Effect of outsourcing strategies on the performance of small and medium scale enterprises (SMEs)

John I Agburu,Nyianshima Calvin Anza,Akuraun Shadrach Iyortsuun

doi:10.1186/s40497-017-0084-0

Abstract

Several organizations have embarked on outsourcing strategies over the years but many still suffer in terms of their goal achievement; some have experienced low productivity both in terms of quality and quantity, their profitability has not been stable, and their capacities are grossly underutilized. This research work determined the effect of outsourcing strategies (back office activities, primary activities, accounting activities and supporting activities) on the performance of Small and Medium Scale Enterprises (SMEs). Survey research design was adopted in Benue State, Nigeria. Stratified random sampling technique was used in selecting respondents for a primary source data gotten through a well-designed and self-administered questionnaire. Also, secondary data was sourced from the financial records of ten (10) selected SMEs. The variables were statistically analyzed using multiple regression technique. At the end of the research, the study found that; outsourcing of back office activities (such as bookkeeping, payroll, billing, order processing, payment processing, cleaning services, security services and other administrative activities); outsourcing of primary activities (such as manufacturing, purchases, warehousing, Sales force and customer service); outsourcing of Supporting activities(such as shipping, IT services/system, training, advertising, legal services, transport services, public relations) has a significant effect on organizational profitability of SMEs whereas, outsourcing of accounting activities(such as financial reporting, tax processing) has no significant effect on performance of SMEs. This study therefore recommended that SMEs should embark more on outsourcing strategies to attain the benefits of cost savings/restructuring which results in better customer service at profit; also, outsourcing process management through follow up steps like effective communication and monitoring should be employed and taken seriously to better reap the benefits of this maintenance/growth strategy. Also, SMEs should ensure that, the costs of managing the outsourcing process is not greater than the benefits generated by the outsourcing program.

Highlights

Business environment in today’s world is severely dynamic (Jae, Minh, Kwok and Shih, 2000)
Based on the records for year 2014 gotten from Benue state Board of Internal Revenue Service (BIRS), the researcher arrived at a target population of five hundred and sixty three (563) which consists of Small and Medium Scale Enterprises (SMEs) operating in the selected metropolis
Results of secondary data The estimated cost of outsourcing based on various outsourcing strategies of ten (10) selected SMEs and their estimated profits for the period under consideration (2012–2016) are presented and regressed to arrive at the effect of various outsourcing strategies on the organizations’ profitability

Summary

Introduction

Business environment in today’s world is severely dynamic (Jae, Minh, Kwok and Shih, 2000). In order to achieve its set goals in the presence of technological advancement, sophistication of business processes, knowledge explosion and need for constant growth, an organization looks out for strategies to enhance performance (Dominguez, 2006). It reflects on the capabilities of its workers (staff ), its technological knowhow, business processes and so on, and answers the question of whether it can achieve its goals with what it already has on ground or look out for ways to complement (Sev, 2009; Isaksson and Lantz, 2015). It focuses on core competences and seeks to reduce operation cost which presents outsourcing as the right strategy (Akewushola and Elegbede, 2013)

Methods

Results

Discussion

Conclusion