THE IMPACT OF OUTSOURCING DECISION ON MATERIAL AVAILABILTY (A CASE STUDY OF SEVEN UP BOTTLING COMPANY)
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Material availability and input reliability shape productivity, especially in developing coun-tries. For some
resources like water, storage devices can be used to manage unreliable services (Baisa et al. 2010). However,
electricity requires that agents respond in other ways, as power is prohibitively expensive to store. A common
response to sustained power supply issues is for .rms to invest directly in technology in order to generate
electricity on site, or .self generation..1 By crowding out other investment opportunities, blackouts reduce productivity
(Reinikka and Svensson 2002).2 In contrast to the literature, this paper examines how the onset of
blackouts a¤ect productivity in an immense and rapidly-growing economy, namely China. Using enterpriselevel
panel data, we study how .rms respond to blackouts and estimate the resulting lost productivity and
environmental e¤ects.
In the early 2000s, industrial customers in nearly every province in China experienced blackouts associated with
resource scarcity (IEA 2006).3 Despite e¤orts to build new power plants at a rapid rate, double-digit economic
growth has led to a tight market. Furthermore, retail electricity remains under price-cap regulation with limited
price response to shortages.
Finally, residential and commercial electricity consumers were given priority over industrial customers. While
historic in the magnitude of blackouts, this remains a major concern for China. As recently as the summer of
2011, China faced substantial power shortages.
Although outsourcing is still at its developing stage in Nigeria, it has benefited many companies (Orji, 2002) as
well as created jobs opportunities for many Nigerians as well. Firms outsourcing part of their production process
and services are benefiting from increased efficiency and profits.
The decision to outsource comes with numerous responsibilities and considerations by the company willing to
outsource. The need to improve and speedup the production process of a firm may lead to a firm deciding to
contract or outsource some of its production process to another firm or vendor to handle. The issue of wastages
in developing countries including Nigeria has been a major issue. The in-ability of companies to effectively
manage their outsourcing process is alarming.
Having identified non-core activities, Domberger (1998) emphasises the importance of developing a
“framework of analysis which provides a structured, systematic approach to contracting decisions and
outsourcing strategies†(p.9).
Farney et al. (2004) and Gay and Essinger (2000) describe the importance of formal procurement procedures in
creating a global vision for outsourcing and selecting outsourcing providers.
However, even when organisations set out to carefully evaluate an outsourcing opportunity, making accurate
comparisons of internal processes relative to external providers can be extremely difficult (Hayward &
McDonagh, 2000)
