Outsourcing of Human Resources: The Case of Small- and Medium-Sized Enterprises

Abstract

The outsourcing of human resources has increased in recent years. As in other fields of management research, limited knowledge is available on outsourcing in small- and medium-sized enterprises (SMEs). The aim of this paper is to present a study on the outsourcing of human resources in Icelandic service SMEs in the period 2009–2018. Surveys were used to gather information on outsourcing, with the participation of 802 firms. The results show that three out of four firms have outsourced some activities, while only 21% have formulated a formal strategy for outsourcing. The main motives for outsourcing are accessing expertise and simplifying operations. Cost reduction comes in third place. SMEs tend to outsource human resources on a very limited scale, while 50% of firms outsource information technology and 39% outsource security services. Larger firms outsource human resources on a larger scale than smaller firms. Managers in companies that outsource human resources are more satisfied with many aspects of outsourcing compared to those managers who do not outsource those resources. Firms that outsource human resources also realise more actual cost reduction. Outsourcing in SMEs has little impact on employment, as 3% of firms lay off staff and 6% transfer staff to vendors. Larger firms and firms that outsource human resources are more likely to change their staff’s employment status after outsourcing.