Outsourcing Strategies and Their Impact on Financial Performance in Small Manufacturing Firms in Sweden

Abstract

Outsourcing, i.e., the strategic use of outside resources to perform activities traditionally handled by internal staff and resources, have received increased attention in management practice around the world over recent decades. However, even though the main goal of outsourcing must be assumed to be improved financial performance, few researchers have been able to empirically establish this relationship. Furthermore, because most studies have been focusing on large firms, there is also a lack of knowledge on how small firms adopt outsourcing strategies. Therefore, the purpose of this study is to explore outsourcing strategies among small manufacturing firms, and to test how these strategies can be linked to financial performance. The study is based on questionnaire and financial data collected through a stratified sample of 700 small (<50 employees) manufacturing firms in Sweden (with a response rate of 56 percent or 400 firms). Measures of outsourcing were collected from the questionnaire, and performance indicators were collected from annual reports published one year later. We used Principal Component Analysis to identify four outsourcing strategies: Back office activities, Primary activities, Accounting activities, and Support activities. However, in line with previous research, multiple regressions did not reveal any significant relationship between these strategies and financial performance.

Keywords: Outsourcing, Financial Performance, Small Firms, Sweden

JEL Classification: M55