The Outsourcing Dilemma of SMEs

Abstract

It is far from uncommon for entrepreneurial SMEs to rely on outsourced labor, especially in knowledge-intensive industries. There is a plethora of benefits to doing so – quick and cost-effective access to highly skilled, self-motivated workers is certainly appealing, especially for resource-limited enterprises. That being said, outsourcing may also raise a range of issues, including loss of control, limited retention of knowledge, and communication challenges, as well as to exert unsustainable levels of pressure on a typically weak or non-existent HRM function of such organizations. This case study considers the case of five small Latvian tech firms and their relationships with outsourcing work to freelancers. The authors raise questions about the feasibility of effective HRM practices and potential for meaningful business growth, and observe how SMEs mediate their inherently precarious relationships with freelancers by bringing desired individuals into the orbit of the organization through relationship-building.