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IMPACT OF
OUTSOURCING ON ORGANIZATIONAL PRODUCTIVITY IN A SELECTED MANUFACTURING
ORGANIZATION
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
The Nigerian
fast foods industry emerged in the early 1980’s with few restaurant business
operators who had the desire to provide the kind of meals people desire to
consume outside of their homes due to urban development and mobility from one
place to another, especially in major cities of the nation. The trend increased
more and standardized in the late 1990’s due to increase in disposable income
leading to the advancement of the concept of restaurant to fast foods that
offers confectionaries and continental dishes. The industry attracted many
investors and entrepreneurs in the 2000’s due to the unprecedented growth the
operators of fast foods experienced. New concepts and ideas have been
introduced into the industry that began as traditional restaurant base
businesses. Nevertheless the drive to satisfy customers by creating enabling
environment to take market leadership as amongst players as a result of
competition necessitated the adoption of various outsourcing strategies.
There are
different types of fast foods companies in Nigeria, some are indigenously owned
and they carry local brand names as desired by the business owners while others
are foreign companies with their host in South Africa, China , United Kingdom
and America being operated by franchise agreement .
According to
Agusto (2008) in a research conducted it was discovered that the fast food
industry of Nigeria is in its growth phase and has been on this trajectory for
the past five years. The nominal average growth rate of the industry between
2000 and 2004 was 37% while real growth rate was 23%. This is considered
impressive especially when compared to the average real growth rate of 6% for
the economy and an average nominal growth rate of 14% and 17% for gross domestic
product and disposable income respectively Similarly, the amount spent by an
average Nigerian on Fast Food grew by over 200% between 2000 and 2004, which is
indicative of the growing acceptance of Fast Food culture and the changing
lifestyle of Nigerians.
1.2
STATEMENT OF RESEARCH PROBLEM
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, chemical etc. 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 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.
1.3 OBJECTIVES OF THE STUDY
The general
objective of the study is to determine the extent to which outsourcing have
contributed to the performance of fast foods industry in Nigeria. The specific
objectives of the Study are to:
(i) To
examine whether business outsourcing assist fast foods entrepreneurs to reduce
operation cost in their business.
(ii) To find
out if knowledge process outsourcing supports fast food companies to build
customers relationship.
(iii) To
find out if outsourcing assist firms to increase sales turnover.
(iv) To
determine whether outsourcing strategies adopted by a firm assist Nigeria fast
food companies to increase profitability.
1.4 RESEARCH
QUESTIONS
This study
intends to answer the following research questions to solve the research
problem.
(i) How has
business process outsourcing assisted fast foods entrepreneurs to reduce cost
of operation in business?
(ii) To what
extent has knowledge process outsourcing affected customers’ relationship?
iii) To find
out if outsourcing assist firms to increase sales turnover?
(iv) To find
out if outsourcing strategies adopted by a firm help Nigeria fast foods to
increase profitability?
1.5 RESEARCH
HYPOTHESES
The Research
Hypotheses are indicated in their null and alternate forms.
Ho1 Business
process outsourcing does not assist fast foods entrepreneurs to reduce cost of
operation in business.
Ha1:
Business process outsourcing assists fast foods entrepreneurs to reduce cost of
operation in business.
Ho2:
Knowledge process outsourcing does not affect customers’ relationship.
Ha2:
Knowledge process outsourcing affects customers’ relationship.
Ho3:
Outsourcing strategy adopted by a firm does not increase the profitability of
fast food companies.
Ha3: Outsourcing
strategy adopted by a firm increases the profitability of fast food companies.
1.6
SIGNIFICANCE OF THE STUDY
The Nigerian
economy particularly the food and beverage sector which the fast food is a sub
sector faces a major challenge of performance in terms of efficient and
effective utilization of the available resources to generate adequate output
that can compete globally. Agusto (2004). The study would help fast food
investors to embrace the uniqueness of outsourcing strategy to venture into the
business with lesser stress. It will also help them to see the opportunities
that exist in embracing innovation technique as outsourcing that could help
build customers relationship, increase productivity and efficiency of employee
and assist in adoption of outsourcing strategies by Nigeria fast foods to
increase turnover and profit.
Finally this
becomes significant because it would provide a framework for fast food
entrepreneurs and managers to be able to adopt outsourcing strategies in a
unique manner to stay ahead of competition in their industry and also be able
to compete globally with foreign fast foods in developed countries thereby
being in a model for the advanced world in any substantial form they desire
which could be in form of developing unique menu that would be desired and
demanded for globally by enterprise innovation .
1.7 METHODOLOGY OF THE STUDY
In other to
accurately capture the effects of outsourcing strategies on the performance of
Nigeria fast food industry, selected fast foods in Ilorin state was considered
based on the registration of such fast foods outlet with the appropriate
regulatory authority. The fast foods consisted of Tantalizers, Mr. Biggs,
Tetrazzini, Chicken Republic, Tastee Fried Chicken, Munchies, Sweet Sensation,
Mama Cass and Big Treat. Reduction in cost of business operation was used to
measure business process outsourcing, customers’ relationship and employees’
productivity was used to measure knowledge process outsourcing, and
profitability was used to measure the outsourcing performance of fast foods as
regards adoption of new technology in fast food businesses.
1.8 THE
SCOPE OF THE STUDY
The scope of
the study was limited to companies in the fast food sector mostly registered
ones with the appropriate authorities like Association of Fast Food
Confectioners of Nigeria. (AFFCON) and the National Agency for Food and Drug
Administration and Control (NAFDAC). Indices like stock exchange quotation was
not considered because it is only about 2 to 3 fast foods firms that are listed
and many others are not listed but are prominent and doing great in the
industry in terms of expansion and turnover based on findings and observations.
(AFFCON) and the National Agency for Food and Drug Administration and Control (NAFDAC).
There are about 46 companies identified in Association of fast Food
Confectioners of Nigeria. It was discovered that the AFFCON list did not only
contain leading fast foods but also other fringe players in the fast foods
industry. The AFFCON list was used to validate the existence and location of
the companies sampled. However, for the purpose of this study, ten (10) fast
food companies which includes, Mr. Biggs, Sweet Sensation, Tantalizers, Chicken
Republic, Tetrazzini, Big Treat, Mama Cass, Tastee Fried Chicken, Munchies,
Kenturkey Fried Chicken constituted the scope of the study.
The
repondents for data gathering were limited to managers or directors and middle
level staff in charge of production and business process in the study
organizations. These managers are expected to be knowledgeable about
outsourcing. The focus of the study was the fast foods industry of the Nigerian
economy because of the importance of the sector to the overall economy of the
country and its impact in helping the country to generate employment and
increase revenue base.
1.9
LIMITATION OF THE STUDY
This study
is limited by a number of variables. Some of these variables range from the use
of only fast food companies registered with the Association of fast Food
Confectioners of Nigeria. (AFFCON) and also the National Agency for Food and
Drug Administration and Control (NAFDAC). The inability to capture the
innovation and outsourcing contributions of small fast food corporations
because most Nigerian fast foods outlets especially those owned by some
Nigerians are not registered and were not willing to give necessary information
as regards their operations due to the cost of registration with appropriate
agencies. Also Most indigenous fast food companies are out of business due to
energy consumption cost and low human capital capacity to stay ahead of competition
as a result of growing overhead cost.
1.10
DEFINITION OF TERMS
Outsourcing:
Outsourcing is the process by which an organization contracts with another
individual or company to get some of its work done. Outsourcing simply means to
transfer work responsibilities and decision rights to someone outside the
business.
Business
Process Outsourcing (BPO): It is a situation in which a particular process task
is outsourced. An example could be payroll. Business process outsourcing work
could be either back office related or front office work.
Information
Technology Outsourcing (ITO): This is usually overseen by the Head of
information technology of an organization. However the head of IT is often
called in to manage BPO and KPO operations where no significant IT skills are
involved.
Knowledge
Process Outsourcing (KPO): A situation of work that needs higher levels of
involvement from the worker. The worker has to employ advanced levels of
research, analytical and technical skills and has to make decisions of a higher
order. Examples are marketing research, branding of products and services,
advertising and patent/ intellectual property research.
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