Enterprise Outsourcing Strategies and Marketing Performance of Fast Food Industry in Lagos State, Nigeria

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There is now more pressure on business practioners to justify that marketing function contributes to shareholders value by the firms. Management of firms are interested in assessing the extent to which cost of business can be minimized and how that
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  Global Journal of Business,Management and Accounting Vol. 3(1) pp. 24-35 October 2013 Available online http://www.globalresearchjournals.org/journal/gjbma Copyright ©2013 Global Research Journals. Full Length Research ENTERPRISE OUTSOURCING STRATEGIES AND MARKETING PERFORMANCE OF FAST FOOD INDUSTRY IN LAGOS STATE, NIGERIA BY   Akinbola, Olufemi Amos,   Department of Business Management, College of Development Studies.   Covenant University, Ota, Ogun State, Nigeria.   E-mail: femi.akinbola@covenantuniversity.edu.ng Ogunnaike, Olaleke Oluseye, Department of Business Management, College of Development Studies Covenant University, Ota, Ogun State, Nigeria E-mail: ola.ogunnaike@covenantuniversity.edu.ng Ojo Olugbenga Abiola Faculty of Business and Law Leeds University Business School Leeds Metropolitan University, United Kingdom Email: a.ojo3432@student.leedsmet.ac.uk Accepted 24  th   September, 2013 There is now more pressure on business practioners to justify that marketing function contributes to shareholders value by the firms. Management of firms are interested in assessing the extent to which cost of business can be minimized and how that could help in reducing marketing expenditure and ultimately increase return on marketing investment (ROMI). The study attempted to ascertain the link between outsourcing and marketing performance. Copies of questionnaire were distributed purposively to ten fast food outlets in Lagos, Nigeria. Two hypotheses were developed and were subjected to descriptive and regression analysis. It was discovered that outsourcing contributed to increase in marketing performance. The study makes useful policy recommendations for marketing professionals, entrepreneurs and top executives of fast food outlets in Nigeria. Keywords  : Business Outsourcing, Knowledge Process Outsourcing, Technology Outsourcing, Sales Turnover, Customer Satisfaction 1.0 Introduction The Fast Food industry in Nigeria today is a beehive of activities and is gaining a lot of attention both within and outside the country. Industry trends such as rapid outlet expansion, strategic alliances (especially with companies in downstream sector of the oil and gas industry), and entrant of foreign players amongst others lends credence to these assertions.   There exist in every economy, (whether developed, developing or less), various type of industries; manufacturing, service, food and beverage, textile and chemical. These industries compete among themselves for resources, infrastructure, market share and relevance, for successful competition, companies use creative and innovative weapons to compete favourably for profit maximization. However the concept of outsourcing has not received a lot of attention as considered to be important elements that account for the growth and remarkable performance of the fast foods industry in Nigeria. Also the effects of  25 Glo. J. Bus. Manage. Acct.  outsourcing on firms’ performance are not completely clear. Previous outsourcing studies show contradictory results; while some claim a positive relationship between outsourcing and performance outcomes, others report no significant or even negative effects (Rothaermel and Deeds, 2001). Outsourcing without proper management control could sometimes result in job losses, According to Ghodeswar and Vaidyanathan (2008), a large number of employees whose organizations outsource their business activities may have similar problems to those employees that have undergone downsizing, while organizations claim that the basis for outsourcing is to increase business efficiency. however employees who are lucky to remain in the company after outsourcing effects believe that the possibilities of them staying in the company is low, because they could be the next in line to lose their jobs. Hammer (2001) posits that in situations where the outsourcer is not satisfied with the service, it could be difficult to break the contract because outsourcing contracts usually require a stipulated period. It will be costly to reverse the situation and return the services in-house. Nevertheless, extant literatures and observed online interviews of business executives have shown that the positive outcome of outsourcing as a platform for reducing cost of production and for increasing the profit of firms. However, limited study have been able to link it with returns on marketing investment. Return on marketing investment (ROMI) is the contribution attributable to marketing (net of marketing spending), divided by the marketing 'invested' or risked. ROMI is a relatively new metric. It is not like the other 'return-on-investment' metrics because marketing is not the same kind of investment. Instead of fund being 'tied' up in plants and inventories, marketing funds are typically 'risked.' Marketing spending is typically expensed in the current period. The idea of measuring the market’s response in terms of sales and profits is not new, but terms such as ROMI are now being used more frequently than in past periods. It is as a result of this that the study intended to examine;   (i) Whether business outsourcing assists fast foods entrepreneurs to increase return on marketing investment (ii) If knowledge process outsourcing supports fast food companies to satisfy its customers. Conceptual Clarifications According to Sako (2006), Outsourcing can be defined as the act of one company contracting with another company to provide services that might otherwise be performed by in-house employees. It was further described as a contract service agreement in which an organization hires out all or part of its operations to an external company. The recipients for outsourced activities are generally in the same country. When a company on another continent is involved e.g. India, the correct term to use is offshore outsourcing. Near shore outsourcing refers to outsourced projects that are outside the country, but on the same continent e.g. a US company outsourcing activities to a company in Canada would be called near shore outsourcing. Feenstra and Hanson (2005) described it as a “disintegration of production” or a “super specialization”. Dutta and Roy (2005) mentioned a phenomenon called “vertical fragmentations”. Lacey and Blumberg, (2005), defined outsourcing as “reliance on external sources for manufacturing components and other value adding activities”. Some focus on international sourcing of components, sub-systems and completed products (Asher and Nandy 2007). Outsourcing is the process of entrusting non-core activities or operations from internal production within a business to an external entity that specializes in that particular operation. In general, outsourcing can be referred to as make or buy decisions on intermediate goods, to the hiring of temporary labour and to the use of external services (Kennedy et al  . ,  2002). According to Beaumont (2006), outsourcing can be said to be one sub-type of distributed work. It is the delegation of task or job from internal production to external entity, such as a sub-contractor. Smith et al  ., (2006) defined outsourcing as turning over to a supplier those activities outside the organization’s chosen core competencies. Gilley et al  ., (2004) gave clarifications for the definitional confusions; positioning outsourcing as procuring something that was either srcinally sourced internally (i.e vertical disintegration) or could have been sourced internally notwithstanding the decision to go outside (i.e make or buy). This includes arrangements that have been termed – internal versus external sourcing,(Beaumont, 2006).   In the words of Bennedsen and Schultz, (2005) outsourcing decisions are influenced by the quality of information available, cost, profitability, strategic alliance, supplier quality, financial evaluation, risk and efficiency. Bennedsen and Schultz, (2005) also suggested that comprehensive use of outsourcing can provide organizational, technical behavioural benefits and provide greater visibility of both issues and processes of all the functions affected. Mukherji and Ramachandran , (2007) discovered that drivers of outsourcing decisions are both internal and external to the outsourcing organization as more processes are integrated with information systems. Often the tasks that are outsourced could be performed by the company itself, but in many cases there are financial advantages that come from outsourcing. Many large companies now outsource jobs such as call center services, e-mail services, and payroll. These jobs are handled by separate companies that specialize in each   service, and are often located overseas. Outsourcing enables an organization to better marshal its own resources and those of its external agents who have the required expertise and specific resources/technologies to accomplish all the tasks involved (Wu et al  ., 2006). Effective use of outsourcing will, therefore, allow an organization to focus on a limited set of strategically important tasks and will in turn lead to continuous enhancement of its core competencies (Des et al.,  1995; Kotable 1998; Quinn 1992; Venkatraman 1989). Moreover, advances in business logistics and processes have encouraged companies to increase the outsourcing of non-core operations. This has led companies to develop new business strategies to manage goal-oriented activities (Mowshowitz 1994) that depend heavily on outsourcing. Outsourcing has also resulted in a significant altering of organization configuration and boundaries, outsourcing can obviously help an enterprise achieve considerable benefits, but employing outsourcing without proper consideration of long-term performance may also jeopardize competitiveness. Types of Outsourcing There are three basic types of outsourcing as described by Mark et al., (2006). The outsourcing forms include the following: i. Business process outsourcing (BPO) ii. Knowledge process outsourcing (KPO) iii. Information technology outsourcing (ITO) i. According to Thomas and Rick, (2005) business process outsourcing (BPO) is defined simply as the movement of business processes from inside the organization to an external service provider. With the global telecommunications infrastructure now well established and consistently reliable, BPO initiatives often include shifting work to international providers when organizational needs for outsourcing cannot be met locally. Mark et al  ., (2006) pointed out that business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. It has to do with establishing a partnership with a single supplier or service providers. ii. Knowledge process outsourcing (KPO) has to do outsourcing of core business activities which often are competitively important. Therefore Knowledge process outsourcing includes processes that demand advanced information search, analytical, interpretation and technical skills as well as some judgment and decision-making. The concept of knowledge process outsourcing deals with special endowment of knowledge in a specific line of business and it is information driven. It means that it is a continuous process of creation of genuine ideas and dissemination of information by bringing together the Akinbola et al  ., 26 information to industry leaders to create knowledge in an industry whose areas of involvement includes marketing, research and development, product development and planning, advertising and allied services, (Agarwal and Nisa, 2009). iii. Information technology outsourcing (ITO) has to do with Information technology being perceived as a service or support function. Majorly it aims at reducing IT costs though outsourcing organizations retain strategic control. Multiple suppliers sourcing are not as concerned with partnerships as the aim is to foster innovation and create competition between suppliers, although suppliers will form alliances among themselves for bidding purposes. Usually, contracts are short-term and a client then organizes a portfolio of services from various suppliers so that strategic control can be retained. Joint venture deals more with development of new knowledge for the client, also they advocate for shared risk and reward. Some organizations help promote creation of Supplier Company and maintain more control than they would have in a multiple supplier or total management. A more recent type of outsourcing is the ‘Application Service Provider’ model, where organizations purchase software on the basis of use and transfer for a fee. (Kem   and Huigang, 2002), as for organizations that see IT as core to their business, they keep the IT department and services in-house. Theoretical Framework Core Competencies Theory  Core competency is a concept in management theory srcinally advocated by CK Prahalad, and Gary Hamel, The concept of core competencies has been developed on the basis of the resource-based theory.   Prahalad and Hamel (1990) defined the core competencies as the collective learning in the   organization, especially how to coordinate diverse production skills and integrate multiple stream technologies. The application of core competency concept in outsourcing became very popular among scholars. The concept has been predominantly used to develop and test various outsourcing decision frameworks arguing that the core activities shall remain in house. Learning and communication premises of the concept made it also applicable in the Managing relationship and reconsideration phases. Vendor’s competencies are assumed to be one of the most important factors that influence success of an outsourcing arrangement (Levina and Ross, 2003; Feeney et al.,  2005). Core competency is a specific factor that a business sees as being central to the way it, or its employees, works. It fulfills three key criteria: i. It is not easy for competitors to imitate.  27 Glo. J. Bus. Manage. Acct. ii. It can be re-used widely for many products and markets. iii. It must contribute to the end consumer's experienced benefits. Some fast food companies in Nigeria have some products that are peculiar and associated best with their organization and this makes them to be regarded as leader in the area of such product offerings or delivery to customers. A core competency can take various forms, including technical/subject matter know-how, a reliable process and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication, best human resource management (HRM), good market coverage etc. Core competencies are particular strengths relative to other organizations in the industry which provide the fundamental basis for the provision of added value. Development of Hypotheses In Nigeria outsourcing represents major parts of business dealings of fast food companies, according to Oloketuyi (2006) fast food companies outsource power management, generator maintenance and raw materials procurement because product range are large and barrier to entry is low in order to compete effectively, organizations considers cheap means of delegating responsibilities to the outsourcing vendor that will make them realize substantial profit. Fast food companies Outsourcing represents the ‘fundamental decision to reject the internalization of an activity’ (James and Stephen, 2001). A strategic decision is undertaken either to substitute external sourcing for internal activity or use externally provided activities to extend a firm’s capabilities. Proximity between purchaser and provider of the outsourced activity may influence the outsourcing decision due to agglomeration or clustering effects – or what the urban economics literature calls “localization externalities” (Stephen, 2001). These may affect the outsourcing decision by impacting on the costs of the outsourced activity, influencing the governance or management costs associated with outsourcing (Vining and Globerman, 1999) or by changing the risks associated with information asymmetry, bounded rationality and opportunism (Williamson, 1975). In the particular context of the outsourcing adoption, where outcomes are uncertain and contracts are likely to be incomplete, the latter of these may be especially important. ‘Clustering of some firms may, for example, facilitate outsourcing possibilities, contacts and information that would not be readily available with dispersion. Locating in a central may help to create and support networks of co-production or sub-contracting that can be vital to Research and Development (R&D) activities, through the resource savings that they provide. Such outsourcing economies may be crucial to small and medium-sized enterprises, it can save resources, and the patterns of trust and reciprocity that can develop from co-production may also provide for a stronger relationship between R&D and productive performance.   Charis (2006) cited that fast food companies outsourcing, the purchase of restaurant’s equipment, sub-assemblies, finished products or mobile transportation sales services from outside suppliers when internal production capacity is limited to maximize profit as projected. An enterprise will also outsource its business when it does not possess the crucial technology, but still wants to seize the business opportunities presented. ( Chu and Chulli  2005) conducted a survey in 11 industries on outsourcing expenses, expressed as a percentage ratio between outsourcing expenses and revenue. The survey found the population mean to be 54%, whilst the ratios for the lowest and highest industries were 27% and 83% respectively. We can conclude that industries spend about 50% of their revenue on outsourcing, a surprisingly large figure. This is also supported by (Chu and Chulli 2005), who suggests that outsourcing contributes a significant part of an organization. A study on the effect of outsourcing on fast food industry performance also revealed that food producing firms are facing increasing global competition, and simultaneous pressures on both the cost and quality of their products. Over the past two decades, food firms have responded to these pressures by investing in process and information technologies to streamline and automate operations. More recently, in an attempt to become stronger and responsive across the supply chain, businesses have begun to outsource core production processes and noncore support processes to focus on their core competencies for the purpose of increasing sales revenue. A recent survey conducted by Sheen and Tai, (2006) about the largest U.S. manufacturers found that 80 percent of logistics executives reported using third-party outsourcers to handle supply-chain activities, up from less than 40 percent in 1991. Another survey of 318 global companies active in outsourcing reported that 61 percent experienced cost savings, 57 percent found increased ability to focus on the core business, and 50 percent reported improvements in process speed, quality, and accuracy. Although the relationship between firms’ tendencies to either explore new possibilities or to exploit known certainties dates back to Schumpeter (1934), it is only more recently that this discussion has reached the domain of learning (Rothaermel, 2001; Rothaermel and Deeds, 2004). Outsourcing usually aims at reducing fixed costs by contracting out jobs at reduced wages or benefits and buffer the regular work force from fluctuations (Minondo and Rubert, 2006). This helps firms to externalize risks with respect to demand fluctuations to external suppliers. Moreover, some goods and services can be bought cheaper or at higher quality from third parties because   specialized providers can benefit from economies of scale and learning effects (Whitfield 2006). For the outsourcing decision, a firm compares the costs associated with internal transactions and transactions over the market. This study tested empirically if business process outsourcing will help to reduce the cost of operation; Ho; Business process outsourcing does not contribute to increase in return on marketing investment (ROMI). Other common signs of an outsourcing disaster include: Customers’ poor service delivery that affects customers’ relationship and loyalty, increasing customer complaints, and, in extreme circumstances, business shutdown (due to an information security breach or to the vendors’ system or organizational failure). Any of these is directly harmful to an outsourcing client’s short-term market performance as measured by sales, costs, strength of customer relationships, or market reputation. Outsourcing implies a one-way decision, which cannot be reversed or only against very high cost. It is a strategic decision, to be taken at the highest management level, because it may affect the business’ (future) distinctiveness.” There are several elements in this definition that deserve further consideration. First, outsourcing is concerned with a “dedicated value adding activity”. In other words, we are not talking about purchasing standard products, but about products that are made to order according to specifications set by the outsourcing party. Second, an outsourcing decision is presented as practically irreversible. Once you have given up the competence, the costs of acquiring it again will be formidable. In practice, the loss of competence will not take effect immediately. It will often be a long drawn-out process involving several steps of increasing detachment. Third, outsourcing is considered a strategic decision. Outsourcing was put on the strategists’ agenda in the early 1990s (Prahalad and Hamel, 1990). Companies were urged to consider the full range of their activities and to decide which of these could be considered to be based on core competencies providing competitive advantage. All other competencies would then become candidates for outsourcing to specialist suppliers who in all likelihood would be able to provide such services at a lower cost and higher quality. Over the past 15 years, outsourcing has indeed become a subject of strategic decision-making as shown empirically by Arnold, (2000); Baden-Fuller et al.,  2000). This study further examined the effect of knowledge process outsourcing on customers’ relationship. Akinbola et al  ., 28 H02; Knowledge process outsourcing does not affect customer satisfaction. 3.0 Methodology of the study This study is exploratory in nature and relies on a field survey to collect the required data. A total of 10 fast foods out of the 46 fast foods firms registered with Association of Fast Food Confectioners of Nigeria. (AFFCON) and the National Agency for Food and Drug Administration and Control (NAFDAC) were randomly selected based on the outlet availability and staff strength to represent the entirety of fast food companies in Lagos State Nigeria. The fast foods consisted of Tantalizers, Mr. Biggs, Tetrazzini, Chicken Republic, Tastee Fried Chicken, Munchies, Sweet Sensation, Mama Cass and Big Treat. The survey was directed to the top, middle and lower level management in each fast food organization. Data collected from top, middle and low level managers, whose opinions reflected outsourcing management practices in their organizations. The study adopted the drop and collect method, the researchers administered 30 copies of the questionnaire to each of the 10 organizations filled by their managers being recognized and then collected it within 21 days. The highly controlled data collection procedures ensured 256 out of the 300 copies of the questionnaire were returned, giving us a response rate of 85.3%.  The research tool: The required data was collected by means drop and collect method, which was developed for this purpose. The questionnaire consists of four sections. Section 1 deals with the demographic data of the respondents. Section 2 examines the current practice of business process outsourcing in the companies and how it relates with marketing performance and section 3 is related to knowledge process outsourcing of the fast food companies and section 4 deals with marketing performance, which is the views of the respondents on customer satisfaction and return on marketing investments were harnessed. It must be submitted here that the actual marketing performance was not calculated but this study is limited to the responses of the respondents with respect to the questions raised in the questionnaire about marketing performance indicators such as incremental sales revenue, ratio of costs to revenue, cost of new customer acquisition as well as cost of customer retention were collated for the analysis. The reliability of the research instrument was examined by Cronbach alpha and found 0.86, which is considered acceptable for this research. The statistical package SPSS version 15.0 was used to analyze data. Descriptive analysis and simple regression were used. Table 1 describes demographics of the firm considered in the survey and the response rate.
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