Outsourcing and performance of firms in the chemical industry in Nairobi

Abstract

This survey sought to determine the influence of outsourcing on the level of performance of the firms in the chemical industry in Nairobi. The other objectives were to establish the factors that influence the choice of services/processes to outsource and the benefits of outsourcing. Although a number of studies have been done on outsourcing, none has focused on the Kenyan chemical industry. In order to meet these objectives, the pertinent primary data was collected using a questionnaire that was-dropped and picked from a population of twenty-two (22) companies in the business of manufacturing and selling chemicals in Nairobi. The number of institutions that responded in time for the study was eleven (11), which is 50% of the total population studied. The study established that all the companies that responded embrace the outsourcing strategy although at varying levels. Most of the respondents have outsourced various services, which is a traditional (and not strategic) approach to the subject. That the respondents are outsourcing activities that do not require competencies by the supplier is testimony that the practice is yet to take root and move to the strategic level when companies outsource everything except those special activities in which they could achieve a unique competitive edge. Some do handle services/processes outsourced to them by third parties. The factor that highly influences the choice of activities/services that were outsourced was the internal human resource skills and know-how. Outsourcing was undertaken when a company felt that it was not cost-effective to handle such activity/service internally as the required skills were lacking and hiring them would cost more than delegating the activity/service to third parties. The study also found out that the most important benefit of outsourcing was the need to develop the organization's own sourcing strategy. Other benefits that were of moderate importance included access to superior/"best in the world" quality, appropriating final product value, access to critical skills and knowledge, high value creation, leverage/reduction in the functional scope of the organization and core competency exploitation. Indeed outsourcing has had a positive effect on the level of performance for each of the eleven respondents. Key amongst this is enhancement of cost estimation. The other positive results registered with outsourcing include enhanced growth in market share, positive return on assets, increased staff morale and satisfaction, increased customer satisfaction, increased supplier