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OUTSOURCING MANAGEMENT: THE DILEMMA OF SMALL AND MEDIUM ENTERPRISES

Business Administration & Management Project Topics

ABSTRACT

The practice of outsourcing management in industry and organization is universally acknowledged as effective instruments for competitiveness. Even in small and medium enterprises (SMEs). This study tries to look at the role outsourcing management can play in the development of small and medium enterprises (SMEs), their current dilemma that prevent them from becoming active players in the regional and global markets. The study also highlight the benefit, risk and the kind of measure that need to be taken to enhance their effective participation in the modern management technique (outsourcing) The study draws on empirical studies undertaken on selected small and medium enterprises in Benin City and part of Lagos state. The investigation supplies a realistic result on the dilemma of outsourcing management to small and medium enterprises. (SMEs).

other objectives of this study are: To ascertain if outsourcing management create unique value for the Company’s Customer: To ascertain the net risk or benefit associated with outsourcing non-competence area: To determine if the involvement in outsourcing management by companies differentiate them from the competitor: To determine if there are factors that limit SMEs from participating in outsourcing the non-competence area, and finally to examine if there is any relationship between outsourcing and retaining the service of highly skilled experts. To effectively prosecute this research work, I formulated the following hypothesis: Outsourcing management is a function of the unique value created for the company’s customers: The risk or benefit that accrues to organization is a function of outsourcing the non-competitive area: Outsourcing management is significant in differentiating the organization from its competitors: SMEs participation in outsourcing management is a function of its contracting of non-competence areas: Outsourcing management by organization is dependent on the  extent they are able to retain the services of highly skilled experts: this research work arrived at the following findings that the participation of small and medium enterprises in outsourcing management create a unique value for customers performance for the resources expended: In addition there is a relationship between the benefits that accrue to the organization outsourcing of non-competitive areas: In other words SMEs involvement in outsourcing management can improve the organization focus and can as well help to reduce risk: More still this research revealed that outsourcing management can help to improve credibility and image by differentiating SMEs from competitors: conclusively, outsourcing management helps to increases the commitment of experts.

 

Table of Contents

                                                                                                Page

Certification  –      –        –        –        –        –        –        –        i

Dedication  –        –        –        –        –        –        –        –        ii

Acknowledgement                   –        –        –        –        –        –        iii

List of table          –        –        –        –        –        –        –        iv

List of Figure        –        –        –        –        –        –        –        v

 

Chapter One

  • Background of the study –        –        –        –        1
  • Statement of Problem –        –        –        –        –        5
  • Objective of the research –        –        –        –        –        7
  • Research Question –        –        –        –        –        8
  • Hypothesis –        –        –        –        –        –        –        8
  • Significance of the study – –        –        –        –        10
  • Scope of the study – –        –        –        –        12

1.8  Definitions of terms                   –        –        –        –        –        12

 

Chapter two

Literature Review     –        –        –        –        –        –        16

2.1               Introduction   –        –        –        –        –        –        16

2.2     Concept of Outsourcing     –        –        –        –        17

2.3     Outsourcing Management  –        –        –        –        19

2.4     Outsourcing Management in private

or public sector of the economy            –        –        20

2.5    Business Process Re-Engineering (BPR) –                 –        21

2.6   Why do government companies

prefer to outsource             –        –        –        –        23

2.7   Factors that Influences Decision

to Outsource                         –        –        –        –        24

2.8   Process Outsourcing            –        –        –        –        27

2.9   Deciding to Outsource                   –        –        –        –        28

2.10  Decision to outsource                   –        –        –        –        29

2.11   Reasons for outsourcing    –        –        –        –        30

2.12 The Role of Managers in the

outsourcing vision               –        –        –        –        31

2.13 Transition to Outsourcing    –        –        –        –        33

2.14  Creating the Enabling Environment to

achieving the outsourcing vision            –        –        33

2.15  Adopt the 7 –Best Practice of Outsourcing-    –        36

2.16  The Small and Medium Enterprises – Concept                   38

2.17   The Role of Small and Medium

Enterprises (SMES)           –        –        –        –        42

2.18   Advantages of small and medium

scale enterprises                 –        –        –        –        43

2.19  The Dilemma of Small and Medium Size

Enterprises in Nigeria                  –        –        –        –        44

  • Constraining of Small and Medium

Enterprises Development in Nigeria     –        –        45

  • How Small and Medium Enterprises can

Benefit from the Policy of outsourcing  –        –        51

  • A Comparative Analysis of Outsourcing

Globally – France, Italy and Japan.                –        –        53

2.23    Summary of the Literature review                  –        –        60

References       –        –        –        –        –        –        61

Chapter 3

Research Methodology        –        –        –        –        –        63

  • Introduction –        –        –        –        –        –        63
  • Research Design –        –        –        –        –        64
  • Sampling Procedure –        –        –        –        –        65
  • Sources of Data –        –        –        –        –        65
  • Statistical tools for Analysis – –        –        –        66
  • References –        –        –        –        –        –        68

Chapter 4

4.1   Presentation and analysis of Data          –        –        –        69

4.2  Testing of Hypothesis                   –        –        –        –        70

 

Chapter 5

Summary of Finding, Recommendation

and conclusion                   –        –        –        –        –        –        80

  • Summary of Finding –        –        –        –        –        82
  • Recommendation               –        –        –        –        –        83
  • conclusion                –        –        –        –        –        –        85

Appendix

References

 

LIST OF TABLES

page

4.1     Questionnaire Returns   – – – – – – – – –  – – – – – – – – – –  – –      69

4.2     Responses to Questionnaire – – — – – – – – – – – — — –  –  – –    70

4.3     Responses to Question six in table 4.2- – – – – – –  – – – –  – – -72

4.4     Responses to Question nine in table 4.2 — — – — – – –  –  – – 74

4.5     Responses to Question eleven in table 4.2 – – – – — –  — — -75

4.6     Responses to Question Twelve in table 4.2 – – — – – – –  —  -78

4.7     Responses to Question thirteen in table 4.2 – – – – –  — —  – 80

 

LIST OF FIGURES

Page

Figure 4.1   Sketch showing the result of

the test on hypothesis II – – – – – — –  — – – –  — – – –     73

Fig.    4.2     Sketch showing the result of

the test of hypothesis II           – – – — – – – – –  — – –75

Fig.    4.3     Sketch showing the result of the test of hypothesis II  – – — – – -76

Fig.    4.4     Sketch showing the result of the test of hypothesis IV  – – — – – – – 79

Fig.    4.5     Sketch showing the result of

the test of hypothesis V                   – — – –  — – —  – – – -80

 

CHAPTER ONE                                      
1.1     BACKGROUND OF THE STUDY                  

As companies’ attempts to focus on core competences, many are considering outsourcing various aspects of their in-house operations. The rapid growth in outsourcing has occurred because organizations are struggling to cope with the demands on their skills. Aoki 1988- says when products becomes increasingly differentiated and renewed, the best strategy appears to focus on core competences and let other firms deal with production of other parts, machine maintenance or distribution. Almost every organization outsource in some way. Typically, the function being outsourced is considered non-core to the business. The decision to outsource is often made in the interest of lowering firm or making better use of time and energy costs, redirecting or conserving energy directed at the competences of a particular business, or to make more efficient use of land, labour, capital, (information) technology and resources. It is essentially a division of labour.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carryout narrow functions that could be done more efficiently and therefore more cost-effectively by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms; organizations still hire service providers to handle distinct business processes or whole operations such as benefits management. Companies have latched onto outsourcing as a route to almost immediate savings and quality improvement.

In their bid to be more competitive and relevant in today’s global environment, most companies are constantly restructuring their business; downsizing them so as to become cost efficient, more responsive to customers, and to maintain or gain competitive advantage. In order to achieve these goals, companies have to outsource those services that they do not have competitive ability leaving their core competent.

Goldfrab and  Heller (2001) Outsourcing is contracting with another company or person to do a particular function or the passing of service provision or production to another internal or external party. Researchers such as Hilton et al. (2001) and Rainborn et al. (1999) regard it as a ‘strategic cost management tool’ and as ‘a strategy in business’ by Diering and Click (2005) ‘not only because it can help to reduce cost, but also because it potentially enables firms to concentrate on their core activities. The areas of core competence will encompass those activities where the company possesses competitive advantage, which enables them to perform better, and at lower cost than its competitors. As a result, managers evolve strategies that progressively tend to exploit a company’s core competences. Small and medium enterprises in Nigeria cannot be left out. ( Egabor (2008) says small and medium enterprises can prospectively propel a country’s economic development and growth.

SMEs boost employment, capital formation and indigenous technology. The small and medium enterprises in Nigeria faces myriad of problems, which hinder its development and affect growth negatively. These problems include poor infrastructure, high transaction cost, low demand for locally made goods and lack of competitive advantage are impacting against the performance or even the existence of small scale enterprises Emoleke, (2006). These preferences stem from the fact that some of the locally made goods are not durable and are inferior to the imported ones. Because competition has become stiff and force, the imperatives of globalization have all combine to force organizations to seek better ways of optimizing their competitive advantage and outsourcing those services that others can make more cheaply than they can make it. It is time; SMEs in Nigeria begin to appreciate the evolution of outsourcing and its effects on their overall technical workforces. SMEs has to be encouraged to be involved in outsourcing policy, for this will enable them to use their skills and capital productively to produce goods and services they know best to produce.

The researcher is of the opinion that companies should not regard outsourcing management as a cure for all organizational problems, thereby neglecting other management functions like planning, organizing and controlling e.t.c. The researcher will also like to warn against a situation where management will hastily dabble into outsourcing without adequate preparation for it.

In conclusion, this paper therefore is an attempt to critically evaluate how outsourcing can positively enable companies to retain the services of highly skilled experts, whose full-time employment is not justified.

This research tries to look at their (SMEs) current predicament characterized by numerous constraints that prevent SMEs from participating in outsourcing management, there by hindering them from realizing their full potential as instrument of development and highlight the kind of measures that need to be taken to enhance their effectiveness and competitiveness so that they can become effective players in the markets.

 

1.2     STATEMENT OF PROBLEM

Companies lacking appropriate skills for immediate, saving and quality improvement may be unable to adjust to the pressure of competition, and may not expect to succeed in the long run.

 

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