Factors influencing outsourcing decisions in large manufacturing organizations in Kenya: a case of British American tobacco Kenya Ltd

Abstract

Outsourcing has become an important aspect of the overall strategy of any organization. It can be considered as a panacea for every company which wants to leverage its competitive advantage. Outsourcing has been a relatively new concept especially in the Kenyan manufacturing industry. Consequently this area has not been studied fully, with only little literature on the topic predominantly focusing on the significance of outsourcing decisions and not the factors that influence the uptake of outsourcing strategies. This study sought to fill this gap. The study sought to investigate the factors that influence large manufacturing organizations’ outsourcing decisions using a case of BAT Kenya Ltd. The purpose of the study was to analyze the factors that influence outsourcing decisions with specific reference to British American Tobacco Kenya Ltd. The objective of the study was to determine the influence of operating cost on the outsourcing decisions of large manufacturing organizations, to examine the influence of availability of internal resources and the decision to outsource, and to establish the influence of improved service quality on the decision to outsource by large manufacturing organisations in Kenya. It is hoped that the study will contribute to the existing body of knowledge by providing clarity on the factors that influence outsourcing decisions. The study was based on the Transactions Cost Economics and Resource Based theories. The design of the research was descriptive research design.The target population of the study was 129 employees working in various departments in British American Tobacco Kenya Ltd. The sample size for the study was 97 respondents. The sample size was derived from the Krejcie and Morgan Table. The study used proportionate sampling to get the sample sizes for the different departments. Purposive sampling was adopted to select the respondents for the study. The study used questionnaires to collect data. Questionnaires were distributed to both office based and field based staff. The researcher performed pilot testing of the instrument by administering the questionnaires to 10% of the sample size. To establish the validity of the research instrument the researcher used content validity. So as to check reliability of the results, the researcher used Cronbach’s alpha methodology, which is based on internal consistency of the research instruments. A score of 0.713 was attained thereby qualifying the research instrument as acceptable and reliable. Qualitative data was analysed using conceptual content analysis. In addition, the researcher conducted a Karl Pearson’s Product moment correlation coefficient to ascertain whether a statistical significant relationship exists between the independent variables and the dependent variable. The study established that operating cost had the strongest influence on outsourcing decisions with a correlation coefficient of 0.933. Availability of internal resources and improved service quality also had significant influence on outsourcing decision with correlation coefficients of 0.897 and 0.883 respectively. Meaning this study accepted all the hypotheses as all the three variables had significant positive relationships with the dependent variable, outsourcing decisions.