HRM Outsourcing Adoption among Chinese SMEs - Dissertation Example

The study finds that the drivers of HRMO adoption at the Chinese SMEs include lack of expertise, cost savings (although they lack the in-depth knowledge of cost calculations), political factors such as labor laws, and lack of internal capability. Basing their decisions on the transaction cost theory, SMEs recognize that outsourcing offers advantages such as economies of scale and access to expertise. This has enhanced the adoption of HRMO among Chinese SMEs.
However, despite some amount of adoption, the SMEs in this study demonstrate their incapability and inefficiency in managing HR outsourcing and in HRMO adoption. They acknowledge that they lack the resources and capabilities which also reflect in the vendor selection process. Those that have not outsourced express a lack of confidence in the vendors’ quality or their firm size does not justify the costs of outsourcing. The SMEs are unable to anticipate their needs as well as the contingencies. The SMEs are reluctant to outsource because of a lack of trust in the vendors’ abilities, firm-specific knowledge (which gives rise to lack of trust), fear of opportunism, and lack of negotiating skills. The SMEs do not have the expertise to evaluate the contractors; they do not appear to have the expertise to evaluate the risk-bearing costs, essential to managing contracts of outsourcing.
The study suggests that cultural influence has been the biggest barrier to HRMO adoption among the Chinese SMEs but along with it political and economic factors are equally responsible. With the western influence, SMEs in China do recognize that they need to change their strategy but appear to be unsure of their decisions. Or they may be reluctant to accept responsibility for their decisions. In light of the above, the recommendation for an HRMO strategy for SMEs in China has been made. The model suggests initial identification of needs, assessing and comparing of internal and external capabilities are ore-requisites. Recruitment and selection being the key concern of the SMEs, these should be outsourced to POEs or head hunters who have the necessary skills. Another key criterion that SMEs have to focus on is on evaluating the agent before signing the contract. Support of government should be taken to identify the right agent. Before signing the contract cost evaluation is vital which includes costs not just related to the actual work but unforeseen costs such as monitoring costs, termination costs, control costs. The agent should function as an extension of the organization and work in cohesion with the principal. The relationship should be built with a long-term focus which also helps control costs. The study concludes by highlighting the limitations and recommending areas for further study.
Given the rising awareness of the critical role played by human resources in the current knowledge economy, increasing attention is paid to effective human resource management which is regarded as a crucial element of modern business management (Hill & Jones, 2004). Outsourcing as a new strategic management approach has become popular in Chinese companies of varying sizes, as the growth of the Chinese economy requires more sophisticated HR-related practices to better perform their business activities and enjoy the opportunities presented by such growth (Ranjan, 2008).