Outsourcing and Performance of the Manufacturing Firms in Malaysia

Abstract

The performance of an organization is regarded fundamental in influencing its sustainability. The performance can be determined using financial and non-financial indicators. Financial indicators such as net profits, return on assets, return on equity and return on investments are key determinants of performance. The non-financial measures such as customer base, market share and employee retention supplement the financial measures. The study examined the effect of outsourcing on the performance of manufacturing firms in Malaysia. Outsourcing is the procurement of commodities/services from other external sources that are not within the firm. Outsourcing also refers to delegating in-house functions/processes/services to a third party. It is a commonly practiced strategy in private and public firms. The study was literature based on the current study's findings that depended on the existing literature. The study findings revealed that outsourcing has a positive effect on performance. Outsourcing intends to seek an expert to handle business operations outside the existing firm. It is impossible to revoke the outsourcing contracts and return the functions to the parent firm. Outsourcing non-core activities can improve efficiency and productivity because another entity performs these smaller tasks better than the firm. This strategy may also lead to faster turnaround times, increased competitiveness within an industry, and the cutting of overall operational costs. The study concluded that outsourcing positively affects the performance of manufacturing firms in Malaysia. Organizations have embraced outsourcing methods to lower the cost of doing business. It is also concluded that many organizations encounter the challenge of bringing together many business operations that they cannot manage alone. The study recommended that manufacturing firms can outsource essential services and products that are not produced internally. Managers need to use clear outsourcing techniques to realize their full usefulness. They should also provide more frameworks for choosing outsourcing vendors, which will benefit the firms in the event of a need to prevent a financial crisis. Keywords: Outsourcing, Performance, manufacturing firms, Malaysia