Assessment of the relationship between outsourcing and organization’s financial performance in Igara Growers Tea Factory in Bushenyi District.
Atuhire Madinah, Bateyo Asuman and Turyamushanga Labson
Department of Business Administration (Human Resource Management) of Kampala International University, Uganda.
This study examined the relationship between outsourcing and organization’s financial performance in Igara Growers Tea Factory in Bushenyi District. A conceptual framework was developed relating outsourcing functions and indicators of financial performance. This research findings will be employed by government agencies, private sector foundations for example Uganda National Chamber of Commerce among others to evaluate the role of outsourcing on financial performance. The results will also help business stakeholders on how to attach financial performance to the decision to outsource and finally the study will help future researchers as a source of references on a similar studies. Simple random and purposive sampling techniques were used to select the respondents. Cross sectional and descriptive research designs were used in the study to collect data from the field. Qualitative and quantitative approaches were also used. Pearson’s linear correlation coefficient was used to determine the relationship between outsourcing and financial performance of the factory. The researcher found out that outsourcing and organization’s financial performances are “two sisters of the same blood” they are closely related. This is based on various factors. The researcher found out that outsourcing promotes the volume of sales of Igara Grower’s Tea factory and increased sales go hand in hand with profitability. In conclusion, when outsourcing is done; the financial performance of the origination improves. Likewise when the organization’s financial performance improves it enables the organization to do outsourcing because then it has the financial capacity to meet outsourcing obligations.
Keywords: Assessment, relationship, outsourcing, financial performances, Igara Growers and Tea Factory
After World War II, certain developments made business more global and this involved outsourcing. The first use of outsourcing in recent history was in the 1950s with time sharing among organizations” [1, 2, 3]. Globally, outsourcing usage grew to 35 percent in 1997 and the total market for outsourced services was expected to increase to $200 billion by the year 2001 [4, 5, 6]. A recent study was conducted by Yankelovih Partners indicated that two-thirds of companies world-wide already outsourced at least one business process to an external third party. “This practice appears to be most common in the U.S., Canada, and Australia, where 72 percent of outsourcing is being sought” . Outsourcing has become an important part of today’s business as many organizations rely on out sourcing to organize their production models. In 2002 US manufacturers were outsourcing more that 70% of their products  and in the UK a survey realized in 2000 showed that 68% of the organizations outsource their activities including manpower. In a survey of outsourcing in Australia, , found a further impediment to outsourcing was formulating and quantifying requirements and many researchers have not gone a step ahead to find out how outsourcing does formulation and quantifying organizational requirements . Outsourcing is not a new concept. Firms already started outsourcing in the 1970s, with a major wave of outsourcing starting in the early 1990s However, the nature of the functions being outsourced is changing radically . Traditionally, outsourcing was restricted to activities like distribution and manufacturing, and support activities, like payroll services, human resources, and information technology provision . Today, firms are increasingly outsourcing strategic functions that are relatively more crucial to their businesses such as new product development and front-end processes like customer support . Outsourcing in Uganda has improved because economic and competitive pressures have made it imperative for Organizations of all sizes to focus on their core competencies and turn to third-parties to assume responsibility for other secondary corporate functions. Leveraging third-party alternatives has reduced costs and improved operating efficiencies of business organizations. Many organizations in Uganda have outsourced business functions such as cleaning services, medical services, auditing services and security services. (Uganda Management Institute Journal 2011) [14,15]. The management of Igara Tea Factory like all other smallholder tea factories in Uganda is by Uganda Tea Growers Corporation (UTGC), a government parastatal established in 1966 . The Board hires the Management services of Uganda Tea Development Agency Ltd (UTDAL), a subsidiary company owned by the two small holder factories of Igara Growers Tea Factory and Kayonza Tea Factory . IGTF needs to outsource resources like human resources such as experts and specialized personnel including auditors, senior financial officers, and senior managers to provide management skills, services like Medical services for their employees so that instead of the factory having its own hospital, it can take its employees to other hospitals when they are sick, security services, information Technology and agricultural services from agricultural experts .
The findings of the study show that 55% are males and 45% are females. This implies that the study tried to have almost a balanced representation of respondents by gender to participate in the study and enabled to capture issues that could rise because of gender. This agrees with K Farrington (2006) who stated that more males are involved in outsourcing than females. This is because if an organization is to outsource, it should hire strong people with a lot of energy and competence to perform a specific task that cannot be internally performed by internal personnel of the organization. This implies that the study was able to capture views from all respondents. That is those who were married, single and divorced. , stated that financial performance of an organization can improve if it employs psychologically and mentally up right personnel without family and marriage problem especially legally and happily married personnel” This agrees with the findings of the study because many respondents were found to be married (53%). The results of the study agree with , who pointed out that the work force between 30 to 40 years are engaged more in outsourcing contracts that any other age bracket. This indicates that this is a working age bracket; it is composed of strong and young people with skills and competences necessary for good financial performance of Igara Growers Factory Tea. The results of the study indicated that this implies that Igara Growers Tea Factory is a heterogeneous organization and it employs all levels of education. However, data from the respondents in the sample indicate that the most employed education level is certificate. Other higher levels have less number of employees and this is based on the nature of work done. For example tea plucking has the biggest number of workers and most of them have certificate education level or even below. With the department which employs most workers, the researcher found out that the production department is the biggest employer of human resource. This is due to the fact that Igara Growers Tea Factory is a primary processing factory where much of the work is done by people tea plucking, processing and marketing employ a lot of people. The findings of the study agree with , who stated that outsourcing of services and products is mainly involved in production processing and marketing service providers. This indicates that outsourcing has various advantages and therefore is a strategy for capital development in Igara Growers’ Tea Factory. The researcher found out that Igara Grower’s Tea Factory cannot produce enough tea for sustainable production. It therefore outsources from out growers to increase and sustain its productivity. The researcher found out that outsourcing impact on the capital structure in organizations. From the respondent point of view, outsourcing has encouraged Igara Growers Tea Factory to increase its capital structure because it makes savings as part of its earnings. Because with outsourcing, Igara Growers’ Tea Factors soloists more resources to promote production and profitability. Factory because of the high figures of respondents who strongly agreed and those who agreed. This implies that the level of profitability has improved due to out sourcing reducing on operational and costs and expenses and generally out sourcing has lead to improved service financial performance of Igara Grower’s Tea Factory. This is because increase in value of products, increased sales, improved competitive position, cost reduction, investment innovative performance, are all positive and significant which led outsourcing to have a significant relationship on financial performance of an organization. However there was no significant relationship between outsourcing and financial performance the results indicated that though not significant, Increase in sales and outsourcing are positively related(r value=0.039). The implication of this is that outsourcing may increase on the volume of sales of an organization and if the volume of sales increases, the financial performance of the organization is most likely to improve.
Relationship between outsourcing and organization’s financial performance in Igara Grower’s Tea Factory.
The researcher found out that outsourcing and organization’s financial performance are “two sisters of the same blood” they are closely related. This is based on various factors. The researcher found out that outsourcing promotes the volume of sales of Igara Grower’s Tea factory and increased sales go hand in hand with profitability. Igara Grower’s Tea Factory has been able to improve and maintain its good position in the competitive tea market. This is because there is timely tea leaf collection for processing by the outsourced services provided and this has greatly improved service delivery both qualitatively and quantitatively improving the organization’s financial performance generally. Out sourcing strategy has been proved to be cost effective. A lot of money is saved as a result of outsourcing, reduced overhead costs, few risks and reduced administration and managerial tasks. When such costs are reduced, the factory is able to invest the difference in capital accumulation leading to improved financial performance. The researcher found out that outsourcing promotes innovation. For example it was found out that as a result of outsourcing, Igara Grower’s Tea Factory has attracted middle men who buy fresh tea leaves from the farmers and sell it to the factory. This is because now such middlemen are sure that their Tea leaf will be timely collected by the contracted, hired private organizations and they will not lose. This is an innovation that has helped Igara Growers Tea Factory to maintain/sustain its competitive position. The researcher noted that the relationship between the two variables; outsourcing and originations’ financial performance are complementary. When the organization does outsourcing, its financial performance level improves but also when the organization’s financial performance level improves, such an organization is more able to do outsourcing for more quality – service providers to boost production. The same idea was reached by , when they found a significant relationship between out sourcing and profitability margin. They found out that Chrysler’s profit margin was four times as high as that of General Motors (GM) because the former was doing outsourcing while the later was not. Still, in the study carried out by , it was observed that outsourcing of materials/resources is positively correlated with profits and that there is also a positive relationship between profitability and outsourced services for a sample of German Manufacturing firms and the same was found out to apply in Igara Grower’s Tea Factory. Igara Tea Growers Factory is making numerous losses which was precipitated by high levels of Spoor management practices by its directors and senior managers and leaf clerks. The factory which makes an approximate profit of 10 Billion annually is falling to pieces. At least 2 Billion is lost in bad deals every leaf year. The company has been hijacked by mafia wealthy farmers. Some clerks are implicated in an internal audit for declaring ghost tea leaves amounting to 1.3000.000kgs of tea leaves. There was a time when 50KG fertilizer bags supplied were less the declared weight by 5kg each (IGTF report on the 2012 General meeting. All these if rectified and good management practices exercised, Igara Grower’s tea Factory can benefit from outsourcing.
Regarding the relationship between outsourcing and organizational financial performance, the researchers concluded that the two are highly correlated and play complementary roles. When outsourcing is done, the financial performance of the origination improves. Likewise when the organization’s financial performance improves it enables the organization to do outsourcing because then it has the financial capacity to meet outsourcing obligations.
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Atuhire Madinah, Bateyo Asuman and Turyamushanga Labson (2023). Assessment of the relationship between outsourcing and organization’s financial performance in Igara Growers Tea Factory in Bushenyi District. IDOSR JOURNAL OF BANKING, ECONOMICS AND SOCIAL SCIENCES 8(1): 34-49. https://doi.org/10.59298/JBESS/2023/10.4.1000