Should organizations outsource human resource activities?
MGT 249 – Human Resources Management
What are outsourcing benefits?
Outsourcing is the contracting out of a business process, which an organization may have previously performed internally or has a new need for, to an independent organization from which the process is purchased back as a service. Though the practice of purchasing a business function instead of providing it internally is a common feature of any modern economy, the term outsourcing became popular in America near the turn of the 21st Century. An outsourcing deal may also involve transfer of the employees and assets involved to the outsourcing business partner. The definition of outsourcing includes both foreign and domestic contracting, which may include off- shoring, described as “a company taking a function out of their business and relocating it to another country.”  Reasons for outsourcing:
Companies outsource to avoid certain types of costs. Among the reasons companies elect to outsource include avoidance of burdensome regulations, high taxes, high energy costs, and unreasonable costs that may be associated with defined benefits in labor union contracts and taxes for government mandated benefits. Perceived or actual gross margin in the short run incentivizes a company to outsource. With reduced short run costs, executive management sees the opportunity for short run profits while the income growth of the consumer’s base is strained.  This motivates companies to outsource for lower labor costs. However, the company may or may not incur unexpected costs to train these overseas workers.  Lower regulatory costs are an addition to companies saving money when outsourcing. On comparative costs, a U.S. employer typically incurs higher defined benefit costs associated with taxes to account for SS, Medicare, safety protection (OSHA regulations) and FICA taxes etc. than in other countries. On comparative CEO pay, executive pay in...
References: PHYLLIS KORKKI, When the H.R. Office Leaves the Building, December, 2012
Saunders, Human Resources Outsourcing, 2007
GARY DESSLER, Fundamentals of Human Resource Management, September, 2008
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