[Excerpt] Historically, outsourcing has always existed, as firms put out work to suppliers, contractors, and intermediaries to organize the production of goods and services (Doellgast and Gospel 2011). In recent years, however, outsourcing has increased in both scale (the volume of outsourcing) and scope (the number of activities outsourced). This has several related causes. First, the advent of new transportation systems, such as the growth of maritime, rail, and road logistics and the advent of new information and communications technologies (ICTs) have facilitated ordering, monitoring, and delivery of products and services. Second, as markets have extended and become more competitive, firms increasingly seek to save costs through focusing on their core value-maximizing activities, handing other activities over to suppliers. Third, the relaxation of trade barriers, emergence of new markets, and expansion of a more highly skilled labor force in Asia have increased the ease and cost savings of outsourcing to these regions. Fourth, in the public sector, organizations have been prompted by politicians to look to outsourcing as a way of cutting costs and introducing greater flexibilities. Finally, management fashion has played an important role in popularizing production and service models, as firms watch and imitate their competitors (IMF 2007; OECD 2007ab).
These trends have a number of implications for the management of human resources across firms’ increasingly diverse (and often international) procurement and supply chains. Managers face choices concerning how to help employees adjust during worker transfer or downsizing following the decision to outsource work. Networked relationships across core firms and their subcontractors introduce new demands, in terms of resources and monitoring, as firms seek to coordinate practices and incentives across organizations. In addition, the human resource management (HRM) function itself is increasingly being outsourced to specialist organizations, often involving substantial restructuring and rationalization.
We first provide background on outsourcing trends and then discuss the HRM issues and choices associated with outsourcing. Throughout, we examine the ways in which national institutions affect the costs and benefits of different strategic choices by firms, as well as the particular challenges multinationals face as they seek to manage outsourcing contracts across national borders. We show that outsourcing is both driven by and used to facilitate globalization. However, outsourcing strategies and their impact on different stakeholder groups continue to be embedded in distinct national settings.