Outsourcing And Productivity in Manufacturing Firms In Kenya

Abstract

Outsourcing has in the recent past become a very popular management strategy. The rationale associated with outsourcing is reducing of costs while allowing firms to concentrate on their core business. The study was guided by two specific objectives: to determine which functions are outsourced by manufacturing firms in Kenya and determine the impact of outsourcing on productivity in manufacturing firms operating in Kenya. The study was founded on the Transaction Cost Economic (TCE) and Theory of Constraints (TOC). Descriptive research design was adopted. Out of a population of 659manufacturing firms operating in Kenya, 69 firms were sampled. Both secondary and primary approaches were used to collect data. The questionnaire was used as the primary data collection instrument and company financial reports were used to gather secondary information. Data analysis comprised of descriptive statistics analysis and regression analysis. A response rate of 58 % which corresponded to 40 questionnaires was achieved and used in the analysis. The study revealed that warehouse management outsourcing and logistics management outsourcing were outsourced to a large extent with a mean score of 3.0205 (60.5%) and 2.865 (57%) respectively while human resource was least outsourced with a mean score of 1.316(26%) compared to the overall mean of 2.1646 (43.3%). Further warehousing and logistics had 0.703 and 0.502 positive and significant impact on productivity of sampled manufacturing firms. Finance and accounting management outsourcing (0.253), IT management outsourcing (0.101) and human resource management outsourcing (0.076) had impact on manufacturing firms’ productivity but this was insignificant. The study also revealed that Food and processing sector led in outsourcing of the managerial functions with a productivity of 2.861. These firms outsourced more of the warehousing and logistics functions compared to other sectors. Timber, wood and furniture on the other hand outsourced the least with a productivity impact of 1.175. The study recommends that more manufacturing firms should outsource their warehouse management and logistics management outsourcing to improve their productivity. Manufacturing firms should also embark on continually analyzing their finance and accounting, IT and human resource management functions and processes to enable them identify which aspects can be outsourced to enhance their productivity as they continue to grow to enable them to keep their focus on their day to day operations. The major limitation of the study was that study limited itself to Value-adding and Processing Industries in Kenya which implied that the results obtained may not be used to make generalization for all the manufacturing sectors in Kenya or manufacturing firms outside Kenya. The study recommends that future researchers should conduct studies to establish what contributes to the 46.7% of variations on productivity not attributed to outsourcing.