Modelling the outsourcing process in small and medium size enterprises

Abstract

It is apparent that the organisational units enjoy competitive advantage by considering the degree of vertical integration and more specifically outsourcing as a major strategic decision. The article investigates the degree of outsourcing that exists in the Cyprus manufacturing industry and seeks to examine the management process and practices followed in this outsourcing process. Special emphasis is given to the impact of the level of outsourcing on the company competitiveness. Primary data are collected using personally administered questionnaires. The results reveal that reduction of production time, increased quality of finished goods and reduction of distribution time were indicated as the most important objectives of the outsourcing effort. The top driver for outsourcing was to reduce operational costs with focusing on core competencies coming second and the driver of enhanced flexibility coming third. As to the factors hindering the outsourcing process, the analysis suggests that dependence on the supplier was the most important factor hindering outsourcing activities. The second most important was the risk that is linked with hidden cost and third the risk linked to the service provider's deficient capabilities. The regression models indicated the importance of 'outsourcing provider characteristics' in the achievement of the competitive priorities of cost and high performance design.