Belete Thesis Document Final

ST.
MARY’S UNIVERSITY SCHOOL OF GRADUATE STUDIES

MASTERS OF BUSINESS ADMINISTRATION PROGRAM
BENEFITS AND PROBLEMS OF OUTSOURCING PRODUCT

DISTRIBUTION FUNCTION AT HEINEKEN BREWERIES S.C
By
BELETE WONDIMU
ID NO. SGS/0135/2007B
December, 2016
Addis Ababa, Ethiopia

DISTRIBUTION FUNCTION AT HEINEKEN BREWERIES S C
By
BELETE WONDIMU
ID NO. SGS/0135/2007B
THESIS SUBMITTED TO ST.MARY’S UNIVERSITY, SCHOOL OF

GRADUATE STUDIES IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION
December, 2016
Addis Ababa, Ethiopia

ST. MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES
SCHOOL OF BUSINESS

DISTRIBUTION FUNCTION AT HEINEKEN BREWERIES S.C
By
BELETE WONDIMU
APPROVED BY BOARD OF EXAMINERS
__________________________ _____________________
Dean, Graduate Studies Signature
___________________________ _____________________
Advisor Signature
___________________________ _____________________
External Examiner Signature
______________________________ _____________________
Internal Examiner Signature

DECLARATION
I, the undersigned, declare that this thesis is my original work, prepared under the guidance of
Asst. Professor Goitom Abreham. All sources of material used for the thesis have been duly
acknowledged. I further confirm that the thesis has not been submitted either in part or in full to
any other higher learning institutions for the purpose of earning any degree.
Belete Wondimu ______________________
Name Signature
St. Mary’s University, Addis Ababa December, 2016
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ENDORSEMENT
This thesis has been submitted to St. Mary’s university, School of Graduate Studies for
examination with my approval as a university advisor.
___________________________ _____________________
Advisor Signature
St. Mary’s university, Addis Ababa December, 2016
ii
Table of Contents
Contents
Table of Contents ........................................................................................................................... iii
Acknowledgments.......................................................................................................................... vi
List of Abbreviations & Acronyms............................................................................................... vii
List of tables ................................................................................................................................. viii
Abstract .......................................................................................................................................... ix
CHAPTER ONE ........................................................................................................................... 1
INTRODUCTION .......................................................................................................................... 1
1.1 Background of the Study ....................................................................................................... 1
1.2 Statement of the Problem ..................................................................................................... 3
1.3 Basic Research Question ....................................................................................................... 4
1.4 Objectives of the Study ......................................................................................................... 4
1. 4.1 General Objective ........................................................................................................... 4
1.4.2 Specific Objectives .......................................................................................................... 4
1.5 Scope and Delimitation ......................................................................................................... 4

1.6 Significance of the Study ...................................................................................................... 5
1.7 Organization of the Thesis .................................................................................................... 5
CHAPTER TWO .......................................................................................................................... 6
LITERATURE REVIEW ............................................................................................................... 6
2.1 Definitions of Outsourcing .................................................................................................... 6
2.2 Theories Related to Outsourcing ........................................................................................... 7
2.3 Outsourcing Practice Trend ................................................................................................... 8
2.4 Type of Outsourcing.............................................................................................................. 8
2.5 Why Outsourcing .................................................................................................................. 9
2.6 Benefits of Outsourcing ...................................................................................................... 10
2.7 Disadvantages of Outsourcing ............................................................................................ 11
2.8 Problems of Outsourcing ..................................................................................................... 12
2.9 Common Mistakes in Outsourcing ...................................................................................... 13
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2.10 Risks and Criticism ........................................................................................................... 13
2.11 Empirical Literatures ......................................................................................................... 14
CHAPTER THREE .................................................................................................................... 15
RESEARCH DESIGN AND METHODOLOGY ........................................................................ 16
3.1 Research Design .................................................................................................................. 16
3.2 Population and Sampling Techniques ................................................................................. 16
3.3 Types of Data and Instruments Used for Data Collection .................................................. 17
3.4 Data Collection Procedures ................................................................................................. 18
3.5 Methods of Data Analysis ................................................................................................... 18
3.7 Reliability and Validity of Data Collection Tools Used ..................................................... 18
3.7 Ethical Consideration .......................................................................................................... 19
CHAPTER FOUR ....................................................................................................................... 20
DATA ANALYSIS AND INTERPRETATION .......................................................................... 20
4.1 Analysis of Responses Obtained from HBSC Sales Staffs ................................................. 20
Outsourcing Help the Company Reduce Costs ...................................................................... 26
Outsourcing Help the Company to Give More Focus to Other Core Functions .................... 26
Outsourcing Improved Flexibility of Product Delivery Service to the Customer.................. 27
Outsourcing Help the Company Manage the Sales Function with Less Manpower .............. 27
Outsourcing Help the Company Cover Wider Sales Territory than Before .......................... 27
Loss of Full Control over the Outsourced Function ............................................................... 29
Distributors Lack Skilled and Qualified Manpower to Manage their Business ..................... 29
Distributor’s Reluctance to buy all Brands and SKUs ........................................................... 30
Distributor’s Low Remuneration for their Sales Force & its Impact on their Motivation Level
................................................................................................................................................ 30
Distributors are Reluctant to Pay Credit for Crates & Kegs (RPM) ...................................... 30
Selecting the Right Vendor (Distributor) ............................................................................... 31
Legal Tangle and Lack of Understanding of the Contract ..................................................... 31
Cost of Searching Vendor ...................................................................................................... 31
Cultural Concern .................................................................................................................... 32

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4.2 Analysis of responses obtained from distributors ............................................................... 32
Unattractive margin ................................................................................................................ 33
Delay in product supply ......................................................................................................... 34
Delay in replacement of defective product ............................................................................ 34
Little outlet base in sales territory .......................................................................................... 34
Other Problems ....................................................................................................................... 34
CHAPTER FIVE ........................................................................................................................ 35

SUMMARY, CONCLUSIONS and RECOMMENDATIO......................................................... 35
5.1 Summary of Major Findings ............................................................................................... 35
5.2 Conclusions ......................................................................................................................... 36
5.3 Recommendations ............................................................................................................... 37
Suggestions for Future Researches ............................................................................................... 39
REFERENCES ............................................................................................................................. 40
Appendices .................................................................................................................................... 43
Appendix -A .............................................................................................................................. 44
Appendix -B .............................................................................................................................. 48
Appendix-C ............................................................................................................................... 51
Appendix - D ............................................................................................................................. 52
v
Acknowledgments
First and foremost, I am grateful to God Almighty for giving me grace, wisdom and strength in all
my endeavors. My warmest gratitude and appreciation goes to my advisor Asst. Professor Goitom
Abreham for his professional assistance, patience and understanding in the process of undertaking
this study. Thank you so much for your helpful reviews, comments and suggestions. A sincere
appreciation and special thanks go to the respondents for their kind assistance and support
throughout the data collection process of this research. Great appreciation is also extended to
friends and family who always gave me a great support during this research.
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List of Abbreviations & Acronyms
RPM – Returnable Packaging Materials
RtM – Route to Market
SKUs- Store Keeping Units
HBSC- Heineken Breweries Share Company
Co2 – Carbon dioxide
SPSS - Statistical Package for Social Science
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List of tables
Table 4-1: Respondents by position……………………………………………………….23

Table 4-2: Respondents’ awareness level of the concepts of outsourcing………………...24
Table 4-3: Company’s’ reasons for outsourcing the service………………………………25
Table 4-4: Benefits gained after outsourcing the service to distributors………………….28
Table 4-5: Problem faced after outsourcing the service to distributors…………………...31
Table 4-6: Benefits gained by working with the company as a distributor……………….35
Table 4-7: Problems that distributors faced by working with the company………………36
viii
Abstract
The overall objective of the study is to identify the benefits and problems of outsourcing product
distribution function at Heineken Breweries Share Company. The research problem is, even
though the company has gained several benefits out of outsourcing there are also problems and
challenges that comes from outsourcing the service to distributors. The research is a descriptive
study applying quantitative research approach in which data was collected from respondents
through questionnaire and interview. By stratifying the population into two groups; distributors
and staffs at the sales department, the researcher used judgmental sampling technique. The
researcher used descriptive statistics for the data analysis. The findings of the study shows that
the company has benefited out of outsourcing in terms of reducing overhead and operational costs,
improving quality of service delivery to the customer, focusing on other core functions, helping
the company cover wider sales territory than before and gaining more time to managers to help
them focus on strategic issues. Despite all these benefits the company has also faced some
problems from outsourcing the function to distributors. The major problems are distributor’s lack
of skilled and qualified manpower to manage their business, loss of full control over outsourced
function, distributor’s reluctance to buy all brands, distributor’s reluctance to pay credit for crates
and kegs and finally distributor’s unattractive remuneration and its impact on their sales force
motivation. On the contrary the study have revealed that, selecting the right vendor (distributor),
cultural concern and cost of searching vendor are not major problem to the company. In
conclusion with regards to whether outsourcing advantages outweigh the disadvantages, the study
findings reveal that despite the problems, the company is benefited out of outsourcing product
distribution function to distributors.
Key words; Outsourcing, Offshoring, Benefits, Distribution
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study

Outsourcing is the latest business term these days, as more and more cost and quality conscious
businesses all over the world are turning to other destinations for outsourcing their non-core
business processes. Outsourcing refers to the contracting out of an entire business function, a
project, or certain activities to an external provider. Study shows that the term “outsourcing”
entered the business lexicon in the 1980s. In the second half of the 20th century, as companies
tended to grow larger and skills were required to be more and more specialized, companies found
that external providers were often able to get work done faster and more efficiently owing to skills
they possessed. This led to more hiring of external providers to manage business functions and
projects where specialized skills were required (Gulzhanat T. 2012).
Historically, outsourcing was restricted to basic support activities such as janitorial and security
services. To-day, outsourcing has extended to more crucial activities such as IT,
telecommunications, medical examinations, finance, and logistics, sales, marketing, R & D and
others (Jerome & Dennis 2003).
Outsourcing can be divided into two broad categories. They are BPO and KPO. In BPO (Business
Process Outsourcing), a particular process task is outsourced. An example would be payroll. BPO
work could be either back office related or front office work. KPO or Knowledge Process
Outsourcing typically calls for work that needs higher levels of involvement from the worker. The
worker has to employ advanced levels of research, analytical and technical skills and has to make
decisions of a higher order than BPO work (Zafar & Aasim 2013).
Why do we engage in outsourcing? We must source out work because there are others who can do
it cheaper, faster, better and because we have other, more important, demands on our resources.
The organization was run at a loss by having a manager conduct the administrative task rather than
sourcing it to an individual who is costing the organization less in terms of money. Hence costs,
both real (the money) and opportunity (the time, attention and effort), are important determinants
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in the sourcing decision. Besides efficiency, outsourcing also helps get work done more
effectively. Moreover, engaging in outsourcing allows an organization access to expertise,
knowledge and capabilities found outside its boundary. Rise of global knowledge work force and
access to resource and knowledge are additional factors which drive firms to reach on outsourcing
decision (Power 2006).
In Ethiopian case the application of outsourcing is in its infancy stage. Currently there are few
companies that are engaged in providing limited outsourcing service. The current outsourcing
practice in Ethiopia is largely limited to a company's non-core activities which are confined to
recruitment service, security service, and janitorial service.
At international level, a number of studies have carried out to assess advantage and disadvantage
of Outsourcing at different sectors. A study carried out by Gulzhanat T. (2012), Bin Jiang & Amer
Q. (20050, can be sited as an example. Another study also carried out by Fregal M. (2010) to assess
the heterogeneous effect of international outsourcing on firm’s productivity. Zafra I. & Aasim M.
(2013), also conducted a study to review outsourcing trend and future direction at international
level. At Africa level (Kenya), a study conducted by Dr. Wanjungu, Dr. Michael & Prof.
Richard.(2016) reveal that, outsourcing can yield positive and/or negative outcomes depending on
the risks encountered the business environment, company policy, function/s to be outsourced, and
the competence and commitment of the outsourcing vendor.
Quite few papers have studied about benefits and problems of outsourcing at Commercial Bank of
Ethiopia. For example Selamawit (2016), Abebe (2015),Werkalemahu (2015), Mersea (2007) have
studied on the topic as a partial fulfillment of the requirement of degree in MBA in different time.
Their study reveal that despite a number of challenges, outsourcing benefited the bank
(Commercial Bank of Ethiopia) in great extent. Apart from the banking sector, there is no
structured study found at manufacturing sectors on this study area. Formally there is no research
conducted in HBSC so far to study the benefits and problems of outsourcing product distribution
activity. Therefore, the study focus on assessing problems and benefits of outsourcing product
distribution activity to distributors and come up workable recommendations to alleviate the
problems.
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1.2 Statement of the Problem
The most significant benefits of outsourcing are focus on core activities, cost savings, access to
experience, improving performance, and flexibility. First, many researchers agree on the fact that
by handing over noncore activities to a trusted third party, a company can concentrate on activities
central to its value proposition and increase its competitive positioning. Main disadvantages of
outsourcing are loss of managerial control over outsourced operations, quality problems, hidden
costs and reallocation of existing teams (Gulzhanat T. 2012).
Empirical literatures reveal that, though the practice of outsourcing is widely common in the world,
the concept is still new and the practice is at infant stage in Ethiopia. (Abebe 2015; Workalemahu
2015; Selamawit 2016). Heineken Breweries Share Company (HBSC) is one of outsourcing
service user in Ethiopia beer industry. Like other business firms in Ethiopia, HBSC has a short
story in experiencing the benefits of full scale outsourcing in some of its core and auxiliary
business activities. However, for the last three years the company has engaged itself in outsourcing
its core business function like product distribution and other few marketing functions. Product
distribution activity in HBSC, which is the focus area of this study, is fully carried out through 3 rd
party distributors. The role of these distributors is to distribute the product to the customer (hotel,
bar & restaurant, grocery, and other channels) on behalf of the company.
Recognize the value in freeing itself from costly, time consuming and highly complex
administration of the activities, the company outsourced product distribution function to external
service providers. The preliminary unstructured interview with some of key informants in the
company and the researcher’s own observation on product distribution function shows that, the
company save costs, and improve efficiencies and have time to focus on the strategic activities.
On the other hand the outsourcing decision and the after outsourcing period in the company was
not without problems. According to the researcher observation, loss of full control over the
outsourced operation, distributor’s reluctance to buy all brands and SKUs, distributor’s
unwillingness to pay debt for RPM, impact of distributor’s unattractive remuneration to their sales
force were quite few of the problems revealed during the preliminary assessment. Moreover, the
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researcher’s preliminary interview with some of the distributors in Addis Ababa shows that, there
are also problems arise from working as distributors with the company.
Formally there is no research conducted in HBSC so far to study the benefits and problems of
outsourcing product distribution activity. Therefore, recognizing this empirical gap, the researcher
focused on assessing the possible problems and benefits of outsourcing product distribution
function at HBSC.
1.3 Basic Research Question

The study tried to seek answers to the following four basic research questions;
 What are the driving reasons for the company to outsource product distribution function?
 What are the benefits gained from outsourcing product distribution functions?
 What are the problems faced from outsourcing product distribution functions?
1.4 Objectives of the Study

1. 4.1 General Objective
The general objective of the research is to assess the major problems and benefits of outsourcing
product distribution activity in Heineken Breweries Share Company.
1.4.2 Specific Objectives

Specifically, the objectives of the study include the following;
 To identify the reason for the company to outsource its product distribution function;
 To identify the benefits gained from outsourcing product distribution function.
 To identify problems faced by the company after outsourcing the services.
 To identify problems faced by the distributors after outsourcing the services
1.5 Scope and Delimitation

Despite HBSC outsourced more than one activity to outside firms, to make the study more
manageable in terms of time and other resources, the scope of the research is delimited to focus on
assessing problems and benefits of only one outsourced activity, which is product distribution. In
addition to this, the unit of analysis in this study is delimited to outsourced function of product
distribution at Addis Ababa region only. The main reason for the researcher to focus on at Addis
Ababa level is time and other key resource constraint. In terms respondents, the study included all
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distributors at Addis Ababa level and sales staffs of the company. The justification for focusing
only on these respondents is the researcher believed that most managerial and other key staffs at
the sales department are directly involved in the outsourcing decision making and they are well
aware of the study subject. In terms data collection instrument, questionnaire and interview were
selected among other data collection instruments. The justification for this is, the researcher
believed that questionnaire provide respondents flexibility on utilizing their convenient time to
complete the questionnaire. Beside this, since the purpose of the study is to describe variables,
descriptive statistic was used to perform analysis. Finally, since the study is set to identify
problems and benefits of outsourcing product distribution at Addis Ababa level, the result of the
research might not reflect the full picture of problems with outsourcing product distribution at
country level.
1.6 Significance of the Study

As the practice of outsourcing is not quite common in Ethiopia, the benefits and problems out of
it are not yet well assessed in many business organizations; especially in the beer industry.
Moreover, no formal research has been carried out to find out the benefit and problems of
outsourcing in Heineken Breweries Share Company. Therefore, the researcher believed that this
research has great significance in creating awareness about what problems and opportunities
outsourcing has; specifically for HBSC to acknowledging the benefits and to find out mechanisms
to better manage the problems. Furthermore, this research can serve as stepping stone for other
researchers who want to explore about the benefits and problems of outsourcing in Ethiopian
business in general and the beer industry in particular.
1.7 Organization of the Thesis

The paper consists five chapters. The first chapter provides a general introduction of the study
which includes, background of the study, statements of the problem, basic research questions, and
objectives of the study, scope/delimitation and significance of the study. The second chapter treats
the theoretical and empirical aspects of the literatures relevant to the research. The third chapter
describe the research design and methodology of the study. The fourth chapter deals with data
analysis and interpretation. The fifth chapter, which is the closing chapter is devoted to summary,
conclusions and recommendations drawn based on the results of the study.
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CHAPTER TWO
LITERATURE REVIEW
This chapter deals with a review of definitions and other aspects of outsourcing that have been
explored and studied in different theoretical and empirical literatures.
2.1 Definitions of Outsourcing

In this section, the definitions of outsourcing used in prior researches and from different literatures
are examined.
According Power et al. 2006, outsourcing is made up of two words – “out” and “sourcing”;
sourcing refers to “the act of transferring work, responsibilities and decision rights to someone else
Outsourcing is handing over one or many of the business processes to an outside vendor or the
utilization of outside available services provided by third party to carry out business activities is
the outsourcing strategy (Zafar & Aasim 2013).
Oxford dictionary define outsourcing as follows; the transfer of a business function to an external
service provider. The term of outsourcing is defined in different ways by different scholars based
on the location and type of function outsourced. The following are some of the definitions and
terms of outsourcing explained by scholars. Outsourcing is defined as moving a business function
performed inside of an organization to a third-party business function provider. This means that a
service or production that was accomplished inside an organization is now accomplished by
another organization that is mandated to be a part of the same organization. Offshore outsourcing
is defined as outsourcing outside of country borders (Aleksandra and Dragan 2012).
Outsource magazine (2011), defined it as: Outsourcing is when any operation or process that could
be or would usually be performed in-house by an organization’s employees is sub contracted to
another organization for a substantial period. The outsourced tasks can be performed onsite or off-
site.
Out sourcing is “the act of obtaining services from an external source’’ (Brown and Wilson, 2005).
Outsourcing is “the strategic use of outside resources to perform activities traditionally handled
by internal staff and resources” (Handfield, 2006).
Business process outsourcing is “the movement of business processes from inside the organization
to an external service provider” (Duening and Click, 2005).
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According to Aran and Patel (2005) Business outsourcing is “the contractual service of
transferring one or more businesses process to a third party provider, where the latter takes over
the management, ongoing support and infrastructure of the entire application or process.
Academy of Management in its 2003 publication define outsourcing as follows; outsourcing can
be defined as turning over all or part of an organizational activities to an outside vendor.
2.2 Theories Related to Outsourcing

Outsourcing consists of different activities and each phenomenon can be described by several
frameworks that are embedded in various theoretical approaches.
According to Henry (2008) outsourcing process has been approached by different theories;
Resource-Based View, Core Competency Approach and Transaction Cost Theory are among them.
The resource-based view in outsourcing builds from a proposition that an organization that lacks
valuable, rare, inimitable and organized resources and capabilities, shall seek for an external
provider in order to overcome that weakness. Core Competency Theory is explained by Prahalad
and Hamel (2003) as follows; The essence of the core competency theory is that it should be kept
in house, but that other activities that the organization deals with, which are not counted to be core
or critical to its function, should be considered for outsourcing. This theory support that if the
organization is to focus on its core competencies as the base of its sustainable competitive
advantage, then activities which do not constitute a core competence for the firm can be given to
outside firms who can provide these at lower cost.
Kay & Coase (2005) has explained the Transaction Cost Theory as follows; transaction cost theory
has been developed to facilitate analysis of the comparative cost of planning, adapting and
monitoring task completion under alternative governance structure. According to this theory
decision makers must weigh up the production and transaction costs associated with executing the
transaction with their firms – insourcing, versus the production and transaction costs associated
with executing the transaction in the market – which is outsourcing. Organizations can choose
whether to buy from the market or to develop in –house, the decision is based on the relative cost,
which is combined from the costs of production and costs of the transaction.
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2.3 Outsourcing Practice Trend
Emerging research increasingly suggests that firms are outsourcing and offshoring outsourcing
knowledge intensive activities to enhance their competitive advantages by exploiting local talent
and expertise in host economies.
Historically, outsourcing was restricted to basic support activities such as janitorial and security
services. To- day, outsourcing has extended to more crucial activities such as IT,
telecommunications, medical examinations, finance, and logistics, sale, marketing, R & D and
others (Jerome & Dennis 2003).
Outsourcing initiatives have evolved from short-term projects focused on cost savings to
executive-level business strategies that enable companies to gain – and sustain – revenues and
profits in the competitive global marketplace (John, et.al. 2006).
2.4 Type of Outsourcing

Outsourcing takes many forms. A surf on an internet reveal the following on type outsourcing;
Outsourcing can be divided into two broad categories. They are BPO and KPO. Let us examine
how each differs.
In BPO (Business Process Outsourcing), a particular process task is outsourced. An example would
be payroll. BPO work could be either back office related or front office work. By front office
functions we mean customer oriented work like marketing, answering calls, technical support and
so on, whereas internal work like billing and purchase come in the back office category.
As is evident from the description, BPO activities involve carrying out standardized processes for
the client. KPO or Knowledge Process Outsourcing typically calls for work that needs higher levels
of involvement from the worker. The worker has to employ advanced levels of research, analytical
and technical skills and has to make decisions of a higher order than BPO work. Examples are
pharmaceutical research and development, patent/ intellectual property research, animation and
simulation, data research and analysis, legal services, content writing and development and
database development services.
According to Brown and Wilson (2005) outsourcing is categorized as; Selective and Full
outsourcing, Tactical and Strategic Outsourcing, Transformational outsourcing.
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Outsourcing can be classified into two categories depending on the type of human capital and the
type of work function. The first type of outsourcing is called selective outsourcing and is classified
as a tactical move to outsource unwanted functions within an organization. The second type of
outsourcing is more extensive and is called strategic-shift outsourcing, which focuses on bringing
in highly demanded specialists that are limited in supply. Selective outsourcing enables service
provider companies to reduce costs while enabling the institution to put their attention elsewhere
while strategic-shift outsourcing also conquerors the same goals as selective outsourcing, but also
seeks to create a mutually beneficial relationship due to the sheer size of the contract agreement
and its implications for both parties. Outsourcing allows a business to focus on its primary mission,
not on managing an auxiliary service that may compete with private sector alternatives and not
provide a real return for institutional dollars (Bartem and Sherry, 2001).
Tactical outsourcing is a form of traditional outsourcing and is based on cost comparison and the
make-or-buy decision. It is resulted in visible benefits in the form of enhanced cost savings,
minimizing the need for future investments and resolving staffing issues. It also involves execution
of a business process following the existing rules. Tactical outsourcing can also extend to
outsourcing peripheral activities enabling the management to acquire industry specific capabilities
by partnering with a chosen vendor (Hussey and Jenster, 2003).
From location perspective outsourcing is also categorized as on shoring, Nearshoring and
Offshoring.
On shoring refers to the relocation of business processes to a lower-cost location inside the national
borders. Nearshoring refers to a company contracting a part of its work to an external company
located across national borders within its own region. It includes the neighboring countries that
are often bound by similar financial and legal constraints that provide social and economic stability
within a region. Offshoring refers to outsourcing which is done across national borders (preferably
to a distant location). The term refers to the relocation of business processes in another country,
typically to a cheaper location. It includes both to the setup of a subsidiary abroad, or to the
offshore outsourcing activities of a company.
2.5 Why Outsourcing

As managers, we constantly delegate or source work to our employees. Why do we engage in
outsourcing? We must source out work because there are others who can do it cheaper, faster,
9
better and because we have other, more important, demands on our resources. The organization
was run at a loss by having a manager conduct the administrative task rather than sourcing it to an
individual who is costing the organization less in terms of money. Hence costs, both real (the
money) and opportunity (the time, attention and effort), are important determinants in the sourcing
decision. Besides efficiency, outsourcing also helps get work done more effectively. Moreover,
engaging in outsourcing allows an organization access to expertise, knowledge and capabilities
found outside its boundary. Rise of global knowledge work force and access to resource and
knowledge are additional factors which drive firms to reach on outsourcing decision (Power 2006).
2.6 Benefits of Outsourcing

Many potential benefits of outsourcing have been identified in the literatures. Those most often
discussed are improved financial performance (attributable, in part, to almost immediate cost
improvements) and various nonfinancial performance effects, such as a heightened focus on core
competencies. These and other proposed advantages of outsourcing are discussed below.
A. Cost advantage: Costs are arguably the chief motivation behind outsourcing. Though it is
not always true, companies believe that contracting work out to a 3rd party is cheaper. According
to Power (2006) probably the most talked about reason for outsourcing is cost savings. Cost
efficiency and improvement to the bottom line are important benefits of the outsourcing strategy.
Much of this cost saving is realized by moving from a fixed-cost model to one of variable cost
model. The objectives are to reduce investment in assets, free-up resources for other purposes,
and generate cash by transferring assets to the service provider. These business processes when
outsourced reduce the investment required by the host institution to modernize them.
Outsourcing helps in reducing or controlling the operating costs. Access to an outside provider’s
lower cost structure is one of the most compelling short-term benefits of outsourcing. Other
benefits sought by institutions are cost reduction with enhanced performance and conversion of
fixed costs into variable costs. Service providers can handle varying demand more efficiently
because of economies of scale, automation, process maturity, and investment in the latest
technology.
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B. Increased efficiency
According to flatworldsoution.com, when you outsource your business needs to a reliable
outsourcing partner, they bring years of experience in business practices and expertise in delivering
complex outsourcing projects. Thus, they can do the job better with their knowledge and
understanding of the domain. This leads to an increase in productivity and efficiency in the process
thereby contributing to the bottom-line of your company.
C. Focus on core competency:
There are a lot of business functions in a company. For example, human resources, information
technology, manufacturing, sales, marketing, payroll, accounting, finance, security,
transportation and logistics among others. Most of these are not "core" to the company. A "core"
activity is one which offers the company competitive advantage over its competitors. According
to Choi (2008) successful outsourcing allows the organization to focus in-house resources on
tackling priorities. When organization concentrates on carrying out its priorities, it can use its
financial, human and management resources more effectively and efficiently. Outsourcing of
some non-core functions provides organizations with the flexibility to redirect and focus their
resources on activities critical to their mission
D. Quality and Capability: Often companies don't have in-house expertise for certain
activities. In these cases, it is more efficient to outsource, and resulting products and services
tend to be of higher quality when provided by outsourcing vendors.
E. Labor flexibility: Outsourcing allows a company to ramping up and down quickly as needed.
For example, a company may need a large number software programming experts for 6-8 months
to develop an application. It would be infeasible to hire people for only 6 months. Outsourcing,
however, can provide flexibility so the company does not have to worry about hiring and firing.
2.7 Disadvantages of Outsourcing

Despite the advantages mentioned above, outsourcing does have a number of drawbacks. Main
disadvantages of outsourcing are loss of managerial control over outsourced operations, threat to
security and confidentiality, quality problems, hidden costs and reallocation of existing teams.
First, disadvantage related to the loss of control over the outsourced operations stems from the
11
reason that managing external resources requires special skills which is a combination of the skills
of people and process management, contract management, and power negotiation. Second, almost
every outsourcing contract has terms of security and confidentiality spelled out, but the execution
and audit are always difficult Gulzhhanat (2012). Third, one reason to outsource is the expectation
of receiving better service from the outsourcer than from internal staff. Outsourcer has to be chosen
in that particular way to ensure that there is no bad influence on the quality of goods and services
produced. Otherwise, company may lose its position on the market Anderson (2001).
Poor quality of service another disadvantage associated with outsourcing. In addition, the
company-outsourcer can become a bankrupt, consequently the contracting authority was have to
find a new outsourcer and this is an additional moral and material costs.
2.8 Problems of Outsourcing

Let's map out some of the present outsourcing bottlenecks;
(A). Bleeding of In-house Human Resources
As outsource2india.com (retrieved December, 2016) discussed, it has been noticed that the very
name of outsourcing sends shivers down the spine of existing employees. The implementation of
outsourcing creates a sense of uncertainty among the current workforce and induces them to hunt
for greener pastures. This is a real problem to the organization and can upset the human resource
applecart.
(B). Selecting the Right Service Provider
Outsource2india.com also discussed, selecting the right vendor is the bedrock on which the entire
outsourcing process depends. If there remains a flaw in the selection phase, then clouds of
frustration and breach of promise are bound to overcast the contract in due course of time.
(C). Cultural Concern
Cultural differences include religion, mode of dress, social activities and even the way a question
is asked or answered. Although most leading vendors have cultural education programs, the
problems and costs associated with cultural alignment may not be insignificant or trivial.
(D). Legal Tangle and Lack of Understanding of the Contract
If the legal implications of the contract are vague to both the organization and the service provider,
it was fizzle out the initial attempt in the outsourcing decision. Many outsourcing companies
overlook legal issues and face outsourcing failures.
12
(E).Cost of Transaction
In outsourcing initially there are costs of searching vendors. Searching and selecting the service
provider during outsourcing involves implicit and explicit cost. Some of the explicit costs are:
writing specification, drafting contracts, consulting relevant end users, advertising invitation to
bid, evaluating the bid and closing the negotiations with the winning bidder. All these need
considerable senior management time. Estimates of such transaction cost vary but that can be as
high as five percent of the contract values Domberger, (1998).
In addition to the points expressed above by different authors Wilson and Brown (2005) mentioned
that no powerful tool is without problems, and the same is true for outsourcing. With this regard,
choosing the right partner, establishing effective governance for relationship and managing
employee transition with sensitivity are the three most outsourcing problems.
2.9 Common Mistakes in Outsourcing

According to the study of Jerome (2003); Outsourcing is often associated with automatic cost
reduction and performance improvement. This overly optimistic view of outsourcing derives from
the fact that most articles about outsourcing are written during the so-called "honeymoon" period
(i.e., just before or after the contract is signed). At that time, the reported benefits are not actual
but only projected. This leads to a bandwagon phenomenon, where firms outsource to imitate
competitors and expect to be successful with outsourcing. Determining which activities can be
best performed by outside vendors requires a good understanding of where the firm's competitive
advantage comes from. That is where often the mistake is made. The key lesson that we have to
pick here is managers need to be fully be aware of which activity is best suit for outsourcing and
help the firm archive competitive advantage over the completion. The other common mistake in
outsourcing as Jerome (2003) in his famous work discussed, selecting the wrong vendor and
writing a poor contract are an area where management made mistake
2.10 Risks and Criticism
Offshoring and outsourcing have both been subject to a lot of criticism, especially from a
political standpoint. Politicians and laid-off workers often blame offshoring for "stealing jobs".
Most economists, however, agree that offshoring lowers costs for companies and passes on
benefits to consumers and shareholders. Risks associated with outsourcing can largely be
attributed to the vendor's lack of familiarity with the client's business. Another risk is a lack of
13
alignment of long-term business objectives of the client and the vendor. The overriding factor
in outsourcing decision is cost cutting, but whereas this may make business sense in the
beginning, in some cases it could bring complications and put the whole exercise at a high risk
if all concerns are not adequately assessed. This means that the outsourcing organization should
not only look the costs being low but also consider the outcomes of process of outsourcing at
the end of everything to the organization.
Ender and Mooney (1994) also identified that the greatest shortcomings of outsourcing is staff
retrenchment /reduction results in negative impact on institutional morale. Preferably, they
devised a set of guidelines for mitigating these negative impacts of outsourcing.
A common oversight for IT organizations lies in not implementing a contingency plan to deal
with the risk that a vendor, for whatever reason, fails to deliver as expected. High risk or
exposure might force the organization to unexpectedly alter its outsourcing strategy (i.e. from a
single offshore vendor to multiple vendors)
2.11 Empirical Literatures

Quite few papers have studied benefits and problems of outsourcing and outsourcing practice and
future potential in Ethiopia. For example Selamawit (2016), Abebe (2015),Werkalemahu (2015),
Mersea (2007) have studied on the topic as a partial fulfillment of the requirement of degree in
MBA in different time. Generally these studies have agreed that outsourcing is at an infant stage
in Ethiopia and it is gradually becoming common over time in the financial sector in general and
in banking institution in particular. These researchers in their studies have found that Commercial
Bank of Ethiopia (CBE) outsources most of its auxiliary activities such as Janitor, security, driving
and messenger services to outside companies. In addition to examining the magnitude and trends
of outsourcing in the bank, the study has described the benefits and problems of outsourcing that
Commercial Bank of Ethiopia face Workalemahu (2015) and Selam (2014) find out that there are
a number of benefits that the bank has reaped out of its outsourcing decision. To mention quite
few among their list; cost saving, focus on core business activities, saving manager’s time to focus
on other activities, lower investment requirement, change fixed cost to variable cost, ability to
spread commercial risk, improved quality, increase flexibility to deal with ever changing business
condition are some of them. Selamawit (2016), study in particular reveal that the bank was not
successful in gaining benefit regarding gaining easier and more economic access to latest
14
technology and external competencies. The same way it examined the benefits that CBE has gained
out of outsourcing its non-core activities, the studies has also revealed the following list of problem
that the bank has faced in connection with outsourcing its activities to outside firms.
 Low employee belongingness
 Conflict of interest among
 Communication and coordination difficulties
 Contract termination problem
 Quality of workers provided by the supplier is lower than anticipated
 Loss of control over key information resources
 Repeated theft of vehicles part
A study conducted by Workalemahu (2015) has shown the following list of reasons as to why
firms not outsource more activities than they do now.
 Inapplicability
 Possible loss of confidentiality
 Loss of distinct competences and loss of control
 Quality Problem (internal service providers provide better quality)
 Lack of knowledge
 No loyalty to company
 Slow response time
 Organizational policy/tradition
In spite of the fact that outsourcing is a wide-spread activity which is practiced nearly by every
business sphere, in almost all business organizations all over the world, there is no much research
done on outsourcing practice in Ethiopia particularly, and especially in beverage industry.
Empirical literatures becomes much thinner when it comes to assessing the extent of outsourcing
practice except in banking institution than other sectors, especially the beer industry in Ethiopia.
In general, empirical literatures agree that outsourcing practice in Ethiopia now is in much better
position than it was a decade before.
15
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
This chapter provides an over view of the methods used to collect and process data. It discus the
research design, the population and sampling techniques, types of data and data collection tools
used, data collection procedure, the method of data analysis employed, the reliability and validity
of data collection tools used and ethical consideration.
3.1 Research Design

Research design is a master plan that specifies the methods and procedures for collecting and
analyzing the needed information. It provides a framework or plan of action for the research
(Selamawit 2016). The researcher began with selecting topic to be studied. Following topic
selection formulating problem of the statement and determining the right methodology for
collecting and analyzing data was undertaken. In order to achieve the research objective, the
researcher used a descriptive type of research and quantitative research approach. The reason for
selecting descriptive research type is that the researcher has no control over the variables rather he
only report what happened in the area where the research is being conducted.
3.2 Population and Sampling Techniques

The population of the study include staffs at the sales department of the company and the whole
owners or managers of the distribution business at Addis Ababa. The total population of the study
is 120 (hundred twenty) people. Among these, 100 (hundred) of them are staffs found in the sales
department and the remaining 20 (twenty) are distributors who are engaged in distributing products
in Addis on behalf of the company.
The researcher applied non-probability sampling technique (judgmental sampling) by stratifying

the population into two groups; distributors and HBSC staffs at the sales department. The
judgmental sampling method was used for selecting managers and other key staffs at head office
to complete the questionnaires. The researcher used his own judgment to select these managers
that have very good understanding of the subject of study and have direct involvement in the
outsourcing decision making process. The justification for choosing judgmental sampling is
because the researcher believes that managers and staffs in the sales department provides valuable
16
information which cannot be obtained from staffs in different other departments. The same way to
the internal staffs, the researcher believes that distributors are the main source of information
regarding the subject of the study.
The sample size is determined by using the Slovin’s formula (Serakan, 1992).
n= N/1+N (e) 2
n = 120/1+120(0.07)2
n = 75
Where:
 N is the population size = 120
 n is the sample size
 e is the margin of error = 0.07
Applying 7% error margin, the sample size for the study was 75 (seventy five) out of 120 members
of the target population. Therefore, the study’s sample size of 75 is fair enough to represent the
target population of the study area.
3.3 Types of Data and Instruments Used for Data Collection

In attempt to do the assessment of problems and benefits of outsourcing product distribution
function in HBSC and to provide possible recommendations, the researcher used both primary and
secondary data sources. With regard to primary data, the data was obtained from managers and
other key staffs of the sales department. Distributors in Addis Ababa was also part of the primary
data collection process through questionnaire. Managers and other key staffs in the sales
department are assumed to have the necessary know how about the concept and practice of
outsourcing product distribution function. Distributors are also expected to have the basic
understanding about the subject matter. As far as secondary data is concerned, two years company
sales data, distributor agreement and other relevant documents was reviewed. Books, journals and
empirical literatures from websites (internet) and from other available sources was used as an input
where they are necessary
Regarding data collection instrument, questionnaire was used as the main instrument to collect
data from HBSC employees and from the distributors. A mix of closed ended and open ended
questions was included to shape the information in the way that enable the researcher measure the
research variables. Despite its limitation, the questionnaire was preferred to other methods of data
collection hoping that it provides respondents flexibility on using their convenient time to fill the
17
questionnaire. Interview was also held with two Regional Business Manager of the company to
triangulate and strengthen most of the points raised as a problem by other respondents.
3.4 Data Collection Procedures

The researcher collected first hand data through questionnaire & interview from managers and key
staffs from the sales department by judgmentally selecting the respondents and persuading them
for their prompt cooperation. The researcher first administered pilot test on five respondents and
then analyze the result of the pilot test, after the pilot test, the researcher distributed questionnaire
at full scale to each respondents by himself. Within a month time the researcher was able collect
fifty completed questionnaire from the internal staff. The same way, the researcher collected
primary data from distributors using questionnaire. In addition, secondary data was gathered from
annual sales report, distributor’s contract and internal market execution reports generated by the
company. The entire data collection task was completed in one month.
3.5 Methods of Data Analysis

The collected data was analyzed and interpreted in accordance with descriptive statistical tools
that included frequency, percentage and tables. Descriptive statistical analysis is selected due to
nature of the data and the research variable. The data analysis was done by the use of version 20 -
SPSS software package.
3.7 Reliability and Validity of Data Collection Tools Used

Reliability is the degree to which an assessment tool produces stable and consistent results. Test-
retest reliability is a measure of reliability obtained by administering the same test twice over a
period of time to a group of individuals. The scores from Time 1 and Time 2 can then be correlated
in order to evaluate the test for stability over time. Before launching the full scale study, the
researcher did a pilot test on five respondents from the sales department two times to ensure that
the assessment tool produce stable and consistent result. The result from the two test found out in
content. The result gave the researcher full confidence as to consistency of the data measuring
instrument.
Validity refers to how well a test measures what it is purported to measure. In order to ensure
validity of the items in data collection instrument, the researcher have got the opinion of the
company’s sales managers and other key staffs who are expert in the field of sales and distributors
management. In addition to this, the researcher incorporated the feedbacks of his advisor on the
18
validity of the assessment tool to ensure that it covers appropriate range of area with in the concept
under study.
3.7 Ethical Consideration

Ethical issues in this research is concerned with maintaining confidentiality about the information
that the researcher gathered from respondents, using data for academic purpose only and ensuring
that the respondents personality would not exploited. In this context the researcher have
maintained all ethical considerations, code of conduct and conventions with regard to obtaining
the consent of the respondents, acknowledging all sources and materials used as a reference ,
keeping the confidentiality of the respondent’s response and obtaining permission from the
company to carry out the study.
19
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
This chapter deals with the analysis and discussion of the data gathered from the study respondents.
It primarily discusses the major Problems and benefits of outsourcing product distribution in
Heineken Breweries Share Company. The data were gathered through questionnaire from staffs
working at the sales department of the company and distributors who are working with the
company in Addis Ababa region. The data analysis and discussion is supported by relevant
literatures, interview discussion with the company’s RBMs (Regional Business Managers). The
chapter begins with the analysis of the respondents’ category of position and their level of
awareness to the study topic and forges ahead with the analysis and discussion of major issues that
include the reason for outsourcing product distribution function to the 3rd party distributors,
benefits gained from outsourcing the function to 3rd party distributors and problems of outsourcing
product distribution function from the company and the distributor’s perspective.
A total of 75 questionnaires were circulated and 70 questionnaires were completed and returned.
The completed questionnaires presents more than 93% and no questionnaires were discarded due
to missing data. Out of the 70 completed questionnaires, 50 questionnaires are completed by the
sales staff of the company and the remaining 20 questionnaires are completed by distributors.
Therefore, 70 questionnaires were considered for the study. The data received from the
respondents were analyzed with the help of version 20 statistical software program (SPSS-20).
4.1 Analysis of Responses Obtained from HBSC Sales Staffs

This section deals with the analysis and interpretation of the data gathered from the company’s
staffs as reveled in the table below
Table 4-1 Respondents by position
Position Frequency Percent Valid Percent Cumulative

Percent
Managerial 41 82.0 82.0 82.0
Valid Non-managerial 9 18.0 18.0 100.0
Total 50 100.0 100.0
Source; Survey data 2106
20
Table 4-1 above presents data on category of the respondents’ position in the sales
department of the organization. It shows that managerial respondents formed the majority
of the sample with a total of 41 representing 82 % while 9 respondents were non-
managerial staffs representing 18 % of the sample. The implication on this is due to their
nature of job category and level of involvement in decision making, the researcher believes
that in one way or another the respondents are the right source of information for the study.
Table 4-2 Respondents’ awareness level of the concept of outsourcing
Awareness level Frequency Percent Valid Percent Cumulative

Percent
Very high 6 12.0 12.0 12.0
High 30 60.0 60.0 72.0
Valid
Medium 14 28.0 28.0 100.0
Total 50 100.0 100.0
As it can be seen from Table 4-2 above, the largest group of respondents (72%), have high
and very high awareness level about the concept of outsourcing and 28% of them know the
concept of outsourcing in medium state. From this we can conclude that almost all of the
respondents have knowledge about the concept of outsourcing. This helps the researcher
to get appropriate responses for the study from them.
21
Table-4.3 Reasons for outsourcing the service
It Reasons for outsourcing product distribution Respondent's Response # of
e function respond
Strongly agree Agree Neutral Disagree Strongly disagree
m ents
Freq. % Freq. % Freq. % Freq. % Freq. %
#
1 To reduce cost. 20 40% 30 60% 50
2 To improve service quality. 25 50% 25 50% 50

3 To give more focus to other core functions of the 24 48% 26 52% 50
company.
4 To improve flexibility of the delivery service by 18 36% 31 62% 1 2% 50

the distributors.
5 To save manager’s time and help them to focus on 20 40% 27 54% 3 6% 50

strategic
issues of the company.
6 To assist the current fast growth situation of the 16 32% 30 60% 2 4% 2 4% 50
company
7 To access skills and tools not available in the 13 26% 26 52% 4 8% 5 10% 2 4% 50
company.
8 Improve efficiency 27 54% 22 44% 1 2% 50
9 Optimal RTM utilization 22 44% 28 56% 50

22
As can be seen from item number 1 in Table 4.3, in assessing the importance of reasons for
outsourcing product distribution function to distributors, majority of the respondents representing
60% of the sample agreed that reducing cost is the major reason for outsourcing the function to 3rd
part distributors. Likewise 40% of the respondents strongly agreed that reducing overhead and
operational cost related to product distribution to customer is the main reason for outsourcing the
function to distributors. According to Power (2006) probably the most talked about reason for
outsourcing is cost savings. Cost efficiency and improvement to the bottom line are important
benefits of the outsourcing strategy. Much of this cost saving is realized by moving from a fixed-
cost model to one of variable cost model. Zarat & Aaisim (2013) advocate that, cost reduction is
the most important driver of outsourcing. The interview held with the regional business manager
of the company reveal that the company was able to relief itself from the cost of hiring sales
persons and helpers, availing distribution trucks, renting or acquiring warehouse and managing
product distribution function internally.
Regarding quality of service, Table 4-3, item number 2 depicted that, 50% of the respondents
strongly agreed that the service provided by the distributors now is by far better than it was before.
The remaining 50% of the respondents also agree that the quality of the service given to the
customer through distributors is better than it was before. Therefore all the respondents agree that
the company made the decision on outsourcing the function seeking to improve the service quality
to be rendered for customer. According to flatworldsoution.com, when you outsource your
business needs to a reliable outsourcing partner, they bring years of experience in business
practices and expertise in delivering complex outsourcing projects. Thus, they can do the job better
with their knowledge and understanding of the domain. This leads to an increase in productivity
and efficiency in the process thereby contributing to the bottom-line of your company
On the other hand, as can be realized from item number 3 of table 4.3, majority of the respondents
(52%) agreed that the company go for outsourcing to give more focus on other core functions. As
revealed in table 4.3, item number 3, the remaining 48% of the respondents also strongly agreed
that to give more focus on core business function is one of the major reason for the company to go
23
for outsourcing. According to Choi (2008) successful outsourcing allows the organization to focus
in-house resources on tackling priorities. When organization concentrates on carrying out its
priorities, it can use its financial, human and management resources more effectively and
efficiently.
As can be observed from item 4 in Table 4.3 above, 62% of the respondents agreed that the
company is made its decision for outsourcing to gain flexibility of product delivery service to
customer. These respondents believed that the distributors’ delivery service is not bounded by
time. With the same justification the remaining 36 % of the respondents strongly agreed that
improving flexibility of product delivery service is the main reason to go for outsourcing.
Regarding saving manager’s time from engaging in non- core business activity, as indicated in
item number 5 of Table 4.3 above, 54% of the respondents agreed that this is one of the reason
that the company go for outsourcing the product distribution activity to distributors. The other 40%
of the respondents also strongly believe that the company went for outsourcing the product
distribution function to spare managers from spending their time in managing the product
distribution activity. Therefore 94% of the respondents believe that the company was outsourced
the service to distributors to save manager’s time for more critical activities by outsourcing the
function to distributors.
As can be observed from item 6 in Table 4.3 above, 92% of the respondents in aggregate believe
that the company went for outsourcing its product distribution function to distributors thinking that
these distributors would be a crucial growth partner for the company by giving a strategic option
to deliver its product to the customer in a most flexible and cost efficient way.
Regarding optimal RtM utilization, as indicated in item number 9 of Table 4.3 above, 56% of the
respondents agreed that, the company have made its decision to outsource the function to the
distributors to ensure optimum Route to Market access and win the competition through better
RtM strategy. The same way to these respondents the remaining 44% of the respondents strongly
agreed that the company was considering this point as one of the main reason to go to outsourcing
the function to 3rd party distributors. This result match with the company’s original intent of
adopting indirect product distribution to customer to efficient delivery system.
24
Table 4.4 Benefits gained after outsourcing product distribution function to distributors
Outsourcing help the com pany reduce cost
Frequency Percent Valid Percent Cumulative Percent
Valid Strongly disagree 1 2.0 2.0 2.0
Agree 27 54.0 54.0 56.0
Strongly Agree 22 44.0 44.0 100.0
Total 50 100.0 100.0
Help the com pany to give m ore focuse to core function

Valid Agree 26 52.0 52.0 52.0
Strongly Agree 24 48.0 48.0 100.0
Total 50 100.0 100.0
Im proved flexibility on delivery service

Valid Agree 24 48.0 48.0 48.0
Strongly Agree 26 52.0 52.0 100.0
Total 50 100.0 100.0
Help the com pany to access new skill ont available internally
Valid Disagree 14 28.0 28.0 28.0
Neutral 7 14.0 14.0 42.0
Agree 24 48.0 48.0 90.0
Strongly agree 5 10.0 10.0 100.0
Total 50 100.0 100.0
Outsourcing save m anagers tim e and energy

Valid Agree 23 46.0 46.0 46.0
Strongly agree 27 54.0 54.0 100.0
Total 50 100.0 100.0
Help the com pany m anage the sales function w ith less m anpow er
Valid Neutral 1 2.0 2.0 2.0
Agree 29 58.0 58.0 60.0
Strongly agree 20 40.0 40.0 100.0
Total 50 100.0 100.0
Help the com pany cover w ider sales territory

Valid Agree 21 42.0 42.0 42.0
Strongly agree 29 58.0 58.0 100.0
Total 50 100.0 100.0

25
Outsourcing Help the Company Reduce Costs
Table 4.4 above reveal that majority of respondents representing 54% believe that the benefit
gained with regard to reducing cost of operation is high. The other 44% of the respondents strongly
believe that outsourcing brings the above benefit to the company. On the other hand only 2% of
the total respondents strongly believe that outsourcing does not bring the above mentioned benefit
to the company. This finding is further strengthen by the interview discussion held with the
Regional Business Manager of the company. According to the managers’ remark, without
considering other regions and focusing only at Addis Ababa level, after outsourcing the function
to distributors the company has gained huge cost reduction in terms warehouse rent, hiring sales
person, acquiring at least the 70 distribution trucks and other related cost . According to Power
(2006) the most obvious and visible benefit related to outsourcing brings about is cost savings.
Cost efficiency and improvement to the bottom line are important benefits of the outsourcing
strategy. Much of this cost saving is realized by moving from a fixed-cost model to one of variable
cost model. The objectives are to reduce investment in assets, free-up resources for other purposes,
and generate cash by transferring assets to the service provider.
Outsourcing Help the Company to Give More Focus to Other Core Functions
Referring to the benefit of outsourcing helps to be more focused on core functions than before,
as Table 4.4 above shows, almost all respondents agreed that the company has gained more time
and be able to focus on its core functions as the result of outsourcing the product distribution
function to distributors. This point was also mentioned by the Regional Business Manager of
the company as one of the advantages derived from outsourcing the function to distributors. The
manager believed that due to outsourcing the function to distributors, managers and other key
staffs in the organization be able to focus more on developing and executing strategic issue than
it was before. The manager also added that the company is now more focused on expanding
capacity and trying to win the competition with innovations. According to Choi (2008)
successful outsourcing allows the organization to focus in-house resources on tackling priorities.
When organization concentrates on carrying out its priorities, it can use its financial, human and
management resources more effectively and efficiently. Outsourcing of some non-core functions
provides organizations with the flexibility to redirect and focus their resources on activities
critical to their mission.
26
Outsourcing Improved Flexibility of Product Delivery Service to the Customer
As Table 4.4 above shows, in aggregate 100% of the respondents agreed that, flexibility of product
delivery to customer is greatly improved after the service is outsourced to distributors. The
response indicate that the company is benefited from outsourcing the service to the distributors by
enabling the customer to get the product without being limited in time. This means the service
given from the distributors give customers the flexibility of time to buy the product. The interview
discussion with the Regional Business Manager of the company support the fact that flexibility of
product deliver to the customer is greatly improved now in terms of time.
Outsourcing Help the Company Manage the Sales Function with Less Manpower
As we observed from Table 4.4 above, 58% of the respondents agree with idea that outsourcing
help the company manage the sales function with less manpower than it was before. The remaining
40% of the respondents strongly agree that outsourcing product distribution function to distributors
help the company to operate with less head count. As per the Regional Business Managers’ remark,
by outsourcing the service to outside distributors, the company was able to offload no less than
hundred twenty delivery sales people and helpers from its payroll and operate now with less sales
execution team.
Outsourcing Help the Company Cover Wider Sales Territory than Before
According to the survey result in Table 4.4 above, in aggregate 100% of the respondents agree that
the company is greatly benefited from the decision to outsource the service to the distributors in
the form of covering wider geographic area than before. In addition to the data collected from the
respondents, the interview held with the Regional Business Managers further strengthen the idea
that the company’s’ distribution footprint is more increased now than before.
27
Table-4.5 Problems faced after outsourcing product distribution function to distributors
Loss of control over the outsourced service
Neutral 3 6.0 6.0 12.0
Agree 32 64.0 64.0 76.0
Strongly agree 12 24.0 24.0 100.0
Total 50 100.0 100.0
Distributors lack skilled and qualified manpower to manage their business

Agree 33 66.0 66.0 68.0
Strongly agree 16 32.0 32.0 100.0
Total 50 100.0 100.0
Distributors focus on short term gain than long term benefits
Agree 32 64.0 64.0 66.0
Strongly agree 17 34.0 34.0 100.0
Total 50 100.0 100.0
Distributor's reluctance to buy all brands & SKUs
Valid Agree 34 68.0 68.0 68.0
Strongly agree 16 32.0 32.0 100.0
Total 50 100.0 100.0
Distributor's reluctance on long term investment
Agree 41 82.0 82.0 84.0
Strongly agree 8 16.0 16.0 100.0
Total 50 100.0 100.0
Distributor's low remuneration and its impact on their sales force motivation

Valid Agree 38 76.0 76.0 76.0
Strongly agree 12 24.0 24.0 100.0
Total 50 100.0 100.0
Distributors are not recruting their employees based on merit and qualification

Valid Agree 38 36.0 76.0 76.0
Strongly agree 12 24.0 24.0 100.0
Total 50 100.0 100.0
Distributors are reluctant to pay credit for Crates and Kegs
Valid Agree 31 62.0 62.0 62.0
Strongly agree 19 38.0 38.0 100.0
Total 50 100.0 100.0
28
Despite the benefits discussed above, outsourcing product distribution function to distributors have
a number of drawbacks. As author Wilson & Brown (2005) mentioned that no powerful tool is
without limitation, and the same is true for outsourcing. Now let’s map out some of the major
problems that the study respondents have indicated in the survey.
Loss of Full Control over the Outsourced Function
As we can see from the table 4.5 above, 64% of the respondents agree that the company losses
direct controlling over the day to day distribution activities of the distributors. Likewise 24% of
the respondents strongly agree that the company losses its full control over the distribution
activities of the distributors. The remaining 12% of the respondents does not support the idea that
the company losses its full control over the outsourced function. The Regional Business Managers’
view on this point is, despite there is system placed in the company to monitor and evaluate
distributors sales and operational performance on a periodic base, there is still room for some
distributors to operate their business without being under the full control of the company’s
monitoring system. According to the manager, abusing price and transshipment of product to
other’s territory and region is an example that illustrate unacceptable behavior of some of the
distributors which cannot be fully controlled by the company. According to Gulzhant T. (2014),
the problem relates to the loss of control over the outsourced operations stems from the reason that
managing external resources requires special skills which is a combination of the skills of people
and process management, contract management, and power negotiation. According to www.the
balance .com (retrieved December 2016), when you sign a contract to have another company
perform the function of an entire department or single task, you are turning the management and
control of that function over to another company. You will have a contract, but the managerial
control will belong to another company. Your outsourcing company will not be driven by the same
standards and mission that drives your company.
Distributors Lack Skilled and Qualified Manpower to Manage their Business
As show in Table 4.5 above, 66% of the respondents replied that they agreed with the point that
lack of skilled and qualified manpower to manage the business is the major problem observed in
the distributors business. The same way to these respondents the other 32% of the respondents
strongly agreed that this is one the main problem observed in the distributors business. The
respondents response further backed by the fact that most of the distributors are operating with the
29
traditional way of business doing mind-set. As in most cases, the distributors business is owned
and run by the owner him/her self, this would create a skill and leadership deficiency in their
business. As Alex Bank (2010) stated that, due to lack of direct control on the human resource the
vendor might hire under qualified or unqualified employees, depending on his discretion, which
would successively, hampers the quality of service further.
Distributor’s Reluctance to buy all Brands and SKUs
According to the survey result in table above, 100% of the respondents believe that most of the
distributors are more interested in buying fast moving brands and SKUs .As the study result reveal,
distributors are less interested to buy and stock slow moving products. According to the sales
manager’s remark this one of the main problem that the company is having with carrying out
product distribution activity through distributors. As a policy all distributor is required to buy and
stock all portfolio of product that the company is producing and selling. However against this
policy, most distributors are observed to stock out less moving products.
Distributor’s Low Remuneration for their Sales Force & its Impact on their Motivation
Level
As the survey result in the above table indicates, 76% of the respondents agree that distributor’s
payment package (salary, allowance & other benefits) for their sales force is not attractive enough
to motivate them to double their effort in making order than taking order. The same to these
respondents, the other 22% of the respondents strongly believe that distributor’s payment package
for their sales force is not attractive enough to invite exertion in their work. Different literatures
indicate that money is one of the factor that trigger motivation in work for workers whose earning
is low. The implication for this is, most distributor’s sales force are not motivated enough to exert
their utmost effort in engaging customer and making order. Referring to the regional managers
remark on this point, acknowledging the validity of the problem, he further believe that
distributor’s poor and non-merit based recruitment practice and unattractive payment package are
the root causes of the problem.
Distributors are Reluctant to Pay Credit for Crates & Kegs (RPM)
In table -7 above, this point is indicated by 62 % of the respondents as one of the main problem
that the company is facing now in relation to working with distributors. The other 38% of the
respondents also strongly believe that, this is one of the problem that comes from working
distributors. The interview held with the regional business manager shows that, as one of
30
distributors support programs the company provide RPM for distributors with postdated cheque
on credit. However most distributors are not interested to pay their debts as per their payment
schedule. The manager further explained that this problem bring substantial financial impact on
the company’s operation. Although it is difficult to the researcher to get accurate figure on the
amount of money that the entire distributors owe to the company, the manager estimate that close
to 16 million birr is deducted from the commercial department’s budget for the reason that these
distributors could not paying their debts on time.
Selecting the Right Vendor (Distributor)
According to www.the balance.com, vendor selection process can be a very complicated and
emotional undertaking. The interview held with the Regional Business Manager of the company
shows that, as distributor selection is the most critical step in the outsourcing process, the company
is giving greater attention during the selection process. When manger addressed the question from
the perspective of process, he explained that the company have well articulate and explicit
distributor selection criteria. According to the manager, when the company recruit and appoint
distributors it does background check, infrastructure check, related experience check, good will
check. The manager further explained that, once the candidate distributor fulfil all the
requirements, then he/she will be appointed on probation for certain period.
Legal Tangle and Lack of Understanding of the Contract
Different literatures outlined that, if the legal implications of the contract are vague to both the
organization and the service provider, it will fizzle out the initial attempt in the outsourcing
decision. Many outsourcing companies overlook legal issues and face outsourcing failures. As the
interview held with the Regional Business Manager shows, to some extent infrequent arguments
and conflicts arise between the company and the distributors on matters like territory demarcation
and complying company recommended selling price. According to the manager, the source of
these conflict are not because the distributors fail to understand the contract.
Cost of Searching Vendor
As the Regional Business Manager told the researcher, there is no such big challenge/problem in
the company related to cost of searching vendor.
31
Cultural Concern
According to the Regional Business Manager, cultural concern in its offshoring sense is not a big
challenge/ problem for the company. However, the manager told the researcher that, in some
instance some distributors fail to align with the company’s stretching and performance driven work
culture.
4.2 Analysis of responses obtained from distributors

This section deals with the analysis and interpretation of the data gathered from distributors as
reveled in the table below
Table 4.6 Major benefits gained in working with the company as a distributor
Financial gain

Neutral 2 10.0 10.0 20.0
Agree 16 80.0 80.0 100.0
Total 20 100.0 100.0
Job opportunity for other people

Valid Agree 5 25.0 25.0 25.0
Strongly 15 75.0 75.0 100.0
agree
Total 20 100.0 100.0
Training opportunity for distributor's employee

Agree 14 70.0 70.0 75.0
Strongly 5 25.0 25.0 100.0
Agree
Total 20 100.0 100.0
Support in credit facility for RPM payment
Agree 11 55.0 55.0 65.0
Strongly 7 35.0 35.0 100.0
agree
Total 20 100.0 100.0

The analysis table -8 above shows that, out of 20 distributors, majority of them agree that financial
gain (profit & return on investment), creating job opportunity for other people, gaining training for
their sales force and gaining credit facility for RPM payment are some of the main benefits that
they get from working with the company.
32
Table 4.7 Major problems that distributors faced by working with the company
Unattarctive margin
Agree 14 70.0 70.0 95.0

Strongly 1 5.0 5.0 100.0
agree
Total 20 100.0 100.0
Delay in product supply
Valid Strongly 2 10.0 10.0 10.0
disagree
Disagree 2 10.0 10.0 20.0
Neutral 1 5.0 5.0 25.0

Agree 14 70.0 70.0 95.0
Strongly 1 5.0 5.0 100.0
agree
Total 20 100.0 100.0
Delay in defective product replacment
Valid Agree 5 25.0 25.0 25.0
Strongly 15 75.0 75.0 100.0
agree
Total 20 100.0 100.0
High investment requirment
disagree
Disagree 3 15.0 15.0 25.0
Agree 12 60.0 60.0 85.0

Strongly 3 15.0 15.0 100.0
agree
Total 20 100.0 100.0
Too little outlet base
disagree
Disagree 4 20.0 20.0 25.0
Agree 7 35.0 35.0 60.0

Strongly 8 40.0 40.0 100.0
agree
Total 20 100.0 100.0
Unattractive margin
The study has explored problems that distributors face at working with the company, accordingly
in aggregate 75% of the respondents believe that the margin that they get from the company is not
attractive. These respondents believe that the current margin that the company give to them (5.5%
in average) is not sufficient enough to cover all their expense and give them reasonable profit. On
33
the contrary 25% of the remaining respondents do not consider unattractive margin as a problem.
The implication of this result is unless the distributors believe that they are making enough money
out of working with the company, they might lose their interest in investing more to the business.
This in return impact the sustainability and long term objective of the business.
Delay in product supply
Delay in product supply form the company is considered as a problem by 75 % of the respondents.
These respondents believe that the company have gap in supplying product to them at the right
time. On the other hand, 25% of the respondents disagree with the idea that delay in product supply
is major problem for them. The impact of this problem is to lead the company and the distributors
to lose sales and revenue.
Delay in replacement of defective product
As table-8 above shows, 75% of the respondents strongly agree that, delay in replacement of
defective product is one of the major problem that they face at working with the company. The
remaining 25% of the respondents also consider this point as a main problem. Therefore this is one
of the points that is considered by 100% of the respondents as a main business problem. This would
impair the operation of the distributor in the form of detaining the distributor’s working capital
and RPM.
Little outlet base in sales territory
As we can see from the above table, in aggregate 75% of the respondents agree that the outlet base
in their territory is little. These respondents believe that their revenue source and their business
profitability is dependent on the size and productivity of the outlets that they are working with. On
the contrary, the remaining 25% of the respondents do not consider this point as a problem. In
general majority of the respondents consider this point as problem to their business.
Other Problems
As an additional problems the following main points have raised from the distributors, delay in
defective products replacement, late time product delivery, less promotion support for draft SKU
and unable to get periodic statement from the company for product sales and RPM balance.
34
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
This chapter deals with summary of major findings, conclusions of the study findings and
recommendation forwarded by the researcher.
5.1 Summary of Major Findings

In an attempt to assess the main reasons as to why the company has decided to outsource its product
distribution function to distributors, the study have discovered cost reduction (overhead and
operational), improving service quality, giving more focus to other core functions, improving
flexibility of product delivery service to customers and ensuring optimal Route to Market
utilization as main reasons to outsource the service to distributors.
The study has also explored the benefits and problems of outsourcing product distribution function
to distributors. Accordingly the survey result reveal that saving time and cost, allowing managerial
employees to focus on core business function, improving service quality, lowering investment
requirement, increasing flexibility of product delivery and help the company cover wider sales
territory than before are some of the major benefits that the company reaped out from the decision
for outsourcing product distribution function to distributors as confirmed by majority of the
respondents.
The other point that the study signifies is the problems that the company and the distributors have
faced in relation with working as outsourcer and distributor. As different literatures has indicated,
there are a number of problems that have existed in outsourcing. The study finds out following are
outsourcing problems form the company side;
 Loss of full control over the outsourced function
 Legal tangle and lack of understanding of the contract
 Distributors lack skilled and qualified manpower to manage their business
 Distributor’s reluctance to buy all brands and Store Keeping Units( SKUs)
 Distributor’s unattractive remuneration to their sales force and their motivation level
 Lack of motivation for the distributor’s sales force
 Distributors are reluctant to pay credit for Crates and Kegs (RPM)
35
Finally as depicted by majority of the respondents, unattractive margin, delay in product supply,
delay in replacement of defective products, little outlet base in their sales territory and less
promotional support for draft are some of the points raised as a problem by the distributors
5.2 Conclusions
The aim of this research is to explore the benefits and problems of outsourcing product distribution
function to distributors in Heineken Breweries Share Company. In this regard the researcher tried
to address the research theme by identifying the reasons for outsourcing the services, benefits
gained after outsourcing the service and problems faced in relation to outsourcing the services.
On the basis of the findings from the study the following conclusions are drawn;
 As the study finding indicates, Heineken Breweries Share Company initially decided to
outsource the service with a rational of reducing cost, improving the service quality, giving
more focus to other core functions, improving flexibility of product delivery service to the
customer, saving manager’s time and implementing efficient route to market strategy. This
implies that the company original intended to switch its distribution model from direct to
indirect with the above mentioned justifications.
 Based on the findings of the study, it is concluded that the company has been able to gain
benefits out of outsourcing product distribution function to distributors. The benefits are
reducing overhead and operational cost, improving flexibility of product delivery service
to customers, gaining more focus to other core functions, help the company manage its
sales function with less sales force and help the company cover wider sales area than
before. The implication for this is, the company’s original expectation from outsourcing
the service to 3rd party distributors is fully meet now. As secondary data (annual sales data
of the company) shows, because of product distribution function is done through
distributors, the company’s sales volume growing from year to year.
 The findings from the study have also revealed that, despite a great deal of benefits has
been gained out of outsourcing the service to 3rd party distributors, there are also some
problems that come from working with the distributors. Loss of full control over the
outsourced service, distributor’s reluctance to buy all brands & SKUs, distributor’s
reluctance to pay credit for RPM are some of the problems. In addition to these problems,
distributor’s unattractive remuneration to their sales force has greatly impacted their
employee’s motivation. The implication of this is, had it not been for these challenges the
36
company would have gain maximum benefits out of outsourcing the service to 3rd party
distributors. On the contrary the study have revealed that, selecting the right vendor(
distributor), cultural concern and cost of searching vendor are not a major challenge /
problem to the company. So therefore, in order to reap the maximum benefits, the company
need to address those major problems identified by the study with the right solutions.
With regards to whether outsourcing advantages outweigh the disadvantages, according to the
Regional Business Managers’ remark comparing the company’s current annual sales volume
(2.35MHL) with pre- outsourcing period (1.1 MHL HL) shows that, despite the problems, the
company is benefited out of outsourcing product distribution function to distributors
5.3 Recommendations
On the basis of the findings and conclusions reached, the researcher would like to make the
following recommendations as a possible solutions for problems.
To overcome the problem associated with lack of skilled and qualified manpower in the
distributor’s business the following points must be considered.
 Manpower requirement for each distributor business should be clearly stated in the
distributor agreement and the Joint Business Plan.
 HBSC should involve in key employee recruitment process of the distributor. The
ideal job description & job specification should be jointly developed by the
distributor & HBSC.
 The distributor should have a clear succession plan.
Even if loss of full control over the outsourced operation is common in all outsourcing process, in
order to minimize this problem, HBSC has to establish clear expectation with the distributors and
put in place transparent control system. Beside to this the company has to put penalty clause in the
agreement for any breach of the term of the agreement.
To avoid problems associated with legal conflict and lack of understanding of the contract, HBSC
has to identify recurring conflict raising issues from the contract and clarify them further to ensure
clear understanding between the company and the distributors.
In order to avoid the problem associated with distributor’s low remuneration and its impact on his
sales force motivation, the following points must be considered.
37
 HBSC should enforced the distributor to introduce workable performance based
commission and incentive scheme to its sales force
 HBSC should introduce baseline plus variable margin model in its reward and
commission structure to influence the distributor’s behavior and support them to
improve their employee remuneration.
 HBSC should create awareness among distributors on the benefit of keeping
employees motivated.
 HBSC should introduce a reward mechanism in which the distributor’s good
performing sales people are gaining recognition & reward.
 Continues consultation with the distributors.
To overcome the problem associated with distributor’s reluctance to buy all brands and SKUs, the
following points must be applied.
 HBSC should develop, implement & follow-up stock level (standard) per all brands
for all distributors.
 HBSC should support the sales of slow moving brands with promotion and
activation.
 Enforce the stock standard through distributor agreement and Joint Business Plan.
 Increase the margin for slow moving brands and SKUs.
To overcome the problem associated with RPM credit payment issue, the following should be
considered.
 As much as possible cash based transaction should be the first option.
 HBSC should encourage distributors to return excess & ideal RPM.
 HBSC should enforce distributors to renew their postdated check to avoid risk of
checks being expired.
 Bank guarantee as a collateral for RPM credit should be considered as an option
 Take the case to court as needed.
For the problems that the distributors indicated in the study, the following recommendations are
forwarded by the researcher.
 HBSC should do benchmark its margin to distributors with competitors margin to
their distributors. If its margin is below the competition, then it should consider to
improve the margin to distributors.
38
 HBSC should do a thorough pilot Profit & Loss analysis for selected top twenty
distributors to see the profit margin of its distributor.
 HBSC should introduce baseline margin plus variable margin model to its current
distributor’s reward and compensation structure.
 HBSC should ensure timely and consistent product supply to the distributors. The
company has to relook its inter- functional integration and avoid structural and
functional silo among different departments.
 HBSC has to develop and implement clear procedure on how defective products
will timely be replaced to the distributors.
 HBSC has to do complete trade census to see the distributor’s outlet landscape and
revise territory if found justifiable.
 HBSC has to set up periodic meeting with distributors at different levels to openly
discuss operational problems and contemporary market issues which affect the
business from both the distributor and the company side.
Suggestions for Future Researches
Despite its popular application in most parts of the world, the experience of outsourcing in Ethiopia
is minimal. Furthermore, no formal research has been done in this area to assess the challenges
/problems and benefits of outsourcing in most organization in the country. To this end, this
research provides findings, which can also serve as a stepping stone for other related research,
regarding challenges and benefits of outsourcing for an Ethiopian business organizations.
However, this research has narrow scope which requires further investigations both in breadth and
depth. Thus, future researches should consider an in-depth study on the benefits and problems of
outsourcing of different industries in addition to the beer industry.
39
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42
Appendices
43
Appendix -A
ST. MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES
MBA PROGRAM
Questionnaire to be filled by HBSC sales staff
Dear Respondents:
This questionnaire is designed to conduct a research on the topic ‘Problems and benefits of
outsourcing product distribution function, the case of Heineken Breweries Share Company ’. The
purpose of the study is for the partial fulfillment of the requirement of MA degree in Business
Administration. For the successful accomplishment of the study, your response have key role by
being a valuable input for the study. The information that you provide is strictly confidential and
was be used only for academic purpose. Thus, you are kindly requested to genuinely fill the
questionnaire to your best knowledge.
Thank you in advance for your cooperation.
Instructions:-
 Writing your name is not necessary.
 For close ended questions put “ ”mark and for open ended questions write
a brief answer in the space provided.
Part One: Respondent Profile
- -
3. Category of your position
Non- managerial
4. What is your level of awareness about the concept and practice of outsourcing product
distribution function?
Very high High Medium Low Very low Never heard of it
44
Part Two: Questions Related with the topic
Dear Respondents for question no. 5 to 7 please read the statement and put “” mark in the
corresponding column for your answer (i.e. 5=strongly agree, 4=Agree, 3=Neutral, 2=Disagree,
1=strongly disagree)
5. Questions related to the reasons for outsourcing product distribution function to distributors.
# Reasons for outsourcing 5 4 3 2 1

1 To reduce cost.
2 To improve service quality.
3 To give more focus to other core functions of the company.
4 To improve flexibility of the delivery service by the distributors.
5 To save manager’s time and help them to focus on strategic issues

of the company.
6 To assist the current fast growth situation of the company
7 To access skills and tools not available in the company.
8 Improve efficiency
9 Optimal RTM utilization
Other,
specify__________________________________________________________________
________________________________________________________________________
45
6. Questions related to benefits of outsourcing product distribution function.
(i.e. 5=Strongly Agree, 4=Agree, 3=Neutral, 2=Disagree, 1=Strongly Disagree)
# Benefits gained after outsourcing the services 5 4 3 2 1
1 Outsourcing helped the company reduce cost
2 Outsourcing helped the company to give more focus to its core
functions/activities
3 After outsourcing flexibility of product delivery service is improved.
4 Outsourcing helped for the company to access new skills not
available internally.
5 Outsourcing saves management time and energy through reducing
the need to control day to day operations of the product delivery
function to the customer.
6 Help the company manage the sales function with less manpower
7 Help the company cover wider sales territory than before
8 Improved RTM utilization
Other,
specify________________________________________________________________________
______________________________________________________________________________
______________________________________
46
7. Problems observed with outsourcing product distribution function to distributors.
(i.e. 5=Strongly Agree, 4= Agreed, 3=Neutral, 2=Disagree, 1=Strongly Disagree)
# Problems of outsourcing 5 4 3 2 1
1 Loss of full control over the outsourced function
2 Distributor’s hesitance to implement rules and routines given by the
company
3 Lack of skilled and qualified manpower to manage distributors
business as required by the company
4 Distributor’s employee low belongingness to HBSC
5 Distributors focus on short term gain than long term benefits
6 Distributor’s reluctance to buy all brands and SKUs at sufficient
quantity during slack season
7 Distributor’s reluctance on long term investment
8 Distributor’s payment package does not induce their sales people to
work hard
9 Distributors are not recruiting sales persons based merit and
qualification
10 Distributors employee might jeopardize the company image
11 Lack of motivation of the distributor’s sales people
12 Distributors lack awareness on safety issues
13 Distributors are reluctant to pay credit for RPM on time
Other,
specify_____________________________________________________________
__________________________________________________________________
_______________________________________________________________
Thank you
47
Appendix -B
ውድ የዚህ መጠይቅ መላሾች፤
ይህ መጠይቅ በሃይኒከን ቢራዎች አ/ማ እና በወኪሎች መሀከል ባለው የስራ ግንኙነት ውስጥ ጎልተው የሚስተዋሉ ችግሮችን
ለይቶ ለማወቅ እና ለችግሮቹም ተገቢው የመፍትሄ ሀሳብ ለማምጣት የሚያስችል ጥናት ለማካሄድ ታስቦ የተዘጋጀ ነው፡፡
ጊዜ ወስደው ይህን መጠይቅ በመሙላት ስለተባበሩን በቅድሚያ እናመሰግናለን፡፡
የመጠይቁ አሞላል መመሪያ :-
 ስምዎን መፃፍ አያስፈልግም.
 ምርጫ ላላቸው ጥያቄዎች ሀሳብዎን ይወክላል ብለው ላመኑበት ምርጫ በተቀመጠው ሳጥን ውስጥ ይህን “ ”
ምልክት በማድረግ ምላሽዎን ይግለጹ፡፡ ክፍት ለሆኑ ጥያቄዎች ሀሳብዎን በተሰጠው ባዶ ቦታ ላይ በማስፈር ምላሽዎን
ይግለጹ፡፡
የመላሾች ማንነት የሚመለከት ጥያቄ

1. ïታ ወንድ ሴት
2. ዕድሜ ከ 25 ዓመት በታች ከ 25 እስከ 35 ከ 36 እስከ ከ 46 ዓመት በላይ
3. በአከፋፋይነት ከኩባንያው ጋር ለምን ያህል ጊዜ አብረው ሰርተዋል?
ከ 1 ዓመት በታች ከ1 እስከ 2 ዓመት ከ 2 እስከ 3 ዓመት ከ 3 ዓመት በላይ
የጥናቱ ዋና ዋና ጥያቄዎች
ጥያቄ ቁጥር አራት እና አምስት ካነበቡ በኋላ በሰንጠረዡ ውስጥ በዝርዝር ለተጠቀሱት ሀሳቦች ይስማማል ብለው ላመኑበትን
ምላሽ ይህን “” ምልክት በሳጥኑ ውስጥ በማስቀመጥ ምላሽዎን ይግለጹ፡፡ ምላሽዎ ቀጥሎ ከተዘረዘሩት አማራጮች አንዱ
ሊሆን ይችላል (5= በጣም እስማማለሁ፤ 4= እስማማለሁ፤ 3= ገለልተኛ፤ 2= አልስማማም፤ 1= በጣም አልስማማም)
4. ከኩባንያው ጋር በውክልና መስራት በመቻልዎ ምን ጥቅሞች አግኝተዋል?
(5= በጣም እስማማለሁ፤ 4= እስማማለሁ፤ 3= ገለልተኛ ፤ 2= አልስማማም፤ 1=በጣም አልስማማም)
# ያገኟቸው ጥቅሞች 5 4 3 2 1
1 የገንዘብ ጥቅም/ትርፍ/
2 የተሸለ የአሰራር ዘዴ እና ልምድ ከኩባንያው ማግኘት
3 ከኩባንያው እውቅና እና ሽልማት ማግኘት
4 ለሌሎች ሰዎች የስራ ዕድል መፍጠር መቻል
5 ለሠራተኞቼ የተሻለ ስልጠና ማግኘት
6 ለሳጥን ወይም በርሜል ክፍያ የክሬዲት አገልግሎት ማግኘት
7 ከኩባንያው ጋር ያለኝ ግንኙነት ሌላ መልካም የስራ አጋጣሚ ፈጥሮልኛል
48
ሌላ የሚጨምሩት ሀሳብ ካሎት
______________________________________________________________________________
______________________________________________________________________________
__________________________________________________________________
5. ከኩባንያው ጋር በአከፋፋይነት በመስራትዎ ያጋጠምዎት ችግሮች ምንድናቸው?
(5= በጣም እስማማለሁ፤ 4= እስማማለሁ፤ 3= ገለልተኛ ፤ 2= አልስማማም ፤ 1= በጣም አልስማማም)
# ችግሮች 5 4 3 2 1
1 ዝቅተኛ ትርፍ
2 የምርት አቅርቦት እጥረት
3 ከኩባንያው የሚመጡ ግልጽ ያልሆኑ የሥራ ትዕዛዞች
4 የስልጠናና እና የምክር ድጋፍ አለመኖር
5 በኩባንያው በኩል በቂ የፕሮሞሽን ድጋፍ አለመኖር
6 በአከፋፋዩ እና በኩባንያው መሀከል የፍላጎት ልዩነት መኖር
7 ከኩባንያው የሽያጭ ሰራተኞች በኩል በቂ ትብብር አለማግኘት
8 የተበላሹ ምርቶች በጊዜው አለመቀየር
9 በኩባንያው በኩል የዱቤ አገልግሎት አለመኖር
10 የውክልና ስራው ከፍተኛ የመነሻ ኢንቨስትመንት የሚጠይቅ መሆኑ
11 በሽያጭ ክልሌ ውስጥ የሚገኙ ደንበኞች ቁጥር አነስተኛ መሆን
12 ሌሎች አከፋፋዮች በሽያጭ ክልላችን ውስጥ ገብተው መስራት
ሌላ የሚጨምሩት ሀሳብ ካሎት

______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
49
6. ከላይ የተጠቀሱት ችግሮች ለመቅረፍ ይረዳል ብለው የሚያስቧቸው የመፍትሄ ሀሳብ ካሎት ይግለጹ፡፡
__________________________________________________________________
_________________________________________________________________
__________________________________________________________________
_________________________________________________________________
__________________________________________________________________
_________________________________________________________________
__________________________________________________________________
_________________________________________________________________
እናመሰግናለን
50
Appendix-C
Interview Questions
This interview questions are meant to collect data through interview from the Regional Business
Manager of Heineken Breweries Share Company.
Q.1 Do you think that selecting the right is a challenge / problem to the company?
If yes, please explain how_______________________________________________________
Q-2 Is cost of searching vendor (distributor) a challenge/problem to the company?
If yes please specify the magnitude_______________________________________________
Q.3 Does the distributors face difficulties in understanding the agreement?
If yes, please explain how______________________________________________________
Q.4 Does the company face arguments or legal tangle with the distributors because distributors
lack understanding of the contract?
If yes, please explain in detail____________________________________________________
Q.5 Is there any cultural concern by working with the distributors?
If yes, please explain in detail_____________________________________________________
Q.6. In general what are the major benefits that the company gain out of outsourcing product
distribution function to distributors?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Q.7 In general what are the major challenges/ problems in working with the distributors?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Q.8 In your view, do you think outsourcing advantage outweigh the problem or the other way
around?
______________________________________________________________________________
______________________________________________________________________________
Thank you
51
Appendix - D
Test -1 Result Analysis
Q-1 Sex of Q-2 Age of Statistics
Q-3 Category of the res pondent's Q-4 Res pondent's awarenes s level
res pondent res pondent pos ition of the concept of outs ourcing
N Valid 5 5 5 5
Mis s ing 0 0 0 0
Q-1 Sex of respondent
Frequency Percent Valid Percent Cum ulative Percent
Valid Male 5 100.0 100.0 100.0
Fem ale 0 0.0 0.0 100.0
Total 5 100.0 100.0
Q-2 Age of respondent
Valid 25-35 5 100.0 100.0 100.0
36-45 0 0.0 0.0 0.0
above 46 0 0.0 0.0 100.0
Total 50 100.0 100.0
Q-3 Category of the respondent's position
Valid Managerial 5 100.0 100.0 100.0
Non- 0 0.0 0.0 100.0
m anagerial
Total 5 100.0 100.0
Q-4 Respondent's awareness level of the concept of outsourcing
Valid Very high 0 0.0 0.0 0.0
High 5 100.0 100.0 100.0
Medium 0 0.0 0.0 100.0
Total 5 100.0 100.0
Test -2 Result Analysis

Q-1 Sex of Q-2 Age of Statistics
Q-3 Category of the res pondent's Q-4 Res pondent's awarenes s level
res pondent res pondent pos ition of the concept of outs ourcing
N Valid 5 5 5 5
Mis s ing 0 0 0 0
Q-1 Sex of respondent
Valid Male 5 100.0 100.0 100.0
Fem ale 0 0.0 0.0 100.0
Total 5 100.0 100.0
Q-2 Age of respondent
Valid 25-35 5 100.0 100.0 100.0
36-45 0 0.0 0.0 0.0
above 46 0 0.0 0.0 100.0
Total 50 100.0 100.0
Q-3 Category of the respondent's position
Valid Managerial 5 100.0 100.0 100.0
Non- 0 0.0 0.0 100.0
m anagerial
Total 5 100.0 100.0
Q-4 Respondent's awareness level of the concept of outsourcing
Valid Very high 0 0.0 0.0 0.0
High 5 100.0 100.0 100.0
Medium 0 0.0 0.0 100.0
Total 5 100.0 100.0
52
Test-1 Result Analysis ( Reason for Outsourcing) Test-2 Result Analysis ( Reason for Outsourcing)
To reduce cost To reduce cost

Frequency Percent Valid Cumulative Frequenc Percent Valid Cumulative
Valid Agree 4 80.0 80.0 80.0 Valid Agree 4 80.0 80.0 80.0
Strongly 1 20.0 20.0 100.0 Strongly 1 20.0 20.0 100.0
Total 5 100.0 100.0 Total 5 100.0 100.0
To improve service quality To improve service quality
Total 5 100.0 100.0 Total 5 100.0 100.0
To give more focus on to core function To give more focus on to core function
Total 5 100.0 100.0 Total 5 100.0 100.0
To improve flexibility of deliver To improve flexibility of deliver
Valid Neutral 0 0.0 0.0 0.0 Valid Neutral 0 0.0 0.0 0.0
Agree 4 80.0 80.0 80.0 Agree 4 80.0 80.0 80.0
Total 50 100.0 100.0 Total 50 100.0 100.0
To save managers time To save managers time
Agree 3 60.0 60.0 60.0 Agree 3 60.0 60.0 60.0
Total 5 100.0 100.0 Total 5 100.0 100.0
To assist the current fast growth of the company To assist the current fast growth of the company
Valid Disagree 1 20.0 20.0 20.0 Valid Disagree 1 20.0 20.0 20.0
Neutral 0 0.0 0.0 0.0 Neutral 0 0.0 0.0 0.0
Agree 2 40.0 40.0 60.0 Agree 2 40.0 40.0 60.0
Total 5 100.0 100.0 Total 5 100.0 100.0
To access skill not available internally To access skill not available internally
Valid Strongly 0 0.0 0.0 0.0 Valid Strongly 0 0.0 0.0 0.0
disagree 1 20.0 20.0 20.0 disagree 1 20.0 20.0 20.0
Neutral 1 20.0 20.0 40.0 Neutral 1 20.0 20.0 40.0
Agree 3 60.0 60.0 100.0 Agree 3 60.0 60.0 100.0
Total 5 100.0 100.0 Total 5 100.0 100.0
To improve efficeny To improve efficeny
Agree 2 40.0 40.0 60.0 Agree 2 40.0 40.0 60.0
Total 5 100.0 100.0 Total 5 100.0 100.0
Optimal RtM utilization Optimal RtM utilization
Total 5 100.0 100.0 Total 5 100.0 100.0
53
Test-1 Result Analysis ( Benefits of Outsourcing) Test-2 Result Analysis ( Benefits of Outsourcing)
Outsourcing help the com pany reduce cost Outsourcing help the com pany reduce Valid
cost Cumulative
Frequency Percent Valid Percent Cumulative Percent Frequency Percent Percent Percent
Valid Strongly 0 0.0 0.0 0.0 Valid Strongly 0 0.0 0.0 0.0
disagree
Agree 4 80.0 80.0 80.0 disagree
Agree 4 80.0 80.0 80.0
Strongly Agree 1 20.0 20.0 100.0 Strongly 1 20.0 20.0 100.0
Total 5 100.0 100.0 Agree
Total 5 100.0 100.0
Help the com pany to give m ore focuse to core function Help the com pany to give m ore focuse to core function
Valid Cumulative
Total 5 100.0 100.0
Im proved flexibility on delivery service Im proved flexibility on delivery service

Valid Cumulative
Total 5 100.0 100.0
Help the com pany to access new skill ont available internally Help the com pany to access new skill ont available
Validinternally
Cumulative
Neutral 1 20.0 20.0 60.0 Neutral 1 20.0 20.0 60.0
Agree 2 40.0 40.0 100.0 Agree 2 40.0 40.0 100.0
Strongly agree 0 0.0 0.0 100.0 Strongly 0 0.0 0.0 100.0
Total 5 100.0 100.0 agree
Total 5 100.0 100.0
Outsourcing save m anagers tim e and energy Outsourcing save m anagers tim e and energy
Valid Cumulative
Total 5 100.0 100.0
Help the com pany m anage the sales function w ith less m anpow er Help the com pany m anage the sales function w ithValid
less m anpow er
Cumulative
Agree 3 60.0 60.0 80.0 Agree 3 60.0 60.0 80.0
Total 5 100.0 100.0
Help the com pany cover w ider sales territory Help the com pany cover w ider sales territory
Valid Cumulative
Total 5 100.0 100.0
Im prove RtM utilization Im prove RtM utilization Valid Cumulative
Total 5 100.0 100.0
54
Tet-1 Result Analysis ( Challenges of outdourcing) Tet-2 Result Analysis ( Challenges of outdourcing)
Loss of control over the outsourced service Loss of control over the outsourced service
Frequency Percent Valid Percent Cumulative Percent Frequency Percent Valid Percent Cumulative Percent
Neutral 1 20.0 20.0 40.0 Neutral 1 20.0 20.0 40.0
Agree 2 40.0 40.0 80.0 Agree 2 40.0 40.0 80.0
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributors lack skilled and qualified manpower to manage their Distributors lack skilled and qualified manpower to manage their
business business
Agree 3 60.0 60.0 60.0 Agree 3 60.0 60.0 60.0
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributors focus on short term gain than long term benefits Distributors focus on short term gain than long term benefits
Agree 3 60.0 60.0 60.0 Agree 3 60.0 60.0 60.0
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributor's reluctance to buy all brands & SKUs Distributor's reluctance to buy all brands & SKUs
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributor's reluctance on long term investment Distributor's reluctance on long term investment
Agree 2 40.0 40.0 60.0 Agree 2 40.0 40.0 60.0
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributor's low remuneration and its impact on their sales force Distributor's low remuneration and its impact on their sales force
motivation motivation
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributors are not recruting their employees based on merit and Distributors are not recruting their employees based on merit and
qualification qualification
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Distributors are reluctant to pay credit for RPM Distributors are reluctant to pay credit for RPM
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Lack of motivation of the distributor's sales poeple Lack of motivation of the distributor's sales poeple
agree agree
Total 5 100.0 100.0 Total 5 100.0 100.0
Source ; Survey data 2016
55
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ST.

MARY’S UNIVERSITY SCHOOL OF GRADUATE STUDIES

BENEFITS AND PROBLEMS OF OUTSOURCING PRODUCT

Addis Ababa, Ethiopia

THESIS SUBMITTED TO ST.MARY’S UNIVERSITY, SCHOOL OF

Addis Ababa, Ethiopia

SCHOOL OF GRADUATE STUDIES

BENEFITS AND PROBLEMS OF OUTSOURCING PRODUCT

APPROVED BY BOARD OF EXAMINERS

Dean, Graduate Studies Signature

External Examiner Signature

Internal Examiner Signature

Belete Wondimu ______________________

St. Mary’s University, Addis Ababa December, 2016

St. Mary’s university, Addis Ababa December, 2016

1.4.2 Specific Objectives .......................................................................................................... 4

1.5 Scope and Delimitation ......................................................................................................... 4

Outsourcing Improved Flexibility of Product Delivery Service to the Customer.................. 27

Loss of Full Control over the Outsourced Function ............................................................... 29

Distributor’s Reluctance to buy all Brands and SKUs ........................................................... 30

Selecting the Right Vendor (Distributor) ............................................................................... 31

Legal Tangle and Lack of Understanding of the Contract ..................................................... 31

Cost of Searching Vendor ...................................................................................................... 31

Cultural Concern .................................................................................................................... 32

Delay in product supply ......................................................................................................... 34

Delay in replacement of defective product ............................................................................ 34

Little outlet base in sales territory .......................................................................................... 34

Other Problems ....................................................................................................................... 34

CHAPTER FIVE ........................................................................................................................ 35

RPM – Returnable Packaging Materials

RtM – Route to Market

SKUs- Store Keeping Units

HBSC- Heineken Breweries Share Company

Co2 – Carbon dioxide

SPSS - Statistical Package for Social Science

Table 4-1: Respondents by position……………………………………………………….23

1.1 Background of the Study

1.3 Basic Research Question

1.4 Objectives of the Study

product distribution activity in Heineken Breweries Share Company.

1.4.2 Specific Objectives

1.5 Scope and Delimitation

1.6 Significance of the Study

1.7 Organization of the Thesis

2.1 Definitions of Outsourcing

2.2 Theories Related to Outsourcing

2.4 Type of Outsourcing

2.5 Why Outsourcing

2.6 Benefits of Outsourcing

C. Focus on core competency:

2.7 Disadvantages of Outsourcing

2.8 Problems of Outsourcing

2.9 Common Mistakes in Outsourcing

2.10 Risks and Criticism

2.11 Empirical Literatures

RESEARCH DESIGN AND METHODOLOGY

3.1 Research Design

3.2 Population and Sampling Techniques

The researcher applied non-probability sampling technique (judgmental sampling) by stratifying