Research Article, ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
Copyright ©
CC-BY-NC 2014
, Asian Business Consortium |
ABR
Page 13
Factors Influencing Logistics Outsourcing in Pakistan
Kanwar Uzair
1*
, Danish Ahmed Siddiqui
2
1
Research Scholar, Karachi University Business School, University of Karachi, PAKISTAN
2
Associate Professor, Karachi University Business School, University of Karachi, PAKISTAN
*
E-mail for correspondence:
kanwar.uzair@gmail.com
https://doi.org/10.18034/abr.v8i1.3
ABSTRACT
The Freight Forwarding and Logistics industry plays a vital role in the overall economy of Pakistan.
The purpose of this study is to determine the factors that influence for outsourcing the logistics and at
the same time performance of outsourcing has been evaluated with respect to Karachi, Pakistan. Three
factors identified as Low Human Assets, Low Physical Assets and Partnership, all have a positive
impact on logistics outsourcing and the firm performance especially in terms of Financial Benefit.
Online survey was conducted and the data was obtained from a sample size of 165 from the seniority
level of the manufacturing industry in Karachi. We measure the inner model by Smart PLS software
to indicate the reliability of all factors that significant impact on logistics outsourcing practices.
Reliability test was also performed which showed that our study is significant.
Key words: Outsourcing, Low Physical Assets, Low Human Assets, Partnership, Logistics Outsourcing Practices and
Financial Benefit
INTRODUCTION
The ability to obtain the goods and distribute it around the
world is the structure of the Supply Chain. Strategically it
competes on the basis of cost, service, time and
transportation that play significant role in supply chain.
Third party logistics providers working as an
independent organization, carry all the responsibilities of
transportation from acquiring of goods to deliver to final
customer that is now. Outsourcing success is the dynamic
factors of the business function since after the revolution
in information technology people are align to each other
through knowledge sharing which significantly integrate
skill workforce with low physical assets and high
transaction uncertainty. It is important in outsourcing that
partners share the abilities on each element to work
effectively. Logistic functions are outsourced to the
external service providers with the aim of acquiring
technological, economic and strategic advantages
(Venkatraman, 1992). Despite of the significance, now it is
considered as the mandatory function of the business.
Problem Statement
In the complex and massively challenging market
environment, organizations now have difficulties of
improving quality, bringing down costs and addressing
individual needs. Hence, now organizations are starting
to focus on logistics as an essential mean to achieve and
sustain competitive advantage. For firms, extending
current or establish new logistics capabilities is an
approach to create value for customers and themselves
(Esper, Fugate &Sramek, 2007; Mentzer, Min & Bobbitt,
2004).
Hsiao et al. (2010), pointed out that companies outsourced
logistics services because they do not own suitable
transport vehicles, which is one of the factors lacking in
the firm’s physical assets in their case study analysis
Knemeyer and Murphy (2005) states that there has been
very little research concerning the activities that might
influence the performance of logistics outsourcing
relationships.
Bourlakis and Melewar (2011) examine managing
operations has become very challenging for most
corporations considering the vast range of logistics
functions.
The birth of logistics can be traced back to ancient war
times of Greek and Roman empires where soldiers are
assigned to provide services of supply and distribution of
resources that enable soldiers to move forward from base
position to forward line. After World War II logistics
evolved greatly that consider as an art and science. Now
organization term logistics as providing the right type of
products and or services at the right price, at place, time
in the right condition.
Uzair and Siddiqui: Factors Influencing Logistics Outsourcing in Pakistan (13-20)
Page 14 Asian Business Review ● Volume 8 ●Number 1/2018
The concept of logistics is based on systematic approach
that performs functions in the systematic way starting
from the movement of material from supplier to end user
with the aim of achieving customer satisfaction.
Research Objective
The main purpose of the study is to examine the
influential factors that outsource logistics activities which
impact on firm performance.
Research Questions
Following are the research questions which study to be
done.
What are the factors that influenced to outsource logistics
with extent to logistics outsourcing practices?
What is the effect of logistics outsourcing practices that
impact on logistics outsourcing performance?
Significance of the Study
The findings of this study will provide an insight to the
supply chain manager to outsource the functions of
logistics that significantly impact to operational cost and
time compression of manufacturing firms that like other
firm’s resources whether logistics could be an importance
source to sustainable and improve performance.
Limitation of the Study
The main objective of the research is to explore the areas
with different aspects and to find out new dimension
which provide guidance to the people but to achieve that
there are the constraints that need to be consider. The first
and most precious is the time constraint that limits our self
to work under it, secondly region of the study to work on
it. It is very important to understand the respondent of the
research for generic feedback as well as the sample size
that limit to find out the results which are not efficient to
measure the study.
LITERATURE REVIEW
Theoretical Background
The outsourcing of logistics functions to partners, known
as ``third-party logistics providers'', has increasingly
become a powerful alternative to the traditional,
vertically-integrated firm. To obtain competitive
advantage, Resource based view (RBV) has gain the
dominance in the organization’s strategic management
approaches, which began with Werner felt in the 1980. It
contends that by optimal utilization of resources and
competence, Companies may obtain and sustains
competitive advantage (Day, 1994; Wernerfelt, 1984).
However, Barny 1991 explore that logistics capability is
that part of firm’s resources which allow it to conceive of
and implement strategies that improve efficiency and
effectiveness. According to Dekkers (2011) and Wernefelt
(1984), the RBV defined resources as tangible and
intangible assets that are rooted half-permanent to a firm.
Barney (1991), however, moved the emphasis from the
organizational view to the firm’s goal of reducing the
uncertainty and dependency on other organizations to
reduce the risk for its survival.
Transaction Cost Economics Theory
William 1975 stated that in TCE approach, the properties
of the transaction determine what establish the most
competent governance structure-market, hierarchy or
alliance. The primary factors producing transactional
difficulties include bounded rationality, opportunism,
small numbers bargaining, and information
impactedness. Bounded rationality and opportunism are
behavioral assumptions. Bounded rationality refers to the
rational limitations of the human mind, which increases
the difficulties of understanding fully the difficulties of all
possible decisions. Opportunism refers to decision makers
acting with cunning, as well as out of self-interest. Small
numbers bargaining refers to the degree to which the
buyer has alternative sources of supply to meet its
requirements. Information impactedness refers to the
presence of information asymmetries between the buyer
and supplier, which means that either party may have
more knowledge than the other. These transaction
difficulties and associated costs increase when
transactions are characterized by asset specificity,
uncertainty and infrequency.
Asset specificity refers to the level of customization
supplementary with the transaction. Highly asset-specific
investments represent costs that have little or no value
outside the transaction. The costs can be in the form of
physical asset specificity (level of product or service
customization), human asset specificity (level of
specialized knowledge involved in the transaction) or site
specificity (location). Asset specificity can be non-specific
(highly standardized), idiosyncratic (highly customized to
the organization) or mixed (incorporating standardized
and customized elements in the transaction). According to
Klein et al., 1978 TCE affirms that the potential for
opportunistic behavior is most likely when an exchange
requires one or both parties to make significant
transaction-specific investments, since such investments
create quasi-rents that are subject to the holdup problem.
When asset specificity and uncertainty is low, and
transactions are relatively frequent, transactions will be
ruled by markets. Hierarchical governance occurs when
uncertainty and high asset specificity lead to transactional
difficulties. Medium levels of asset specificity lead to
mutual relations in the form of co-operative alliances
between the organizations or intermediate governance.
Logistics Outsourcing
Companies can either keep logistics functions in house or
contract them out. The decision process is based on an
evaluation of the costs and benefits of outsourcing.
Lankford and Parsa (1999) stated that outsourcing is
Research Article, ISSN 2304-2613 (Print); ISSN 2305-8730 (Online)
Copyright ©
CC-BY-NC 2014
, Asian Business Consortium |
ABR
Page 15
usually supported by many factors in all organization
levels. The decision to outsource should take account of
many issues: scale of economy, outsourcer expertise,
strategy, the need for cost savings, and accountability with
greater control of operating costs, moving from fixed into
variable costs, and quality factors
Crum and Allen (1997); Lieb and Miller (2002) suggest that
a user could reduce capital investment in logistics
facilities, focus on core activities, reduce inventory,
improved response rate to marketing and minimize
logistics costs through outsourcing.
Several studies have been completed on various aspects of
outsourcing. Campbell (1995) indicated that a planned
strategy for outsourcing has the potential to deliver a
competitive advantage through allowing the organization
to focus on core activities. This planned strategy involves
measuring the willingness of the organization to
introduce outsourcing, as well as identifying the activities
which offer the best potential to the organization.
Influential Factors of Logistics outsourcing
Power, Sharafali and Bhakoo (2007) examine that majority of
the research in this area has centered on the type of activities
outsourced, the reasons behind these decisions and on
benefits of logistics activities. Gattorna and Hargreaves, 1991
mentioned that the factors that influence to outsource are
categorized into two aspects; control and physical. Control
aspects involves the management activities along with the
performance measurement in contrast to physical aspect it
involves the operation ability which focus on lean
manufacturing to integrate product stabilization.
Khosrowpour, Gunderman, Subramanian (2000) explore the
perception of employee with respect to outsource of
Information system that workforce reduction are an issue for
the client as well as the outsourcing vendor. Once the rumors
have been imposed of outsourcing of Information system,
naturally it started fear and terming of responsibility which
significantly impact to the organization.
Moad (1991) points out, outsourcing vendors reputation
are not the best with the professionals; many employees
see these firms as threat to their security. Frequently,
outsourcing vendors will go over management head
directly to corporate executives. This method often used
by vendors because they realize that management is
generally not receptive to what the vendor has to offer.
Employers who are in the lower ranks of the organization
are also uncomfortable with the idea of being taken over
and becoming a pawn in a business transaction.
Large (1991) states that an organization focusing in
information technology can gain competences in two
different aspects. First, the economies of scale associated
with running large operations cuts down on per unit cost
associated with computing. Second, the knowledge base
of experience and expertise in the company results