Changing Myopic View on Outsourcing Decision in the Manufacturing Industry: A Case from Malaysia

Shankar Chelliah
Universiti Sains Malaysia, Malaysia

Jenny Teoh Aui Meng
Open University of Malaysia, Malaysia

Jayaraman Munusamy
LimKokWing University, Malaysia

The purpose of this study is to understand the factors influencing outsourcing decision in the manufacturing industry. Existing literature reveals that manufacturing industry face with challenges in the competitive environment with expectation to produce products at the lowest cost possible yet meet customer specification without affecting the quality and delivery schedules. Thus, outsourcing has become one of the alternative opportunities among the manufacturing firms. The theoretical framework is developed to understand four components namely operating cost, new product development, internal resources and technology, and as well as management competency as the determinants of outsourcing decision. This is a quantitative research and survey instrument was used. The questionnaire was distributed to 150 firms in Northern region of Malaysia with a response rate of 45%. The data was analyzed using regression to test the hypotheses. The findings showed that capital investment, latest technology and high efficiency becomes the key determinants for outsourcing decision among the manufacturing firms. It poses some implications for managers and policy makers.

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