Question

Low wages are often cited as a cost advantage of operating abroad (i.e. offshoring). Discuss personnel (HR) factors a company might expect to encounter that could nullify (i.e. cancel out) the wage-rate advantage.

Answer 1

Although low wages are a source of competitive advantage for operating abroad, there are many factors which could potentially nullify the advantages of a low wage rate. Some of the factors are mentioned below:

• Lesser skill of the employees which results in low quality products and services, thus increasing the cost of operation.
• Low productivity of employees which negate the actual effectiveness adjusted costs of labour.
• Decreased employee involvement thus impacting organizational culture.
• Lack of innovativeness among employees which reduces the competitiveness of the organization.
• Tendency of employees to form union and go on strikes which may lead to loss of man days and productivity thus increasing costs.