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.
TopSetting The Stage
There are three distinct factors which, if concurrently present, coalesce into a dilemma exemplified by this case study. First, SMEs with higher-skilled workforce have been shown to benefit from investing into the development of their workforce and the HRM functions that support that workforce (e.g. Heilmann et al., 2020). Second, there is a chronic shortage of skilled workers for SMEs operating in the technology sector in Latvia to employ (EURES, 2020), and, Third, due to a limited pool of labor and inherently scarce resources, Latvian SMEs operating in the technology sector turn to outsourcing to fill missing capabilities and skill gaps.
Key Terms in this Chapter
Outsourcing: Emerged as a business strategy in the 70s; a situation in which a company turns to external service providers to deliver business functions or activities that the company does not perform itself.
HRM Capabilities: The extent of an HR function meeting the needs of its stakeholders; success in developing and maintaining HRM practices that contribute to the performance of the organization in areas such as staffing, performance management, training and development, motivation, and rewards.
Flexible Work: A work arrangement where the employee does not have to work during the traditional working hours. The employee has the ability to choose the time that they spend working.
GDP: Gross domestic product – the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
Technology Start-Up: An entrepreneurial venture operating in the technology sector with the purpose of developing technology-related products or services to solve challenges faced by market participants.
Employee Competencies: Firm-specific human capital attributes such as technical, behavioral, or business skills and knowledge that are crucial for firm performance. Skills, traits, attributes that employees need to effectively execute their duties/responsibilities/tasks.
Online Platform: A digital service that facilitates interactions between two or more distinct but interdependent sets of users (whether organizations or individuals) who interact through the service via the internet.
Freelancer: An independent worker/contractor that offers their services to individual buyers without a long-term employment contract.
SMEs: In Latvia, small and medium-sized enterprises (SMEs) are classified as businesses that employ less than 250 employees and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.