According to Kathawala, Zhang, and Shao (2005), the term outsourcing has its roots in the mid-1980s, yet the idea of hiring employees to carry out specific jobs in firms has been in existence for the past hundreds of years. Outsourcing is everywhere in business in large and small firms, complex and simple businesses alike. In the 1900s, the practice was only specific for labor intensive and productive tasks in firms and other activities that fell outside the core competitiveness of a firm. In the recent years, the outsourcing market has changed dramatically with the emerging phenomenon now becoming a common and natural element of the corporate services.
The 21st century global economy is characterized by dynamic business decisions of going global in the corporate evolution. Global expansion has numerous benefits for a firm, but the success and the benefits depends on the human resource strategies that are laid in place at the global and the local levels of the firm. Outsourcing labor to foreign firms requires an advanced planning of the legal, ethical, and regulatory set-up considerations in relation to employment, compensation, immigration regulations, and tax. This paper looks at the ethical issues in the practice of labor outsourcing to foreign countries. Today, the changing trends and the technological advancements, deregulation and globalization have resulted in the emergence of new and alternative business models. Business organizations have developed a broad range of techniques and models of service delivery, which include outsourcing and offshoring, among other models and techniques. Additionally, some countries have developed the concept of outsourcing labor to foreign countries due to various factors that lead to ethical implications (Collings & Wood, 2009).
Insurance businesses throughout the world are increasingly adopting the use of third parties in carrying out their activities, which the businesses would carry out without strain. Research and surveys have indicated that insurance firms have adopted the trend of outsourcing the significant parts of their services that are regulated and unregulated. The problem with the practice is that it is becoming complex due to ethical issues and implications.
There is the potential transfer of management, risks, and compliance to the third parties, who in this case may not be under regulations, and may be operating offshore. Such situations bring out questions such as the possibility that the insurance business may not be sure if they are still in charge of their business and may not be in position to control the risks in the business. It is not easy to understand whether the business is complying with their responsibilities of business regulations and they may not be in a position to demonstrate their adherence to the regulations if they operate with foreign labor.
Collings and Wood ( 2009) explain that the concept of corporate social responsibility and global outsourcing has attracted criticism in the business field and considerable interest from the academic field. Research and opinions have come majorly from pessimists who have suggested that the practice is the indication of irresponsible, unfettered corporate profit maximization strategies for optimists and proponents who have held that the practice is an attractive economic mechanism that allows global sharing of wealth.
Most people argue that as long as the outsourcing practices are legal, they lie within the ethical considerations of international business, yet other experts claim that such actions aim to disrupt the economic outlooks of many people in the foreign countries; hence, are unethical. There are specific competing ethical considerations that companies outsourcing labor to foreign countries have to consider. Outsourcing of labor to international levels contravenes most company values like valuing the internal customers and providing employment to the local people, therefore, it destroys the credibility of the firm.
Outsourcing of knowledge-based services has expanded to the insurance profession with use of the internet to connect to main firms. Most of the firms argue that outsourcing of labor to foreign countries helps the firms to maintain their competitiveness by cutting the cost of operation.
Ethical issues in labor outsourcing become critical when it comes to globalization strategies, the changing employment patterns, and the effects on individuals and organizations. Increasing productivity and retention of competitiveness may result in downsizing (Condrey & Perry, 2005).
Outsourcing of labor to international business does not only affect unemployment and capital loss, but it also has an impact on the loss of employee morale in the insurance field. The foreign countries in which foreign employees get into have the chances of increased employee displacement and increased rates of unemployment, which may result in high rates of child and spouse abuse, immorality, and alcohol abuse among others.
Outsourcing of labor has one major defect that it does not build the foreign skills and competence, instead, the foreign work force ensures that the outsourcing country retains its work force skills, yet the current international business laws do not prohibit transfer of technology and education-based skills. This introduces the idea of exploitation and status retention since the output in firms with foreign man power does not reflect on the input from the firm.
The topic on the risks of outsourcing raises issues regarding quality and control of the services in the firm. Cultural differences between the foreign countries where the human labor is outsourced and the countries receiving the human labor also raise concern. The field of insurance is complex and requires knowledge on the culture-business relationships. The quality of work determines the acceptability of the labor force to a given culture, bearing in mind that the local areas have their firms with an established market.
First, the quality of services offered may lead to a considerable level of resistance in the foreign countries accompanied by complaints about the quality of services due to changes in work force. This means that the relationships between the outsourcing firms and the foreign market receiving the work force has a bearing in defining the quality of the services as one of the deliverables in the firm, among other considerations.
One of the major demerits in the field of work force outsourcing is failing to identify the right partners in the foreign countries; hence, failing to establish the right relationship between the overseas firms and the local firms. Foreign firms end up having bitter experiences due to low quality output, security issues, and mismanagement basing on the fact that there was poor establishment of relationships and misplaced prioritization of the work force.
Foreign labor outsourcing also has to consider the focus on the goals of the business, rather than outsourcing labor to focus on the specific projects of the firm in foreign countries. This helps to create healthy business relationships with the local market and boost the performance of the employees. Focusing on the specific business projects ends up undermining the local market and results to poor business relationships between the foreign work force and the local employees; hence, lowering productivity. Creating a reputation in the foreign countries requires ethical considerations in the field of outsourcing such as education the foreign market on the requirements of labor and the advantages and the disadvantages of the process of outsourcing.
Secondly, work environment is an ethical consideration that has to be put under consideration. There is a growing demand for knowledge-based human resource in foreign firms outside the United States of America, yet the human power supply in these countries remains low. Systematic human resource processes are necessary for the process of outsourcing and require strategic study of the working environment in the foreign countries. Working environments in the United States differ from other countries especially in the insurance and finance fields; hence, the differences have to be understood before venturing into the practice. Most countries that require human resource from foreign providers do not have an excellent work environment with maximum benefits such as the United States business environment. Therefore, firms outsourcing work force to foreign countries from the United States must be ready to consider the work environment in the foreign countries before venturing into the practice. The comparability of the foreign working environment and the United States environment is a necessary step that firms will have to undertake in order to understand the responsibilities that they will have in outsourcing work force to the foreign countries. Working environments differ in terms of output expectations, market reception and expectations, and competition from other existing players, which will determine the relationship between the foreign employees and the market.
The third ethical issue that comes to mind with the topic of outsourcing labor to foreign countries is the security concerns. As much as the foreign countries may need foreign work force to facilitate business operations, there are security and privacy issues that must be put into considerations. The security of the foreign country in terms of the business information and data stands a high chance being compromised. In business, data and information security is what makes the difference between firms, yet having foreign employees compromises the difference. There must be agreements regarding confidentiality and privacy of the information that is likely to be common between the two firms in different countries. Therefore, there is the need to enact data security measures when outsourcing of labor force to foreign countries.
Before becoming an outsourcing vendor, it is imperative to consider the cultural differences between the countries at play. Numerous cultural practices influence business operations in most countries. For instance, the cultural differences between the western countries and the Asian are numerous and have different impacts on the decisions to outsource human labor from either country, and may be a cause of worry in the relationship. Understanding the cultural differences between the countries and their effect on outsourcing can help to bridge the differences. Early preparation and consideration of the cultural differences will help to deter the differences and their impacts from cropping up later in the outsourcing relationship. For instance, India is one of the countries in the world in which the United States of America outsources its work force, yet there are numerous cultural differences between the countries. The culture shock that may emanate between the countries is hedged through survey and training of the employees regarding the Indian market before the process begins.
Corporate outsourcing in insurance firms bears the dark side of restructuring in the foreign countries receiving the labor force. Additionally, outsourcing labor to foreign countries comes with downsizing and right sizing. According to research and survey, the euphemisms refer to the management’s recognition of the fact that there should be laying off the current employees in order to pave way for the incoming foreign employees. Most of the emerging economies have been affected by the fact that most United States firms outsource work force to the economies without the ethical consideration of the possibility of laying off the local employees (Schniederjans, 2005).
Outsourcing work force to foreign countries amounts to indirect recruitment of employees to other countries for work and can be termed as labor migration. The trends that emanate introduce other ethical factors that countries and firms must look into before engaging into the practice. Indirect recruitment in foreign countries increases the risk of abuse by the local countries due to the varying international business laws. Additionally, it increases the costs of operation as an increase in the number of employees with different expectations forces the firm to raise its operation costs.
Outsourced employees do not fall under the protection of the national laws of the local country; hence, they are subject unregulated market influences on the business. The fact that government policies and regulations protect employees in a country, yet the outsourced employees do not fall under such a protection, implies that the outsourcing countries have to put the foreign laws into consideration. The ethical implication in this case is that the employees who do not fall under the protection of the country in which they work may be subject to abuse and exploitation. The national laws dictate minimum wages, working conditions and environments, and working hours among others. The outsourcing venders have to consider the aspect of protection as an ethical consideration.
According to Barrar (2006), dispute resolution is another ethical aspect that affects outsourcing work force to foreign countries. the facts that the employees may not fall under the local national protection and exposure to the risks of abuse and increased costs of operations implies that the employees are prone to disputes with other employees and the government. Yet there is no well-developed avenue for effective resolution of the disputes. Dispute resolution is a significant ethical issue that dictates the survival of the outsourced employee in a foreign country. The stakeholders such as governments, civil societies, and international organizations have to consider putting into place effective avenues for resolving conflicts that may arise between the employees outsourced and the internal players around. The American business economy has laid down adequate strategies for dispute resolution in the insurance field, yet it has not considered resolution in the countries where it outsources its employees.
Laws governing bilateral and regional engagement affect the field of insurance and they have to be considered before the migration of employees from one region to another. Legal grounds of outsourcing employees to foreign countries have to be inculcated in making the deals within the engagement. Therefore, there should be logistical provisions through formal employee protection mechanisms that include pre-departure information about the foreign countries business environment evaluation and adequate orientation of the workers to the foreign countries.
Schniederjans (2005) argues that outsourcing venders have to consider the fact that the local market develops the fear of losing market control in terms of control of certain services and their delivery to the consumers, which may raise the exposure to liabilities by the firms. Most firms in foreign countries have the belief that it is significant to keep the control of the market within the country in order to monitor the changes in terms of quality and control. The decisions on selecting the right business partners is crucial, after which it is possible to commit the management to alleviate overrunning costs, issues in quality control and the cultural differences. Irregular outsourcing in some fields has resulted to flooding the markets and counterfeiting the services or exposing the important data in a firm that makes it different from other firms and countries that is crucial to their prosperity.
Foreign outsourcing does not just end with the relationships, but it also has to consider the concept of compliance risk in the foreign country. Ethically, it is significant to consider the business laws of the foreign country before implementing the practice of outsourcing labor. Foreign countries have laws regarding privacy, consumer interaction and other practices regarding foreign employment. Compliance with the privacy laws regarding to business in the foreign countries will govern the process of outsourcing.
There is also the reputation risk that the firm exposes it to when carrying out the practice of outsourcing labor to foreign countries. The firm has to consider the fact that the third party being outsourced in the industry must live up to the task to provide the services that the foreign country expects. The insurance industry is a service industry where the quality of the services determines the relationship between the firms and the consumers. The quality also determines the competitiveness and the reputation of the firm in the foreign market. Therefore, it is significant to consider the aspect of quality as an ethical issue in outsourcing labor force to foreign countries. Failure to have the considerations will result into a situation where there is lack of adequate expertise for overseeing the service providers in the foreign countries and the absence of appropriate oversight of the outsource vender. Such strategic risks in outsourcing work force to foreign countries fall under ethical considerations that a firm or a country has to put in place.
Conclusion
Outsourcing is a business strategy that involves the use of external human resource in a firm to perform activities that the internal staff handles with the objective of improving efficiency and maximizing the outputs. There are different forms of outsourcing where some firms outsource jobs while others outsource employees.
Outsourcing human labor to foreign countries has ethical implications that firms and countries have to consider. Some of the ethical issues include government policies governing business in foreign countries, the business environment, and relationships between the foreign country firms and the outsourcing venders. The receptivity of the foreign firms to letting other countries to manage their firms and the affordability of the foreign firm in outsourcing the human resource are the key guiding principles to outsourcing. There must be established outsourcing relationships that will fall under the contracts describing the aspects of the outsourcing plan. The aspects include the employee rights, expectations, and responsibilities in the foreign country, that define the ethical considerations.
References
Kathawala, Y., Zhang, R., & Shao, J. (2005). global outsourcing and its impact on organizations: problems and issues. International Journal of Service operations management, 1(2), 185-201.
Schniederjans, A. (2005). Outsourcing and Insourcing in an International Context. New York: M.E. Sharpe
Condrey, S. E., & Perry, J. L. (2005). Handbook of human resource management in government (2nd ed.). San Francisco, CA: Jossey-Bass.
Collings, D. G., & Wood, G. T. (2009). Human resource management: a critical approach. London: Routledge.
Barrar, P. (2006). Global outsourcing strategies: an international reference on effective outsourcing relationships. Aldershot [u.a.: Ashgate.
