Research and Critically Evaluate the Implications of International Insourcing and/or International Outsourcing for the Employment Experiences of Workers.
Introduction
The riding wave of globalisation, coupled with the diverse growth in information technology has compelled organisations to manage and control increasing costs, in a bid to remain competitive in the market. The collective impact of these aspects has also enabled organisations to organise their activities and also develop business strategies that are aligned with the global framework (Chase, Jacobs, and Aquilano, 2004). A key decision that firms frequently encounter is whether they should produce certain products or undertake certain activities, or whether these can be done by another firm. Owing to rapid technological development and ever-increasing global competitiveness, companies are faced with considerable pressure to adopt outsourcing and insourcing as a viable corporate business strategy. The essay seeks to critically establish the impact of international insourcing and outsourcing on the employment experiences of workers.
Definition of terms
Insourcing is a term used in reference to a business decision made by a firm with a view to maintaining control of its competencies or critical production activities (Schniederjans, Schniederjans, and Schniederjans, 2015). The action by a firm to bring in a third party to work within the firm's facilities as an outsourced worker also qualifies as a form of insourcing. Production firms typically adopt in-sourcing as a means of reducing labour, taxes, and transportation. Insourcing, therefore, encompasses the reallocation or allocation of a firm's resources internally within the firm. On the other hand, Chase et al. (2004) have defined outsourcing as an "act of moving some of the firm's internal activities and decision responsibilities to outside providers" (p. 372). Elsewhere, Lankford and Pasra describe outsourcing as "the procurement of products or services from resources that are external to the organization." (1999, p. 311). A key point of agreement between these and other definitions is that outsourcing entails the reallocation of allocation of a firm's business activities to an external provider (Schniederrjans et al., 2015).
Importance of Insourcing and/or Outsourcing
The modern-day firm has to contend with dogged challenges linked to attracting, motivating, leveraging, and retaining a workforce; acquiring the latest technological skills and knowledge; the need to continually innovate owing to increased competition from other services, products, and vendors; and contracting and managing diverse relationships that accompany selective outsourcing. The firm is required to balance all of these challenges in a bid to improve its business capabilities. The decision to insource or outsource organisation-wide activities regarding the acquisition, utilisation, and management of the firm is by far one of the most difficult choices that the firm management has to make (Schniederrjans et al., 2015). In-sourcing demands that the management of a firm commits considerable resources to facilitate in the realisation of set goals. This could however lead to consequences that are too dear to change, even as the firm may have to sacrifice countless benefits linked to the marketplace.
Conversely, a firm that chooses outsourcing as a business strategy may also need to accumulate the resources that it requires to maintain or generate a competitive advantage. Even as the growing pace of technological advancement, along with the rising dispersion of knowledge point towards the increased importance of outsourcing as a driver of the economy, the association between performance and governance choices hinges on the deployment of pertinent capacities and the level to which performance depend on systemic or autonomous innovation. Empirical evidence points towards the rise in an organisation's overall performance as a result of meticulously developed outsourcing strategies (Elliot, n.d.).
Firms, especially “family firms”, may find an in-sourced model more attractive than an outsourced model, owing to the high level of secrecy and sensitivity involved in such organisations. Another reason why a firm may go for an in-sourcing model is due to the high levels of unionisation which could act as a hindrance to the outsourcing model. That said, firms that lack In-house expertise are better off with the in-sourcing model. Where firms have to handle large projects or are undergoing a transition period, in-house firms typically lack the expertise needed to execute the desired change. Consequently, firms have to acquire extra resources or expertise needed to get things moving or risk begin faced with a lack of implementation (Huws and Podro, 2012). Insourcing also acts as a rare chance for in-sourced workers to learn about the activities of the in-sourcing firm and grow. The “closed environment” acts as the perfect environment for knowledge acquisition. Insourcing is especially beneficial for firms dealing with the Millennial workforce. Most firms currently lack the right environment to actively engage the Millennials, who attach more value to flexibility, meaningful projects, instant growth, and recognition. Insourcing projects thus help to retain the Millennial, reduce the cost of having to recruit and retain new employees every so often, limit outsourcing expenses, and more importantly, creates an environment that affords employees the opportunity to learn and grow (Lesonskly, 2014).
Implications of International Insourcing for the employment experience of Workers
An article by Bearing Point (n.d.) describes in-sourcing as an activity that entails an internal delivery of services that were previously undertaken externally through internal delivery. The prevailing economic environment determines the decision of an organisation to embrace in-sourcing, or not. The 2008 global financial crisis saw many local and international organisations lose their share value, culminating in massive layoffs in a bid to remain competitive. Other firms opted to insource some of their non-core activities. For example, in 2012, General Motors, the American car maker, announced that it would be in-sourcing a significant portion of its IT services over the duration of three to five years (Overby, 2012). This in-sourcing effort that GM has embarked on holds a lot of potential for the firm if only they can manage it correctly. It could result in increased worker productivity, reduced travel costs, increased convenience that allows for sharing of working hours among teams, reduced management burden, and a reduction in 'rework' (Overby, 2012). Other firms have also followed in the footsteps of GM, including Swiss BCV, and Swiss BCV, a Swiss-based banking institution, that has decided to in-source their core business operations (Bearing Point, n.d.). According to Duthoit et al. (2011), leading banking institutions in-source core differentiating activities in an attempt to realise a competitive advantage over rivals. Elsewhere, Bouygues Telecom, a French-based telecommunications company that deals with the provision of internet and mobile phone services, also in-source its key knowledge and competencies around IT systems to its development department. This near-shore department was specially created to enable the company to enhance its core network provisioning (Bearing Point, n.d.).
A 2013 Deloitte study revealed that nearly half (48%) of the companies that took part in the survey had ended an outsourcing contract prior to its completion. Out of the companies that terminated their outsourcing contracts, more than a third (34%) opted for an in-sourcing arrangement as opposed to outsourcing these to a different vendor (Lesonsky, 2014). One of the main reasons given by these companies for their decision to retain the previously outsourceD activities in-house was the need to improve customer service. Besides, in-sourcing leads to saved money for the companies as opposed to outsourcing, as reported by 77 percent of the companies in the survey. Insourcing also enables companies to assume greater control over key projects, not to mention that it could result in more engaged and happier employees (Lesonsky, 2014).
However, Scott (2007) states that in-sourcing, despite all its advantages, could destroy jobs and along with it, communities as well. In 2014, Disney, the American entertainment conglomerate, undertook an aggressive exercise of replacing its American workers with "guest workers" who were on a 3-year long, H-1B work visa (Frankel, 2016). This mode of work visa enables foreign workers entry into a given country to undertake specific jobs. Initially, the H-1B visas were designed in such a manner as to enable employers to admit uniquely talented and highly skilled foreign workers into the U.S labour pool to avoid the risk of its running dry. However, over the past two decades, employers have used this visa program as a strategy to maximise profits and reduce payroll, effectively abusing it. This practice which Disney had dubbed "knowledge transfer" saw some 850 American workers lose their jobs.
Implications of International Outsourcing for the employment experience of Workers
Like outsourcing, the practice of outsourcing various organisational activities also has implications for the workforce. One of the effects of outsourcing is on employees’ job security. The need to reduce costs remains a key consideration for firms that are intent on outsourcing services. Such an employer passes the need to reduce the costs of services to the vendor or supplier who has been contracted to deliver the service. The outsourced vendor or supplier adopts various measures in an attempt to keep up with the cost control demands, including downsizing the workforce, wage restraint; or remaining with a limited number of permanent employees and sub-contracting the others through an employment agency (Acas, 2012). These developments will have far-reaching implications on the financial and emotional well-being of the workers.
Outsourcing is also increasingly being linked to a rise in the diversification of the terms and conditions of a contract. Outsourcing essentially involves a reconfiguration of the work environment by splitting co-workers amongst various employers and at the same time, trying to integrate such split employees with workers sourced from other industries via a new working arrangement. This is likely to bring about conflicts in the workplace.
A 2012 report by Acas on the dissemination of good HR practices in the workplace indicated that companies that have been outsourced to provide such auxiliary services as cleaning, catering, and estate management have limited control over key HR policies that prevent from reducing such workers’ benefits as wages, thereby compelling them to undertake unscrupulous strategies like being less flexible on working hours; working with limited staff; and changing work organisation. These low-road strategies are aimed at enabling companies to increase their profits (Holman et al., 2012). Outsourcing is also likely to impact negatively employees' social cohesion and equality status. It becomes hard to apply parameters of equality and social cohesion in a highly fragmented workforce. Wrights (2011) states that outsourcing jobs to agency workers could cause conflicts between the agency workers and the existing workforce, resulting in increased negative views and tensions towards them. Increased lack of control of workers, and the HR over outsourced jobs could also result in increased stress levels, reduced level of satisfaction with the jobs, as well as enhanced turnover and absences amongst workers (Donaldson-Feilder, 2012). This might in turn lead to such developments as the need for a new set of skills to replace the departing workers (Parker & Bevan, 2011). Companies are also increasingly outsourcing professional development and training services, with the expectation that the supplier shall assume these responsibilities. This could affect how training is done. It could also mean that workers will be expected to take care of their own training needs and the costs associated with it (Huws and Podro, 2012).
Conclusion
Organisations all over the world have to deal with such effects of globalisation and advances in technology as increased competitiveness by developing strategies that will enable them to reduce their operational costs while also improving their efficiency. One of the most viable strategies for doing this is by focusing on the core activities of the business and finding a third-party workers to do the auxiliary responsibilities of the firm. This can be achieved by bringing in third-party workers to do the job (insourcing) or contracting a vendor or supplier to get the job done at their premises (outsourcing). Both of these arrangements have their fair share of benefits. For example, the in-sourcing model offers workers a “closed environment” for knowledge acquisition, while the outsourcing model enables firms to control their operational costs, thereby improving their bottom line. Such a working environment is beneficial for the Millennials who desire flexibility, and meaningful projects, and are always on the lookout for instant growth and recognition. However, in-sourcing has the potential to destroy jobs and communities. On the other hand, outsourcing is associated with such negative worker experiences as lack of job security, increased workplace conflict due to the management's limited control over HR practices, and lots of opportunities for employee professional training and development.
References
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