EFFECT OF OUTSOURCING STRATEGY ON ORGANIZATION'S COMPETITIVE ADVANTAGE IN THE NIGERIAN BUSINESS ENVIRONMENT

1.1 Introduction

Outsourcing strategy is the process of replacement of in-house provided activities by subcontracting it out to external agents. Consequently, the management and development of innovations in outsourced activities become the responsibility of an agent external to the firm. Outsourcing decisions may affect company’s cost structures, long-term competitive situation and can also alter the nature of risks that the company must manage (Brannemo, 2006). Furthermore, it will also important that company must know the benefits and risks of outsourcing. The increasing use of outsourcing arrangements, as well as the unfamiliar complexity associated with it especially in developing countries suggests the need to probe further about how to effectively utilize this strategy.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

---

1.2 Background of Study

Outsourcing strategy on Organization is the contraction of operations and responsibilities of a specific business function (i.e. business process) to a third party company or service provider to execute (Hung, 2006). Historically outsourcing was used when organization could not perform to world-class excellence in all sectors of the organization due to incompetence of staff and/or management, lack of capacity, financial pressures, and/or technological pressures. Outsourcing is a management strategy by which an organization delegates major, non-core functions to specialized and efficient service providers.

Since the industrial revolution, companies have grappled with how they can exploit their competitive advantages to increase their markets and their profit. The model for most of the 20th century was a large integrated company that can “own, manage and can directly control” its assets. In the 1950’s and 1960’s the rallying cry was diversification to broaden corporate bases and take advantages of economies of scale. By diversifying companies expect to protect profit, even though expansion required multiple layers of management.

Subsequently, organizations attempting to compete globally in the 1970’s and 1980’s were handicapped by a lack of agility that resulted from bloated management structures. To increase their flexibility and creativity, many large companies developed a new strategy of focusing on their core business, which required identifying critical processes and deciding which could be out sourced.

In the 1990’s as organizations began to focus more on cost-saving measures, they started to outsource those functions necessary to run a company but not related specifically to the core business. Managers contracted with emerging services companies to deliver accounting, human resources, data processing, internal mail distribution, security, plant maintenance and the likes as a matter of “good housekeeping”. Outsourcing components to affect cost saving in key functions is yet another stage managers set to improve their finances.

The current stages in the evolution of outsourcing are the development of strategic partnership. Until recently it had been axiomatic that no organization would outsource core competencies, those functions that give the company a strategic advantage or make it unique. Often a core competency is also defined as any function that gets close to customers. In 1990’s outsourcing some core functions may be good strategy not anathema. For example some organizations outsource customers services, precisely because it is so important.

Eastman Kodak’s decision to outsource the information technology system that undergrid its business was considered revolutionary in 1989, but it was actually the result of rethinking what their business was about. They were quickly followed by dozens of major corporations whose technology to get access to information they needed. The focus today is less on ownership and more on developing strategic partnership to bring about enhanced result.

Therefore, in Enugu State where the research was carried out, the activities that was conducted is to know the Effect of Outsourcing Strategy on Organization's Competitive Advantage in the Nigerian Business Environment.

---

1.3 Statement of Problems

Investigation revealed that outsourcing has been accepted and employed by organizations, it has been observed that some organization still perform poorly. The reasons for organization failure are not far fetched, problems ranging from the inability of the service provider to solve a problem to fit into client organization’s corporate structure and strategy due to inadequate knowledge and inputs concerning corporate aims and objective.

Outsourced arrangements are often long term projects requiring services provider to understand organization’s current and future business strategy and potential changing business profile. Cases abound when the reverse is the case and as such it becomes rather difficult.

---

1.4 Aim and Objectives of Study

The aim of the study is to examine the Effect of Outsourcing Strategy on Organization's Competitive Advantage in the Nigerian Business Environment using Nigerian Breweries, Enugu State as a case study. In achieving this aim, the following specific objectives were laid out as follows:

1. To determine how firms can minimize the cost of outsourcing and at the same time maximize their company’s objectives.
2. To examine outsourcing as a strategy for organization performance.
3. To examine outsourcing problems and proffer solution as to improve organization performance
4. To assess the uses of outsourcing by organization to gain competitive advantage over its competitors
5. To examine the relationship between outsourcing and organization performance.
6. To indentify key factors for consideration when organization decide to outsource in Nigerian Breweries PLC, Enugu State

---

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does outsourcing strategies improve organization performance?
• What do you understand by outsourcing as a strategy for organization performance?
• What is the relationship between outsourcing and sales turnover?
• What is the effect of outsourcing on job quality?
• What is the relationship between outsourcing and employment generation in Nigeria?
• To what extent does outsourcing strategies reduce cost of production of an organization?

---

1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: There is no significant relationship between outsourcing strategies and sales turnover
• H1: There is a significant relationship between outsourcing strategies and sales turnover

Hypothesis Two

• H0: There is no significant relationship between outsourcing and organizations competitive advantage
• H1: There is a significant relationship between outsourcing and organizations competitive advantage

---

1.7 Significance of Study

The significance of the study exposes the researcher to the importance of outsourcing strategy that includes:

1. The study will enable organization to cut their overhead cost.
2. It aids and enhances productivity among organizations
3. The study will enable organizations to increase their efficiency.
4. The study will enable organizations to improve quality of their product and services
5. The study will enable organizations to gain competitive edge over its competitors
6. The study will aid the release of organization resources for other core activities

This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.

---

1.8 Scope of Study

The scope of the research is focused on the Effect of Outsourcing Strategy on Organization's Competitive Advantage in the Nigerian Business Environment using Nigerian Breweries PLC, 9th Mole Corner, Enugu State as a case study.

---

1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

---

1.10 Definition of Terms

Outsourcing: Outsourcing refers to the delegation of one or more business process to an external provider, who then owns, manages and administers selected processes based on defined measurable performance matrices.