LUCIAN BLAGA UNIVERSITY OF SIBIU

FACULTY OF ECONOMIC SCIENCES S

REPORT ON THE ELABORATION OF THE MASTER THESIS

OutsourcingServicesasaStrategicToolforOrganizational
Performance

Scientific coordinator: Alma Pentescu

Prepared by master student: Alexandra LUCACIU

Master thesis report

For my master thesis, I chose as topic "Outsourcing and international trade" as
today outsourcing is a widely-used method for companies to face the problem of
a more and more competitive business world. Especially offshore outsourcing to
a distant country, where the labour costs are comparatively low, is quite popular
in the media. Nevertheless, a lot of companies fail in accomplishing the high
gains they hoped for. One reason for this is the miscalculation of the effects of
outsourcing on the company which leads to a wrong behaviour of the
management during the outsourcing process. Hence, a better understanding of
the impact of outsourcing is crucial for the success of a company. To improve
this, one way is to analyse the planning environment and the resulting planning
method of a company before and after outsourcing. It is an increasing activity

among international firms, a business level strategy that is becoming more

corporate since outsourcing decision had evolve from an operational to a
strategic issue. The thought of outsourcing an activity represents a
fundamental dilemma faced by many managers. Companies have finite
resources and cant always meet the expense of having all technologies inhouse. Due to its importance, this question outsource some activities has been an important issue for many decades and in several developed
countries. In the last decade, for instance, various authors have developed a
number of strategies and approaches for addressing outsourcing.

1. Scientific research concerning the theoretical foundations of the

dissertation paper
The first step in preparing my dissertation thesis, was the individual research on
the topic, in order to determine the general framework of the topic, research that
I carried out with help of books, magazines, courses and websites concerning
this subject. After this, I had to make a selection for the multitude of sources I
had available in order to choose those which could best reflect the essential
aspects.
Therefore the next step in preparing the paper, was the choice of those
bibliographical sources which I believed that they will help me most. For this, I
asked for the help of my teacher, who made made me a series of bibliographical
sources available, including:

1. Alexander, M. & Young, D. (1996a). Strategic outsourcing. Long Range

Planning

2. Belcourt, M. (2006). Outsourcing The benefits and the risks. Human

Resource Management Review, Vol. 16
3. Dahlman, C.J. (1979). The problem of externality. Journal of Law and
Economics, Vol. 22
4. Doh, J.P. (2005). Offshore outsourcing: implications for international
business and strategic management theory and practice. Journal Management
Studies
5. Engardio, P. (2006). The future of outsourcing How its transforming whole
industries and changing the way we work. BusinessWeek
6. Grossman, G. & Helpman, E. (2002). Integration versus outsourcing in
industry equilibrium. Quarterly Journal of Economics
7. Kumar S., Eickhoff J. 2005. Outsourcing: When and how should it be
made. Information knowledge systems management
8. Lamminmaki, D. (2005). Why do hotels outsource? An investigation using
asset specificity. International Journal of Contemporary Hospitality
Management
9. McIvor, R. (2009). How the transaction cost and resource-based theories of
the firm inform outsourcing evaluation. Journal of operations management,
10. Zack, M.H. (2010). A knowledge-based view of outsourcing. International
Journal of Strategic Change Management
I covered in a broadly manner this bibliography in order to achieve a more thorough and gain
a deeper insight in the studied subject.

Among this, I approached as well online research and where I could study the
chosen topic on certain specialized sites, such as:
- http://www.finint.ase.ro
- http://www.finantare.ro
- http://www.euractiv.ro
- www.edumark.ase.ro
- http://www.efin.ro/financiar-economic
Systematization and use of bibliographic sources
After selecting the necessary bibliographic sources, I passed to a thorough
analysis of the theoretical present issues, after which I was able to get an
opinion on the structure that I will adopt in my paper, respectively which
chapters would be important and the studied topics. So I decided to divide my
theoretical part of the work in three chapters, as follows:

1. Theoretical definition of outsourcing

2. Factors leading to the need for outsourcing
3. Benefits of outsourcing process
Following a thorough approach of the selected materials, I divided the gathered
information on chapters by ensuring that they have a fluency and logic, however
I aimed as well to take personal positions in the assessment and interpretation of
collected data and correlations between them.
Those ideas I wanted to appear in my master thesis exactly as we've found them
in the corresponding bibliographic source and mentioned them in the paper
making reference to footnotes. For a better presentation of the work done
regarding the preparation of the paper, I presented below the steps taken, the
exact sources of information and their structure in form of a table precisely:
Sheet number 1
Zack, M.H. (2010). A knowledge-based view of outsourcing.
International Journal of Strategic Change Management
Nrcrt
The subdivision of the
Ideea
paperwork where the idea is
to be found
Today the concept of outsourcing is no
longer limited to information systems,
but is known in combination with all
possible business functions that are
1
Pag. 8
feasible for contracting them out to an
external provider.

Thus, the firm is able to concentrate on

its core competences and, thereby,
improving its strategic position in the
market. Since a better market position
normally should improve sales and
profit margins, the share price should
increase in the long-run
Presuming that there is a positive
relationship between the share price
and the decision to outsource, one must
also assume that the financial
performance of the company will
improve over time. This is a logical
consequence as the share price is just a
reflection of the future net cash flows
of the company.

Pag. 15

Pag.30

Cost efficiency improvements as

already stated earlier are the most
immediate effects that can be observed
after an outsourcing decision.

Pag.39

Sheet number 2
Belcourt, M. (2006). Outsourcing The benefits and the risks.
Human Resource Management Review, Vol. 16
Nrcrt
The subdivision of the
Idea
paperwork where the idea is
to be found
Previous studies tried to highlight the
Pag. 47
fundamental differences of certain
outsourcing deals. Some based their
explanations on the transaction cost
economics literature while others
conducted case studies to identify the
1
type of control modes employed to
manage the relationships.
Sheet number 4
Doh, J.P. (2005). Offshore outsourcing: implications for
international
business and strategic management
2
As a result, humans are acting
Pag. 50 theory and practice.
Nrcrt thereby making false
The subdivision of the
opportunistically,
Idea
paperwork
where the idea is
promises with the intent to gain a
to be found
personal advantage. Next to the human
1
Consequently,
they
are
only
willing
to
Pag. 59
characteristics, it is Sheet
important
to 3
number
pay factors.
an average price. This average
consider two environmental
Kumar
S., Eickhoff J. 2005. Outsourcing:
and how
price
drives outWhen
the sellers
of the good
Most transactions involve uncertainty
should it be made. Information knowledge
systems
management
to a
quality
goods
or
services,
leading
about some future aspects or they are
Nrcrt
The
subdivision
downward
as such very complex and
therefore spiral, which in the end of the
Idea
paperwork
theIn
idea is
may cause the failure
of thewhere
market.
hard to capture in
a contract.
to
be
found
order to overcome this problematic
As suppliers will anticipate
this
scenario,
sellers and buyers can use
behavior, there is no incentive
for
signaling and screening.
them to act opportunistically.
However, if there is only a limited
1
Pag. 53
amount of suppliers
2 available,
Thus, there is room for loopholes,
Pag.60
switching might not be possible
which and
can be exploited by one party.
therefore causing opportunism.
A possibility to overcome moral
hazard problems is to use relational
contracting. Instead of focusing on the
This allows the reverse conclusion
actions each party has to pursue,
that outsourcing of processes
relational contracting tries to define
theoretically occurs only when
the
the relationship
in terms of common
costs
of
performing
them
internally
goals
and
objectives.
2
Pag. 58
are higher than when conducting a
market transaction.

2. Practical documentation of the master thesis

A second important step in the preparation of my paperwork was the
documentation for the case study. I tried to capture in my analysis the essential
elements relating to financial sources of these four multinational companies,
how they differ, both as structure and as a means of funding.
The first step in my documentation was to present some key elements of the
global market, which were the main developments on this market, main
competitors principaii and how much this market has been affected by the crisis
in the construction sector. I used herein the information found on the following
websites:
- Www.globalcement.com
- Www.cemweek.com
- Www.businesstat.com
- Www.worldcement.com
In the above stated sources Ive found enough information in both reports and
in their various publications in order to observe a clear and logical development
of the events over a period of at least five years. I used several different and
graphics to highlight important issues.
After establishing the general framework for action and namely the global
market where the analysed companies are operating, Ive made a general

documentation on the companies analyzed respectively on their activity object,

their activities, the makets on which they operate, geographic spread, how they
organize themselves etc. All this can help me further to better understand their
investment decisions, investments made and also their financial activity and
sources of funding.
In fact, most information I could obtain from the annual reports of the 4
companies. This reports contain updated information, and there are extensive
references especially regarding financial activity of each company.
As the structure of the case study, I choose it to be divided into five parts,
namely, an introduction part cocerning the important issues of global market in
the world, in the next part I chose to present the structure of financial resources
for the 4 companies, and namely:
-Domestic sources: self-financing, cash flow, other internal sources;
-External sources of financing: in this case I referred to shareholder
contributions, external loans (loan types) debenture loans, or other types of loans
when appropriate.
For each analyzed company, I tried to focus on the following key issues:
1. Brief presentation of the company:
Activity object;
Global spread;
Employees;
Aspects related to sales trends;
Structures and developments of the company's revenue, depending on the type
of its products;
Main objectives of the company for the next period;
Any mentions regarding future investment plans of the companies.
2. Presentation of domestic sources of funding:
Aspects of developments related to cash flow;
Own cash flow resources;
3. Presentation of domestic sources of funding:
Contribution of the owners;
Dividends policy;
Capital increase;
Debentures;
Credit rating;
4. Conclusions

After presenting these issues, I synthesized the entire paperwork in a final

conclusion, where I emphasized the aspects that differentiate the four companies
analyzed in terms of the sources of funding. I could reach a logical conclusion in
terms of the main developments in the market where companies are acting, the
functioning of large companies, the type of management adopted by them, how
decisions are made, etc. In this manner I managed to form a circular image,
respectively to go from some clear objectives and based on the research Iv
could achieve the settled objectives. In conclusion I can say that my objective in
terms of this work was fulfilled.