Ottobre 5, 2015

Indonesia needs reforms in the retail sector

Indonesia needs reforms in the retail sector

Recent estimates (Global Retail Report, 2013) show that retail employment is expected to grow in the future and it currently accounts for over US$15 trillion in global revenues. Even though the major retailers are predominantly from developed countries (the U.S. and Europe), much of the global economy is now organised through global value chains, which are achieving the largest growth in the developing world.


Nevertheless, together with the rhetoric of fresh economic opportunities, the epopee of globalization has brought considerable challenges of governance failures and widespread recognition of predatory sourcing and production practices. A precise assessment of the rules and mechanism of retailing, therefore, is a key step forward towards valid reforms of the labour market.


Without an agreed definition of non-standard work for the Indonesian labour market, a central issue in the agenda of national authorities is the regulation of job outsourcing and agency work. Shady business, the few concerns of a needy working force and the lack of domestic regulation are not distinctive of the Indonesian case. A constant investigation of global and national dynamics leading towards NSFE should be a persistent imperative among policy makers and political actors.


On the corporates side, numerical flexibility is an instrument to reduce the cost of long-term employment or to adapt the production to fluctuating demands. On the other side, in a context where the externalization of internal labour market, the introduction of new management driven technology and the widespread practice of job outsourcing have had a tragic social impact; the rising concern on non-standard forms of employment opens up the debate about poor opportunities for career advancement, inadequate working conditions and the loss of workers’ control over their tasks and schedule.


In Indonesia, Non-Standard- Forms of Employment (NSFE) means informal work, occasional work and outsourced work. The population under this umbrella, the ILO says, has increased at a rapid average annual rate from six million in 2001 to 11 million in 2010. What is more, Indonesian retail sector has a byzantine structure. Several co-existing business formats, wide variety of outlets, fierce competition within local and national markets, and often the presence of foreign ownership, have produced an environment where market gains are necessary for retailers to survive. Managerial interests, at the same time, as showed in the figure, has led to a persistent application to non-standard forms of employment or to part-time contracts that makes this sector particularly attractive for young people, students, and women. As if were not enough, outsourcing, initially relevant in the manufacturing sector only, is ever more popular in the retail sector. While this helps companies to deal with a fluctuating market demand, it has severe consequences on workers’ financial stability and their future prospects.



Some commentators have focused their attention on the supply-side factors affecting NSFE, especially in the higher end of the employment spectrum; others highlight the demand-side, which affects the lower end of NSFE, and finally there are explanations that point to institutional factors. Collective bargaining contracts and national laws, if effectively implemented, can attenuate the negative effects of certain management decisions by empowering workers. National regulations such as deregulated trading hours seem to be an important aspect in determining the use of non-standard form of employment. Evidence from the Vietnam’s retail sector shows that many small retail employers in order to compete with bigger retailers – who are open for longer hours – have themselves been forced to work for a longer period of time. In these circumstances, the attraction of using part-time or causal workers increases.


Policy makers involved in poverty reduction programs that will shape the future of employment must take into consideration the effect that non-standard employment has for the conditions of workers. The importance of the retail sector for employment and economic growth makes this industry one of the top priorities for government regulation as well as a lucrative source of profit for private investment. For instance, people need a definition of clear standards for working hours – including the abolishment of anti-social working hours, health and safety standards should be monitored closely, and more training should be provided to managerial staff about the economic impact of NSFE for companies’ performances.


Business practices and pattern of labour use to play a role in shaping the range of options that retailers in each sector consider for implementation. For instance, consumer electronics retail (especially the big box variety) is a recent development. For this reason, it has had 7-day operation and heavy reliance on part-time employment. Private and public agents involved in improving economic development should also focus on monitoring the functioning of local labour market, since it has a major influence on labour turnover and, thus, on both working conditions and companies’ economic performances. Organisational factors such as company culture and values have a significant influence too. Management behaviour as seen through operational and control variables is also of importance. Individual employee variables are also significant in decisions concerning turnover.


The prevalence of non-standard employment in this sector may undermine the effect of social protection and poverty alleviation programs. Therefore, efficient institutions, effective tripartite mechanisms of confrontation between employers, employees, and governments, and the extension of social rights to non-standard workers are fundamental policy initiatives that governments around the world – and Indonesia – should pursuit to secure long-term shared well-being, and sustainable development for all.

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About Simone Marino

Simone Marino

Simone has an extended experience in socio-economic data analysis, policy design and implementation. In the past he has worked with the International Labour Organization (Geneva), the Directorate General for Employment, Social Affairs and Inclusion at the European Commission (Brussels), the private sector, and Academic research centre (LSE, London). In his current position within the Secretary-General of the European Commission, he provides on-the-ground technical support and advice to European Governments and Administrations on the implementation of structural reforms in the fields of labour market, social policy and migration. Simone holds a Research Degree in Social Policy from the London School of Economics, and a Master's Degree in Sociology and Social Research from the University of Trento (Italy) and Hitotsubashi University (Japan).

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