the hydrocarbon potential of the blocks.
- Petronas will operate the Serpang block in partnership with Japan’s Inpex and South Korea’s SK Meanwhile, Pertamina Hulu Energi will operate the Binaiya block, with Petronas and SK Earthon as co-venturers. Petronas also operates other PSCs in Indonesia, including Ketapang, North Madura II, North Ketapang, and Bobara, and is a joint venture partner in five additional PSCs across the archipelago.
- GEM Invest IDR 130 Trillion For Industrial Park Development in Sulawesi
- GEM Co., Ltd., a Chinese company specializing in battery raw material processing and recycling, plans to invest up to USD 8 billion in the Indonesia Green Industrial Park (IGIP) in Central Sulawesi, with initial phase involves a USD 2 billion investment. IGIP will focus on creating a zero-emissions ecosystem, emphasizing battery recycling and green industrial
- In IGIP, GEM is collaborating with PT Vale Indonesia to develop a USD 4 billion High-Pressure Acid Leach (HPAL) facility in Morowali, Central Sulawesi. This facility will produce 60,000 tons of nickel in Mixed Hydroxide Precipitate (MHP) annually, a key material for EV batteries. GEM also operates a nickel processing plant in Morowali through the QMB joint venture, which includes partners like Tsingshan Group, CATL’s Brunp, South Korea’s EcoPro, and Japan’s Hanwa. The QMB facility processes nickel into MHP and recycles rare materials like cobalt and lithium, aligning with Indonesia’s downstreaming policies.
- GEM’s industrial park in Morowali aligns with the successful models of Tsingshan’s Indonesia Morowali Industrial Park (IMIP) and Indonesia Weda Bay Industrial Park (IWIP). These parks integrate mining, processing, and export facilities, focusing on nickel and cobalt for EV GEM’s project similarly aims to create a vertically integrated industrial ecosystem.
- Shell Ends Its Operations in Indonesia
- PT Shell Indonesia is transferring all ownership of its gas station business in Indonesia to a new joint venture between Citadel Pacific Limited and Sefas
- Through this acquisition, they took over around 200 Shell gas stations as well as a fuel storage terminal in Gresik, East Despite the change in ownership, the Shell brand will still be used in Indonesia through a global license agreement that has been agreed with the brand owner.
- Citadel Pacific is known as a Shell brand licensee in a number of Asia-Pacific territories such as Guam, Saipan, Macao, Palau and Hong Kong. Meanwhile, Sefas Group is Shell’s long-standing partner in Indonesia and is currently the largest distributor of Shell lubricants in the country.
- The operations of the Shell service station network in Indonesia will remain unaffected by the ownership The existing team will continue to serve customers, and all business activities will proceed as usual.
- Garuda Green Hydrogen Project in Gresik
- The Garuda Green Hydrogen Project, located in Gresik, East Java, is set to become Indonesia’s largest green hydrogen facility. Powered by a 600 MW renewable energy plant (solar and wind), it will produce 150,000 tonnes of green ammonia annually, with operations expected to begin in 2026. The project represents a $1 billion investment and is a key step in Indonesia’s clean energy transition.
- This initiative is a joint development between two state-owned enterprises PT Garam, PT Pupuk Indonesia, and Saudi Arabia’s ACWA The agreement was formalized during the 46th ASEAN Summit and further reinforced at COP28. The project also includes a 25-year contract to supply green hydrogen for green ammonia production, which will be used in fertilizers by PT Pupuk Indonesia.
- The project underscores Indonesia’s commitment to renewable energy leadership in Southeast Asia. It not only supports the country’s low-carbon energy goals but also strengthens regional and international cooperation in sustainable energy This collaboration highlights the shared vision of advancing green hydrogen as a cornerstone of the global energy transition.
- Chinese Thread Company Opens Factory in Subang Smartpolitan
- PT Xinfung Industry Indonesia, a subsidiary of Jiangsu Xinfang Technology Group, a textile giant with expertise in fancy yarn production and fibre dyeing inaugurated the construction of a new factory in Subang
- With an initial investment of USD 30 million (equivalent of IDR 450 billion), the factory committed to 300 new jobs, technology transfer, and 100 percent exports to Southeast Asia.
- The factory occupies 4 hectares of land, completion of construction is targeted for the end of 2025 and full operation in February The second and third phase expansion plans are projected to triple in value, reaching USD 90 million.
- Djarum Group Officially Enters The EV Market
- Polytron, a subsidiary of Indonesia’s Djarum Group, has launched its first locally assembled electric vehicles (EVs), the G3 and G3+. These five-seater SUVs are priced between IDR 299 million (USD 18,166) and IDR 459 million (USD 27,900), offering options for fixed or replaceable The vehicles have a driving range of up to 402 kilometers and are powered by lithium ferro phosphate (LFP) batteries with a capacity of 52 kWh.
- Polytron has partnered with China’s Skyworth Auto for technology sharing and joint R&D. The G3 and G3+ are based on Skyworth’s EV6 platform but have been adapted for the Indonesian market through local hardware and software Currently, the company assembles its cars in partnership with PT Handal Indonesia Motor, which typically handles assembly for Chinese EV brands.
- Polytron aims to produce 10,000 EVs over the next three years and plans to expand its EV portfolio by introducing 2–3 additional The company is leveraging its existing manufacturing facilities and expertise in electronics to enter the competitive EV market.
- Founded in 1975, Polytron operates three manufacturing plants in Central Java, producing appliances like refrigerators, air conditioners, and The company employs over 10,000 people and has 19 offices and 61 service centers across Indonesia. Its entry into the EV market aligns with its mission to innovate and improve accessibility for Indonesian families.
- Indonesia’s EV market is growing rapidly, with EV sales increasing by 152% in 2024. Polytron’s entry into the market comes amid competition from global players like BYD, which is also expanding their presence in Indonesia.
- KITB Builds Its Multipurpose Terminal
- Pelindo Regional 3 continues to accelerate the construction of the Batang Multipurpose Terminal located in Batang Regency, Central By the end of April 2025, the national strategic project has reached a physical progress of 76%, with a target completion of the first phase this year.
- The terminal is designed to support the logistics and trade activities of the Batang Integrated Industrial Estate (KITB).
- Indonesia Secures USD 499 Million From AZEC For Geothermal Project
- Indonesia has secured IDR 21 trillion (USD 499 million) in funding from the Asia Zero Emission Community (AZEC) to develop the Muara Laboh Unit 2 Geothermal Power Plant in Solok, West Sumatra.
- The agreement was formalized through a financial close between PT Supreme Energy Muara Laboh and the Japan Bank for International Cooperation (JBIC).
- The Muara Laboh Unit 2 plant with a capacity of 80 MW is scheduled to begin commercial operations in An expansion, Unit 3, with a capacity of 60 MW, is expected to be operational by 2033.
- Muara Laboh Geothermal Power has previously operated Unit 1 with a capacity of 85 MW since December 16,
- The Indonesian government is committed to accelerating the implementation of several key AZEC-backed projects, including the Legok Nangka Waste-to- Energy project, Sustainable Aviation Fuel, the Sarulla Geothermal Plant, and the Java-Sumatra Transmission Network, aiming to bring them to the commercialization stage.
- Indonesia Towards Zero ODOL 2026
- The Indonesian government aims to implement the Zero ODOL (Over Dimension Over Loading) policy by 2026. This initiative seeks to enhance road safety, reduce traffic accidents, and minimize infrastructure damage caused by overloaded trucks, which currently cost the state billions in road repairs
- The policy’s rollout involves collaboration across ministries and stakeholders, with West Java identified as a pilot area due to its high concentration of industrial parks. However, the initiative faces resistance from logistics businesses, citing potential cost increases and operational disruptions without adequate government support.
- Critics argue that the policy must be accompanied by subsidies or alternative solutions for affected industries to prevent price hikes on essential goods. Additionally, enforcement challenges remain, with calls for systemic changes and stricter regulations to ensure compliance.
- Hwaseung To Operate Second Factory For IDR 4 Trillion In Central Java
- Hwaseung Indonesia, a key Adidas supplier, is expanding its operations in Central Java with a second factory in Pati The company plans to invest IDR 4 trillion (USD 241.8 million) across its two facilities, with IDR 2.5 trillion already realized.
- The new Pati factory is expected to create 12,000 jobs by 2026, adding to the 30,000 workers already employed in Central Java, primarily at its Jepara facility, operational since 2016.
- Hwaseung specializes in sports fashion ODM (Original Design Manufacturing), transitioning from traditional OEM. It collaborates with global brands like Adidas, leveraging advanced manufacturing processes and innovative designs to maintain its competitive edge.
- One Of Indonesia’s Largest Solar Power Plant In Banyuwangi
- Banyuwangi Regency in East Java will host Indonesia’s largest land-based solar power plant with a capacity of 100 MW. The 130-hectare site in Kalipuro District, owned by PT Perkebunan Nusantara I Regional 5, was selected for its high solar potential. This initiative aligns with the government’s National Strategic Program (PSN) and its Net Zero Emissions (NZE) target by
- Construction is scheduled to start in late 2025, with operations beginning in 2026. The plant will supply electricity to the 150-kilovolt Java-Bali power grid, supporting energy demands across the The project is part of PT PLN’s Electricity Supply Business Plan (RUPTL) and is being developed in collaboration with PT PLN Indonesia Power.
- The Banyuwangi Regent has pledged full support for the project, emphasizing its role in advancing Indonesia’s renewable energy transition and reducing reliance on fossil fuels. This initiative highlights the region’s commitment to sustainable development and energy innovation.
- Chinese Company Inaugurates Building Materials Factory in Kendal SEZ
- PT HSG Material Indonesia, a subsidiary of Fujian Hongsheng Material Technology, began constructing a large-scale factory in April The facility will produce essential construction materials, including precast concrete and prefabricated piles, with a target capacity of 3 million units and 150,000 m2 of ready-mixed concrete annually. Operations are expected to start in early 2026, employing around 250 workers and catering to both domestic and export markets.
- Fujian Hongsheng Material Technology , Ltd., based in Fujian, China, is a pioneer in high-quality building materials. The company specializes in innovative construction solutions, leveraging advanced manufacturing techniques to meet global standards. It has a strong reputation for producing durable and efficient materials for large-scale infrastructure projects.
- Rekosistem Secures USD 7 Million To Scale Circular Waste Management In Indonesia
- Rekosistem, a waste management company has managed to raise a USD 7 million in its series A funding round.
- The investment was led by Saratoga Investama Sedaya and K3 Ventures, with participation from AppWorks, Skystar Capital, Bali Investment Club, Orvel Ventures, and Michael Sampoerna’s
- Rekosistem was founded in 2021, managing the waste supply chain including collection, sorting, treatment and It currently operates 15 Hubs, 40 Waste Stations, and over 600 Partnership Locations, handles 4,500 tons of waste monthly and processes 3,500 tons, serving over 90,000 households and 200 businesses, including Danone, Nestle, and Toyota Astra Motor
- The new funding is expected to boost its waste management capacity, support advanced technology development, and enable expansion beyond Java.
- Four Million Green Workers Projected By Bappenas
- By 2025, Indonesia aims to have four million green workers (2.7% of the workforce), potentially growing to 3 million (3.14%) by 2029. This growth is supported by the Indonesia Green Jobs Development Roadmap, managed by National Planning Agency (Bappenas) which aligns workforce development with green economy needs and emphasizes vocational training and education tailored to green labor market demands.
- Globally, demand for green skills is outpacing supply, with job postings requiring green skills growing by 4% between 2022 and 2023. Renewable energy alone is expected to create 14 million manufacturing jobs by 2030. However, only 1 in 8 workers globally possess green skills, highlighting the need for reskilling and policy support to bridge this gap and ensure a sustainable future.
- Green workers, or green-collar workers, are individuals employed in roles that contribute to environmental protection and These jobs span both white-collar and blue-collar work, including traditional sectors like manufacturing and construction, as well as newer green industries such as renewable energy, energy efficiency, and waste management. Their work focuses on preserving or restoring the environment while supporting economic growth.
- § ReNIKOLA To Develop Bio-Energy Projects In Indonesia And Malaysia
- Renewable energy company reNIKOLA Holdings Sdn Bhd has signed a MoU with Sumitomo Corporation to jointly develop large-scale bioenergy projects in Malaysia and Indonesia.
- The collaboration will focus on converting palm oil production residues into advanced renewable fuels, targeting the development of biomethane and low- carbon derivatives such as liquefied biomethane (LBM) and
- This initiative aims to fortify the region’s energy resilience with the conversion of palm oil wastes into sustainable fuel, while spearheading the decarbonisation of the palm oil sector, transforming the world’s largest palm oil producers into low-carbon economies, and promote a sustainable practice for palm oil industry.
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