Factors Affecting the Decision to Outsource Human Resource Management: Evidence from Two Multinational PEOs

Abstract

This paper is an exploratory investigation into the relationship between a PEO’s capabilities, its client’s ability to assess these accurately, and the decision to outsource HRM in a multinational context. The literature review highlights that while the capabilities of a PEO are a known factor in successful outsourcing decisions, there has been little discussion of an organisations ability to identify such capabilities. Thus it is argued that not all PEOs possess the ‘full spectrum’ of HRM capabilities, and furthermore, that a contracting firm is more unlikely to be aware of this when the relationship is transacted across international boarders. This hypothesis is supported by case study investigations of two international PEOs and six of their clients, carried out during 2006. The paper discusses significant ramifications for organisations, which are in growing numbers, deciding to outsource some or all of their HR function. Keywords: Outsourcing, Human Resource Management, Multinational Corporations, Case Study