Outsourcing is subcontracting or delegating a number of business activities. These include designing and/or assembling a product, developing, marketing, distributing a product, and providing after-sales services to customers. Usually, this is done in order for the business to consolidate or focus on one or more aspects of the business that it deems more lucrative or important. It is also done as a means of cutting costs with regards to setting up necessary infrastructure or acquiring the required skilled labor (Kao & Decou 2003). Offshore outsourcing is usually undertaken by large firms intending to capitalize on low minimum wage and high skilled labor in the developing countries. While outsourcing within the country is not as cost efficient as offshore outsourcing, it also allows for concentration of resources, such as time and money, on issues considered to be more urgent or more important (Haron & Ismail 2010). Outsourcing in SME’s is a relatively common practice. This study aims to find out if outsourcing is an effective strategy for SME’s in Singapore, and which business activities can best be outsourced.
1.1 Problem statement
Small and medium enterprises (SME’s) in Singapore are at high risk. This is because they fail to compete in a market that is freely dominated by large multinationals. The high operational costs make running an SME to be an expensive venture that is not so attractive.
The fact that the market is dominated by multinationals makes it hard for these SME’s to compete fairly since the small and medium enterprises have much less resources.
1.2 Reasons for studying this topic
Large companies outsource their business services in order to make more money by lowering production costs (Burkoff 2011). This has been successful due to the large amount of capital that these multinationals had at their disposal. Thus the same method of cost cutting through outsourcing may not be practical for SME’s since they run on small or moderately medium capital capacity. This study is aimed at analyzing the applicability of outsourcing in SME’s, particularly those in Singapore, and also at finding out if there are any other ways of improving competitiveness of local SME’s in a market largely taken up by large international companies. With this kind of information, SME’s in Singapore can then optimize their business potential through outsourcing if it is found to effectively reduce the risks associated with running an SME in Singapore. If not, those already in outsourcing will be able to consider other options like creating mergers in order to survive in an already crowded market.
1.3 Objectives Of The Study
The main objective of the study is to determine whether outsourcing of business services by small and medium enterprises (SME’s) can reduce risk in Singapore. Many companies chose to outsource in order to avoid certain types of costs. Among the reasons are avoidance of burdensome regulations, high taxes, high energy costs, and unreasonable costs, etc. When it comes to making decisions about changes in sources of production and its services, the challenge is always connected with balancing the risks and benefits of such changes (Rushton 2007, p. 213).
Before deciding to outsource part of business functions, it is important to be clear about all risk assessment and possible effects because these changes may result in more negative impact than cost savings and reduction of personnel for the SME as the outsourcing program may require to take into account other factors such as the possibility of internal tensions and differences and their impact on external corporate image (Mcivor, Wall, Humphreys, & McKittrick 2009). Hence, the researcher will be interested to find out how efficient and effective outsourcing has been for SME’s in Singapore. This will be in terms of reducing the risk involved in operating an SME in Singapore.
The objectives of my study are to investigate the method of reducing the losses that leads to a certain transformation of risk vulnerability and reduces the impact of possible damage, to indentify new suitable methods of risk reduction, to study strengths and weaknesses of current risk reduction, and to determine the feasibility of using outsourcing as a method of risk reduction.
1.4 Significance of the study
This study will enable SME's to effectively decide on whether or not to outsource. By providing adequate information about the impact of outsourcing on SME’s, the study will introduce new ways of reducing risk in SME’s in Singapore and, therefore, stabilize SME’s sector of the economy. By focusing on outsourcing as a way of reducing risk in SME’s in Singapore, the study will provide new ideas on how SME’s can be competitive in a market dominated by multinationals.
1.5 The scope of research
This study will cover a variety of small and medium enterprises across Singapore with an aim to find replicable results. The SME’s to be researched will include those in outsourcing, to find out how the practice has impacted their business so far and what business activities they are outsourcing, and those that are not yet into outsourcing, to find out why they are not outsourcing.
The study will make use of primary data that will be obtained from local business community in Singapore. Data collection will be carried out by using questionnaires. The study will rely on descriptive statistics as means of showing trends in profitability of SME’s over time. It will also determine the number of SME’s that have embraced outsourcing as a means of reducing risk..
2.0 Abstract on SME’S that are currently outsourcing business services in Singapore
The number of companies offering business outsourcing services in Singapore is quite large, and for such huge supply there must be an equally huge demand. These companies include Payroll Outsourcing And HR Administration Services, Tricor Singapore Pte Ltd, Accenture, Aberdeen Consulting, CnetG: R Outsourcing company, Dirad Pte Ltd Group, CSC Singapore, HCL Technologies, Asia Risk Technologies Ltd, Bigonthenet Pte Ltd, Emerio Globesoft Pte Ltd, Eutech Cybernetic Pte Ltd, Hexaware Technologies Asia Pacific Pte Ltd, I-vic International Pte Ltd, Incall Systems Pte Ltd, Mphasis, Nel Group Ltd, O & L Consultancy Services Pte Ltd, Pitney Bowes Software Pty Ltd, Reka Pte Ltd, Wesco Sourcing, and Procurement Services Pte Ltd, among many others. They serve both domestic and foreign companies and provide a variety of services such as recruitment, payroll processing, accounting, auditing, IT services, and marketing, among others.
Business outsourcing industry is one of the most lucrative industries in Singaporean economy. With major companies opting to specialize and cut operational costs, a new multibillion dollar industry was created, and a large chunk of this industry is in Singapore. This study was conducted to determine the applicability of outsourcing to reduce business risks for small and medium enterprises (SME’s) in Singapore. Outsourcing of business activities by large corporations has been a successful way of reducing business risks by optimizing profitability through lowering production costs that directly translates to lower operational costs, thus higher profitability. While SME’s generally have lower operational costs due to their financial capacity, the relationship between these operational costs and firm’s profitability is just like that in a large company. This is why the working hypothesis of this study is that outsourcing of business activities by SME’s in Singapore reduces business risk. Also, the research is aimed at finding other ways through which profitability of these small and medium enterprises (SME’s) can be increased to ensure their growth and sustenance (Congram & Epelman 2011). Free trade policy has created unfair competition that needs to be weathered by SME’s. This is in order to increase independence as opposed to interdependence as is currently whereby most of Singapore’s money is from external sources and particularly those with which the country has free trade agreements.