“On-Demand” Labour Outsourcing

December 14, 201610:47 am1767 views

Real-time web platforms have enabled businesses to tap directly into a diverse pool of independent, short-term “gig” contractors on an as-needed basis. HRM Asia speaks to Asian app makers about the advantages of “on-demand” labour outsourcing.

The upward trajectory of the “gig” economy is best understood by examining the closely-linked phenomenon that is the app-building sector.

The rapid proliferation of real-time platforms, usually with mobile functionality included, has given rise to the so-called “gig” economy. This term has its roots in the music industry, referring to musicians who take on irregular performance jobs. Similarly, the “gig” worker is someone who takes on various short-term, irregular stints, rather than a single full-time job.

Non-employee workers

Collectively known as contingent workers, these players now form a significant portion of the total US workforce.

Contingent workers constituted only around 10% of the total workforce in 2005, according to the Bureau of Labor Statistics. But a study from software company Fieldglass last year found that an estimated 35% of the total workforce now comprises of “non-employee workers” – independent contractors who are not recorded on the organisation’s official payroll.

This number is set to grow further. Contingent workers are forecast to make up some 40% of the American workforce by the end of 2017, according to estimates from Intuit.

Mirroring this growth is the burgeoning mobile app sector, primed to become a US$101 billion industry by 2020, doubling up from the US$50 billion value recorded in 2015, data analytics firm App Annie has revealed.

Before today’s wide range of tools and platforms with real-time connectivity were available, outsourcing was generally confined to low-level transactions, creating mainly external call centres and business process shops offshore. Today however, companies are able to approach contingent employment very differently, as a much wider range of skills and services can now be outsourced and handled outside the organisation.

As Havas Media’s Senior Vice President of Strategy and Innovation Tom Goodwin wrote on TechCrunch last year, “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate”.

These top businesses amassed significant value without having to spend millions on inventory or full-time employees.

No overheads

Singaporean start-ups like honestbee, Fastfast and Ninja Van are three of the many entities who have adopted this approach of outsourcing key functions on an on-demand basis.

“The gig economy will definitely make up a significant portion of the future workforce,” says Isaac Tay, Vice President of Talent and Special Projects at online grocery service honestbee.

The e-grocer, present in Singapore, Hong Kong, Niseko, and Taipei, works with independent contractors who are paid on an hourly basis. As of February this year, honestbee employed more than 2,300 shoppers and delivery “bees” across its operations.

Tay believes the model is both cost-effective and highly scalable.

“With this type of workforce, we are able to hire more people to build up a larger labour pool than otherwise possible,” he explains. The company now plans to expand its services to Kuala Lumpur, Jakarta, Bangkok and Tokyo during the last quarter of 2016.

The app industry is also now the playground of seasoned entrepreneurs, including Elim Chew, founder of the iconic, but now-defunct Singapore fashion retailer 77th Street.

In 2015, she co-created Fastfast, an app and website-based logistics support and delivery service that pairs freelance drivers with nearby customers that need to have articles delivered urgently. Customers can also book a delivery service via its website.

The start-up engages independent contractors as delivery drivers.

Fastfast works closely with corporate entities to provide delivery on demand at affordable, distance-based rates. At present, the company has a roster of some 1,300 trained drivers.

Chew does not consider the “gig” economy to be “the future” of labour, but says it “definitely works for certain businesses”. That is “because demand and supply fluctuate, especially for start-ups”.

And the main “killer” for start-ups, she adds, is high rental and manpower costs.

“This kind of contingent workforce helps to save on fixed overhead costs, so companies need not struggle to support a fleet of full-timers. Each worker is only paid for jobs that they successfully bid for,” she explains.

“It is especially important during lull periods when demand is lower than supply.”

Another logistics start-up with this labour model is Ninja Van, which positions itself as a delivery solution for regional e-commerce businesses, including Zalora and Lazada.

Ninja Van also engages non-contract drivers to deliver orders directly to end-customers on behalf of its partner retailers.

The company says there was previously no regional logistics hub that these retailers could partner with on any scalable basis.

Founded in Singapore, Ninja Van is also present in Malaysia, Indonesia and Vietnam. As of April this year, it was making 15,000 deliveries a day across the region.

Imran Bustaman, Assistant Vice President of HR, Ninja Van, says outsourcing labour gives the company much-needed flexibility.

“In a company on a growth curve, diversifying your product is always on the cards, and sometimes having a full time workforce might not seem so viable,” he says. “Having a flexible workforce helps us to play around more with projects without worrying so much about the manpower costs.”

New income streams

For individuals seeking flexible employment, the quantity of jobs is often key. Non-contractual job options can often “open up more streams of income”, Bustaman says.

Freelancers also have more occupational mobility, he adds, noting that this is particularly true in the creative space.

“The increase in companies hiring for project-based employment offers these gig workers much more freedom in deciding what they want to work on, and who they want to work with,” he explains.

“This kind of mobility is not a luxury afforded to full-time employees.”

Chew echoes the same sentiment.

“Not only are there no fixed working hours, but there is also no restriction on the number of jobs they can take up,” she says.

“This is really an additional avenue for them to earn extra income using resources they already have, such as their vehicles.”

While Tay also agrees about the benefits of increased income and flexibility, he says the motivation to go independent often differs between higher and lower-skilled players.

“Firstly, the highly-skilled workforce is using better tools to manage their time and projects more efficiently,” says Tay.

“For these people, while going freelance seemingly sacrifices financial stability, it allows them to increase their per-hour income, and also satisfies their need to constantly do different and more interesting work.

“At the same time, it allows more flexibility.”

The opposite is however true for lower-skilled workers, facing lower demand for their services with the prevalence of technological substitutes and lower-cost labour in other parts of the world.

“To them, going freelance is a means to secure as much employment as possible,” Tay says.

Transforming transportation

There are no better archetypes of a company leveraging on the gig economy than Grab and Uber, two disruptive app-based transportation providers that match drivers to passengers through a range of service types, from private vehicles and taxis, to motorcycles, and even carpooling.

Both ride-hailing platforms welcome just about anyone with a driver’s licence and a suitable vehicle to join them as a driver, and their first job can begin as soon as the first passenger request comes in.

Uber is now present in more than 500 cities globally, and at the end of 2015 the company was valued at US$62.5 billion.

“Uber offers people a new way to work – on their own terms,” a company spokesperson says.

“People choose (to work for) Uber because it provides the kind of opportunity they want with the independence, flexibility and dignity that comes from being their own boss.”

The spokesperson adds that business models like Uber’s allow drivers to set their own schedules.

“In the US, for example, more than half of drivers drive fewer than ten hours a week.

“Drivers can tend to childcare, invest in their education, or work another job, driving only when they need or want – even if that is just to pay an unexpected bill or the rent between jobs.

Grab, which was founded in Malaysia in 2012, now operates across 30 cities throughout Singapore, Indonesia, the Philippines, Malaysia, Thailand and Vietnam, with a network of more than 350,000 drivers.

Grab’s most popular services are GrabCar and GrabTaxi. The latter service provides existing taxi drivers with an additional customer base to tap into.

The head of Grab Singapore, Lim Kell Jay, says drivers have benefitted from the company’s many welfare initiatives.

“While drivers are not our employees, they are a key part of the Grab family,” says Lim. “And for this reason, we place great emphasis on driver engagement.

“For GrabCar drivers, our goal is to help lower their operating costs to increase their earnings, while ensuring their wellbeing is taken care of. For GrabTaxi drivers, we want to provide more ride bookings to them, while keeping them engaged,” he says.

Among the many GrabCar driver initiatives are: a fuel discount programme for selected drivers; free Personal Accident insurance coverage; as well as a rebate and incentive programme.

Earlier this year, the company also opened two new Driver Support Centres in Singapore.

Managing demand and supply

Fastfast’s Chew warns of the challenge in balancing consumer demand and an appropriate supply of staff and services.

“When there is high demand but low supply, your clients might find it difficult to think of your business as a vendor that they can rely on,” she explains.

On the other hand, when there are too many drivers, she says “they might get disheartened when they don’t get many jobs, which will result in them leaving the company for other opportunities”.

Furthermore, Chew says contingent workers are not contractually bound to complete every pending job, and this unreliability can sometimes lead customers to lose trust in the service.

Retention and loyalty are definitely “foreseeable issues” with such a model, since freelancers have more mobility, says Ninja Van’s Bustamam. “That makes it a lot more difficult in developing your own internal employee competencies.”

He adds that the low barriers to entry can also be a cause for concern.

“I think when you work in an industry where barriers to entry are low and building defensive moats around your business to ensure competitive advantage are difficult, there is always a fear that you’ll lose it,” Bustamam shares.

“But this all boils down to your recruitment and selection process,” he adds.

It is also vital for companies to constantly engage with their independent contractors, says honestbee’s Tay.

“Because the sense of belonging might be lacking, people tend to come, and then go once they have found themselves a better gig,” he says.

“Companies need to do all the things a company with good HR would do, albeit slightly differently.”

He says it is important to celebrate wins together, reward the better performers, and communicate that there will be more jobs available if the company does well.

Honestbee, for example, pays better-performing shoppers a higher per-hour rate.

Chew agrees with the importance of incentives. She says companies have to “keep communication open” and continually provide independent contractors with updates about the company’s progress and business direction.

Ninja Van’s Bustamam also lauds the value of building trust with gig workers by simply being frank about all possible outcomes.

“Managing, meeting and aligning expectations, and being very clear and honest with each party creates a lot of mutual respect, so there’s trust from both sides to fulfil their contractual obligations,” says Bustamam.

“Once there is stability, we look at how can we make them keep coming back – which is where incentives, come in to play.”

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