Antecedents of human resources outsourcing decision in Vietnam
| Published date | 05 June 2017 |
| DOI | https://doi.org/10.1108/PR-11-2015-0307 |
| Pages | 702-717 |
| Date | 05 June 2017 |
| Author | Thuy Thi Thanh Nguyen,Man-Ling Chang |
| Subject Matter | HR & organizational behaviour,Global HRM |
Antecedents of human resources
outsourcing decision in Vietnam
Thuy Thi Thanh Nguyen
Ho Chi Minh City University of Technology and Education,
Ho Chi Minh City, Vietnam and
Asia University, Taichung, Taiwan, and
Man-Ling Chang
Department of Leisure and Recreation Management,
Asia University, Taichung, Taiwan
Abstract
Purpose –The purpose of this paper is to explore the antecedents of the decision of whether to outsource human
resources (HR). Two moderators are considered: the lack of in-house HR expertise and positive HR outcome.
Design/methodology/approach –This study uses data collected from 85 Vietnamese firms of different
sizes. Regression analysis is used to examine the research hypotheses.
Findings –The strategic involvement of HR management is positively related to the decision to outsource HR.
As expected, a positive significant relationship exists between cost reduction and the decision to outsource HR for
non-core HR activities. For core HR activities, demand uncertainty relates positively to the decision to outsource
HR, and the lack of HR expertise moderates the process of HR outsourcing (HRO).
Research limitations/implications –Although the focus on firms in Vietnam may help to control for
cultural factors, it may also limit generalizability. Because of the limited number of samples,this study cannot
compare results across different industries. Future research should focus on the cross-cultural aspects of this
issue or compare differences across industries.
Practical implications –This study provides HR managers with guidelines for making appropriate
decisions regarding HRO. Vendors can exploit aspects of core vs non-core activities to provide professional
services that satisfy the demands of firms.
Originality/value –Based on a theoretical approach, this work analyzes the decision to outsource HR in
developing countries, an area that heretofore has received scant research attention.
Keywords Quantitative, Vietnam, Outsourcing, Human resource management (HRM)
Paper type Research paper
Introduction
Many scholars argue that human resource (HR) outsourcing is a prevailing trend
(Lever, 1997), with firms of various sizes outsourcing their HR activities (Khatri and
Budhwar, 2002). HR outsourcing (HRO) became prevalent in the 1990s, when firms faced the
so-called “war for talent,”which was due in large part to a changing economic environment
(Adler, 2003). Firms regularly face a host of pressures from a changing environment, such as
cost reduction, complex regulation, mergers and acquisitions, and technology. Thus, an
effective solution for firms is to outsource HR activities; that is, to transfer some HR
functions and responsibilities to outside vendors (Abdul-Halim et al., 2009).
What are the determinants for the decision whether to outsource HR? Most researchers
agree that two primary reasons motivate such decisions: concentration on the strategic
involvement of HR management (HRM) (Sheehan and Cooper, 2011) and cost reduction
(Shelgren, 2004; Dickmann and Tyson, 2005). These two reasons embody two significant
theories: the resource-based view (Prahalad and Hamel, 1990; Quinn and Hilmer, 1994) and
transaction-cost economics (Williamson, 1975). However, these motivations alone cannot
completely explain the theory of HRO decisions. Klaas et al. (2001) argue that
demand uncertainty is a critical factor when firms make decisions on HRO; however, this
factor receives less attention from most scholars. Accordingly, the present study focuses
Personnel Review
Vol. 46 No. 4, 2017
pp. 702-717
© Emerald PublishingLimited
0048-3486
DOI 10.1108/PR-11-2015-0307
Received 29 November 2015
Revised 15 May 2016
Accepted 6 August 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0048-3486.htm
702
PR
46,4
on three major determinants of HRO decisions: demand uncertainty, transaction-cost
perspective, and the strategic involvement of HRM.
Because few papers address the moderating effect and control effect, we explore
herein how such effects impact the process of deciding whether to outsource HR.
While Klaas et al. (2001) suggest that positive HR outcomes can influence HRO decisions,
Chiang et al. (2010) deem the availability of in-house expertise as a reasonable factor for
changing HRO decisions. We regard positive HR outcome and high HR expertise as the
moderators that affect the process of making HRO decisions.
In this study, we develop a comprehensive framework for HRO decisions, which may
contribute to the literature in several ways. First, by integrating two major theories and the
relevant literature, this study addresses three determinants: including the highly strategic
involvement of HRM in HRO decisions, the motivation of cost reduction, and the
circumstances of demand uncertainty. In addition, this study sheds light on the differences
in these determinants between core and non-core activities of HRO. Second, by considering
the moderating effects, this study acknowledges the extrinsic elements that can influence
the relationship between determinants and HRO decisions. To put it differently, we try to
compare and identify the changes in HRO decisions given different conditions (lack of HR
expertise in-house or positive HR outcome). By doing so, we can create a guideline for
organizational decision makers.
In addition, most previous studies employ qualitative case studies (Belcourt, 2006;
Woodall et al., 2009) rather thanquantitative methods (Delmotteand Sels, 2008). Nevertheless,
quantitative methods can help explain and predict social phenomena and test theory, and
prevent researcher bias (Cooper and Schindler, 2014). Furthermore, most previous studies
investigate cases in developed countries (Kakabadse and Kakabadse, 2002). Whether the
findings of these theories apply to developing and transitioning countries, where human
capital is “a driver of economic growth,”is unknown (Hanushek, 2013, p. 204). Financial
globalization has made developing countries grow their economies (Prasad et al., 2003), and
research on countries that have yet to be studied can help to enrich the study sphere. Thus,
by using a quantitative method, we search for the determinants to HRO decisions in
developing countries. In addition to beingcomplementary to the theory of HRO decisions,our
study can guide HR managers to make the appropriate HRO decision.
Literature review
HRO
Outsourcing occurs when a firm transfers its internal organizational activities to an
independent vendor throug h a long-term contractual relationship (Belcou rt, 2006;
Johnson et al., 2014). Outsourcing differs from alliances, partnerships, and joint ventures
in that resources flow directly from the provider to the host, with “no profit sharing or
mutual contribution”in the case of outsourcing (Belcourt, 2006, p. 270).
Among all the organizational functions in a firm’s value chain, HR is the function that can be
outsourced (Igbinomwanhia et al., 2013). In the early stages, HRO refers to companies hiring a
third party to provide HR services, such as “recruitment, benefits communication, benefits-plan
design, retirement services, and HR record-keeping services”(Laabs, 1993, p. 92). Klaas et al.
(2001) describe four categories of HR activities that are often outsourced: generalist activities,
transactional activities, human capital activities, and recruitment and selection. These HR
practices can also be divided into core vs non-core activities (Stroh and Treehuboff, 2003;
Conklin, 2005). Core activities are those that are of vital value for employees, such as strategic
planning and organization development, whereas non-core activities are those that are easily
duplicated, such as benefit administration, record keeping, and other routine activities
(Carrig, 1997; Ulrich, 1998). By outsourcing non-core activities (Barney, 1991; Hamel and
Prahalad, 1994; Stroh and Treehuboff, 2003), firms can improve their efficiency and quality,
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Antecedents
of HR
outsourcing
decision
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