Effects of Outsourcing as a Strategy to Generate Competitive Advantage in Transport and Logistics Industry: A Case of DAMCO Kenya Limited

A Research Project Report Submitted to the Chandaria School of Business in Partial Fulfilment of the Requirement for the Degree of Masters in Business Administration (MBA)The general objective of this study was to investigate the effects of outsourcing as a strategy to generating competitive advantage to a subsidiary in a multinational company: a case of Damco Kenya Limited. The specific objectives of the study was to investigate the source of outsourcing decision in a multinational subsidiary (parent company or subsidiary decision), to investigate factors that educated or led the choice of outsourcee Company (outsourced locally or internationally), and to investigate the effects of outsourcing as a strategy to generating competitive advantage to a subsidiary. The research design selected for this study was a descriptive research. Descriptive design tends to identify and explain association between variables. The target population is all the employees of Damco who are estimated to be in total about 94 in the company. To attain the most appropriate sample size, this study used two approaches: the stratified simple and within the strata, random sampling technique for respondents based on managerial level and convenience/purposive sampling especially for senior level managers based on ease of access. The researcher purposively targeted 35% of the population across the strata resulting into sample of 35 respondents. An analysis of the first objective revealed that majority of respondents believed that the decision to outsource was largely made by the parent company. On the other hand, over three quarter of staff believed that top level managers were responsible for making the outsourcing decision. The study also revealed that majority of respondents agreed that outsourcing frees time for organization to focus on core business. Most of the respondents agreed that the reason behind outsourcing was to improve quality, offer wider experience, and knowledge. An analysis of the second objective established that most of the respondents were not sure on whether outsourcing purchase reduces cost of operation, cost of operation seen to be lower when outsourced to professionals, outsourcing of some department functions reduces cost of operation or outsourcing contributed to the performance of the organization. Based on the outcome of the survey majority agreed that the 75% of the criteria used in the selection was level of professionalism, to manage complexity, increase efficiency, in order to focus on core business and for cost consideration and to reduce work load. When it comes to choosing an outsourcing partner, majority agreed that the firm looked at the ease of communication, domain experience/ product knowledge, infrastructure available in vendor. Analysis of the third objective revealed that that outsourcing has benefited the company however, most experiences indifference on whether the firm enjoys significant competitive advantage in outsourcing, outsourcing strategy enhanced profitability, employee efficiency and effectiveness is satisfactory, the business turnover was satisfactory or the firm has had a significant increase in corporate revenue. The study concluded that the ultimate decision to outsource are largely made by the parent company and the decision to do so is a privilege offered to top level managers. The decision is made to improve quality, offer wider experience, and knowledge. It was also concluded that the factors that determine the choice to outsourcing company include level of professionalism, the ability if the firm to manage complexity as well as increase efficiency by focusing on core business and to minimize work load. To increase efficiency most firms outsource general accounting and purchase to pay processes. From the study it can be inferred that outsourcing has benefited the firm. It is evident that outsourcing not only delivers expertise to the firm, but also offers the firm the opportunity to focus on its key competencies. It was recommended that as far as outsourcing decisions are performed by the top level managers they need to take due diligence before making the decision. Firms should also undertake outsourcing whenever possible in order to focus on core business. It was also recommended that firms need to undertake cost and benefit analysis of outsourcing to the performance of the organization before taking up the contract. Lastly, to attain competitive advantage organizations need to outsource in order to delivers expertise and let the institution to focus on key competencies, improve on organizational structure, and organizations performance. For further studies, there is a need to undertake a study to establish the challenges that the organization encounters when implementing outsourcing strategies. There is also a need to undertake a similar study in other firms in the sector in order to be able to generalize the findings