The Outsourcing Dilemma on Decision to Outsource Among Small and Medium Enterprises in Malaysia

Abstract

Making a decision on outsourcing has posed many difficulties among many organizations, particularly the small and medium enterprises (SMEs). The outsourcing dilemma surrounds the issue on the factors that influence the outsourcing decisions. Therefore, this study attempts to examine what factors may influence the decision of the SME owners to outsource their business processes. A data sample of 100 SMEs was analyzed to examine the relationship between the factors (business owners’ characteristics, environmental dynamism and strategic orientation) and the decision to outsource more of their business processes which is measured through degree of outsourcing of the respondents. The analysis was then conducted via partial least squares. The results showed several interesting findings: (i) business owners’ characteristics encouraged SME founders/owners to outsource more of their business processes, (ii) environmental dynamism has a negative significant impact on the degree of outsourcing and (iii) the relationship between strategic orientation and outsourcing was not supported. Rational explanations of the unexpected findings were then discussed in this study.