Off-Shoring, Essay Example

Abstract

The current paper discusses off-shoring as related to HR. The impact of HR on off-shoring is evaluated. The negative impact of HR on off-shoring is justified by the limited vision of off-shoring initiatives. The impacts of off-shoring on firms are controversial. Off-shoring is a profound transformational process and only a few firms can afford using off-shoring as the instrument of reducing their costs.

Introduction

In conditions of the continuous economic crisis, off-shoring is gradually turning into one of the most popular cost-reduction techniques. Small and large firms consciously choose off-shoring as the means of saving their businesses from failure and promoting higher levels of competitiveness in the market. Unfortunately, very often, firms exercise an increasingly limited vision of off-shoring benefits. The role of HR in off-shoring is usually underestimated, causing higher costs and lower returns on investments. The impact of off-shoring on companies is rather controversial, and it would be fair to say that only a few companies sufficient resources and practical business experience can afford off-shoring their business without significant losses.

Off-shoring can be defined as “the decision to source a product or a service from an external supplier located in an emerging country” (Cerruti, 2008). That means that off-shoring decisions comprise an organizational aspect (going offshore) and a HR aspect (outsourcing). As a result, off-shoring necessarily implies the need for an organization to evaluate the potential impact of HR decisions and policies on off-shoring initiatives, and to predict the relevance and effects of outsourcing in short and long run. Unfortunately, recent years have been marked with the growing HR controversy in off-shoring. The problem is in that the firms which decide to go offshore simply disregard the importance of the HR factor. Firms and businesses, which take a decision in favor of off-shoring simply forget that HR considerations play one of the major roles in the effectiveness of off-shoring initiatives, and without maintaining a proper balance of workforce the company will hardly be able to achieve the basic off-shoring objectives and reduce its costs.

Needless to say that cost reduction is one of the central objectives of any off-shoring decision. In conditions of the continuous financial and economic crisis, businesses intentionally apply to off-shoring as the means of reducing their costs and gauging their success (Robinson, 2004). HR is expected to play one of the central roles in reducing the costs and improving the overall performance efficiency. However, more often than not, firms underestimate the organizational impact of HR on off-shoring decisions and the costs of moving labor offshore; as a result, global sourcing decisions do not bring anticipated results and show HR as the source of negative influences on off-shoring.. Regardless of whether companies decide to transfer their employees offshore or to hire new local personnel, off-shoring is always associated with the need for the company to reduce the cultural and communicational gap between different employee groups (Robinson, 2004). Resolving these issues is impossible without making significant financial and non-material investments in off-shoring. It is important that new employees also realize the value and understand the meaning of the organizational culture, for which they are expected to work, and this process requires time and effort – the aspects, which companies often disregard (Robinson, 2004). It is difficult not to agree to Granite Solutions (2006) in that companies often view off-shoring as a form of free lunch. However, it is obvious that lunch cannot be free and by disregarding cultural and communicational differences, companies which go off-shore actually establish a negative vision of HR in off-shoring decisions. HR becomes a serious obstacle on the way to reducing costs while, if properly treated, it could potentially turn into an effective driver of cost-reduction.

The general impact of off-shoring on firms was mostly controversial. In light of the policy inconsistencies and the limited vision of the role of HR in off-shoring decisions, only a few firms were able to achieve the anticipated results and objectives. The truth is that “the practice of offshore outsourcing is one fraught with complex issues and decisions, and often suffers from over-generalizations and knee-jerk reactions” (Anonymous, 2004). Because of the growing firms’ vulnerability to taxation issues and the desire of firms to move to areas which offer more favorable taxation conditions, off-shoring is associated with money laundering and unfair business practices. Thus, firms which take off-shoring decisions, even if they are based on fair business considerations, risk facing reputation problems and undermine the stability of their brand image. The economic and labor effects of off-shoring are doubtful because only a few firms realize the full meaning and scope of off-shoring in organizations. Cerruti (2008) is correct: off-shoring produces short-term positive effects on cost reduction and long-term negative effects on core activities, and in general off-shoring is a profound transformational process which only a few businesses can afford. Off-shoring is not limited to cost-reduction, but comprises a complex set of organizational ideas and transformations, and the extent to which off-shoring improves the quality of organizational performance will depend on how organizations view off-shoring and how they apply the principles of off-shoring changes in practice. In this array of problems and issues, special attention should be paid to the role and importance of HR, as well as the cultural issues that naturally emerge in the process of moving businesses offshore.

Conclusion

Off-shoring implies the decision to source a service or product from another supplier in an emerging country (Cerruti, 2004). The impact of HR on off-shoring is mostly negative because companies often disregard the difficulties and potential issues, which emerge in the process of moving the labor force offshore. These include cultural and communicational considerations, as well as the need for the firm to integrate new employees with its organizational culture. Generally, firms hold a limited vision of outsourcing as the instrument of cost-reduction. In reality, off-shoring is associated with profound organizational transformations, which only a few firms can afford. As a result, whether off-shoring works for the benefit of businesses and whether HR produce positive impacts on the effectiveness of off-shoring decisions largely depends on how companies treat off-shoring and whether they realize the full scope of problems and issues, which are always associated with the process of moving business offshore.

References

Anonymous. (2004). Offshore outsourcing: Impact on the American workplace. Brain Consulting News. Retrieved November 27, 2009 from http://www.braunconsulting.com/bcg/newsletters/summer2004/summer2004.html

Cerruti, C. (2008). The impact of offshoring on firm competitiveness. Entrepreneurship and International Management, 15 (1): 145-156.

Granite Solutions. (2006). Keep offshoring initiatives on a short leash, advises Granite Solutions Groupe. HR.com. Retrieved November 27, 2009 from http://www.hr.com/SITEFORUM?&t=/Default/gateway&i=1116423256281&application=story&active=no&ParentID=1119278002800&StoryID=1163808594461&xref=http%3A//www.google.com.ua/search%3Fhl%3Dru%26source%3Dhp%26q%3Doff-shoring+and+hr%26btnG%3D%25D0%259F%25D0%25BE%25D0%25B8%25D1%2581%25D0%25BA+%25D0%25B2+Google%26meta%3D%26aq%3Df%26oq%3D

Robinson, K.S. (2004). Study: HR needs larger role in offshoring. HR Magazine, May. Retrieved November 27, 2009 from http://findarticles.com/p/articles/mi_m3495/is_5_49/ai_n6036860/