Effects of Outsourcing on SME Profits

UNIVERSITY OF SANTO TOMAS SENIOR HIGH SCHOOL PAGE 1
STUDY ON THE EFFECTS OF OUTSOURCING IN

HEALTHMAX CARE ENTERPRISES CORPORATION
A Research Paper
Presented to the
Senior High School
University of Santo Tomas
In Partial Fulfillment
Of the Requirements of the Learning Area
Practical Research 3
by
MAGCALE, YENZ P.
MERIDOR, WEE HAN SEI D.
NAVARRO, HANNAH LEANN S.
TRIA, SHANNEN JANN MARI O.
TURBANOS, RALPH WILLIS L.
VALLEJOS, CHRISTIAN LIANNE A.
Grade 12 ABM 6
ACKNOWLEDGEMENTS
This research becomes a reality with the kind support and help of many
individuals. We, the researchers would like to extend our sincere gratitude to all of
them.
Foremost, we want to offer this endeavor to our GOD Almighty for the
wisdom He bestowed upon us, the strength, peace of mind and good health in order
to finish this research.
We would like to express our special gratitude to our professor in Practical
Research, Professor Anna Rose Esguerra for imparting her knowledge and
expertise in this study.
To the owners of the Healthmax Care Enterprises Corporation, thank you
for supporting our research study as well as for providing necessary information
regarding this research. To its employees thank you for participating in this study
and for giving your forthright knowledge about outsourcing to us.
Lastly, we would also like to thank our classmates, and colleagues at the
University of Sto. Tomas for their encouragement and moral support in continuing
this research study.

ABSTRACT
Outsourcing became popular in SMEs (Small and Medium Enterprises)
since it improves the flexibility, quality and efficiency of the company. Enhancing
the resources of the company will have a positive result in the services of the
Healthmax Care Enterprises Corporation. However, previous empirical evidence
questions the effectivity of outsourcing since many studies have indicated that there
is no concrete evidence that the company’s profitability will improve through
outsourcing. The growing prevalence of outsourcing on SMEs questions its
effectivity to the company’s profits and the study revealed how outsourcing will be
profitable or not profitable with the help of Healthmax Care Enterprises
Corporation, which is an SME that has been outsourcing since it has been
established.
Keywords: outsourcing, effects of outsourcing, profitability, SMEs

TABLE OF CONTENTS
Page
Title Page 1
Acknowledgment 2
Abstract 3
Table of Contents 4
List of Tables 6
List of Figures 7
List of Appendices 8
CHAPTER 1 PROBLEM RATIONALE 9
1.1 Introduction 15
1.2 Research Problems & Objectives 10
1.3 Assumptions 11
1.4 Significance of the Study 12
CHAPTER 2 REVIEW OF RELATED LITERATURE 13
2.1 Review of Related Literature 13

2.2 Conceptual Framework 24
2.3 Theoretical Framework 26
CHAPTER 3 RESEARCH METHODS 31
3.1 Research Design 31

3.2 Subjects and Study Site 32
3.3 Research Instrument (Data Measure) 33
3.4 Statistical Treatment of Data 33
3.5 Data Gathering Procedure 34
3.6 Data Analysis 35
3.7 Ethical Considerations 36
CHAPTER 4 RESULTS AND DISCUSSION 37
4.1 Presentation of Data 37

4.2 Analysis and Interpretation of Data 45
CHAPTER 5 SUMMARY, CONCLUSIONS,

RECOMMENDATIONS
5.1 Summary
5.2 Conclusions
5.3 Recommendations
5.4 Directions for Future Research
References 51
Appendices 56
Curriculum Vitae (one page per author)

LIST OF TABLES
Table 1. Summary of Responses in the Questionnaire 45

LIST OF FIGURES
Figure 1. Outsourcing Process and Its Effect to a Company’s Profit

Figure 2. Outsourcing helps the company improve its performance
Figure 3. The company outsource for transference of jobs
Figure 4. The company outsource to focus more on their core
Figure 5. The company hire external workers to be engage with expertise
Figure 6. Outsourcing can reduce the operating costs of the company
Figure 7. There are operations in the firm that are appropriate for outsourcing,
and there are some that are not
Figure 8. The company's transition from in housing to outsourcing is relatively
easy
Figure 9. Outsource employees had caused quality/ product failure
Figure 10. External workers regulate the intellectual property of the company.
Hence, the company should not dispense with patent protection
Figure 11. External workers fail to deliver product on time. Therefore, it's
better to hire internal workers to deliver products
Figure 12. Outsourcing maximizes and improves the overall capability of a
company
Figure 13. Outsourcing gives a company a competitive advantage in terms of
productivity over other firms
Figure 14. A company can make the most out of its financial resources through
cost-cutting which is a result of outsourcing
Figure 15. Outsourcing results to specialization, which improves the company's
production quality
Figure 16. Outsourcing has a significant influence to the company's profit since it
has a large contribution to the company's productivity and cost-cutting
Figure 17. Some functions in the company can be completed faster, cheaper or
better because of outsourcing
LIST OF APPENDICES
Appendix I. Questionnaire Items
Appendix II. Sales Report of Healthmax Care Enterprises Corporation

CHAPTER 1
PROBLEM RATIONALE
1.1 Introduction
Throughout the years, outsourcing became popular within the small and
medium enterprises. Outsourcing has improved the flexibility, quality and
efficiency of a company especially departments in marketing, manufacturing,
human resource, customer service, and IT.
SMEs have opted for outsourcing because it helps cut their operating cost,
access talent pool, flexibility in staffing and a lot more. However, not everything in
outsourcing is viable. The company may have poor mutual understanding with
projects and may have clashing conceptions, etc.
Previous empirical evidence shows a negative conclusion between outsourcing and
profitability. Year 2006, a research had been conducted to find-out the effects of
outsourcing on firms’ operational performance, the research revealed that there is
no evidence that the firm’s profitability will improve through outsourcing (Jiang et.
al., 2006).
Considering the previous study of Jiang and his colleagues, the researchers
will perform an empirical research to perceive the effects of outsourcing to a
company. The researchers will focus on the company Healthmax Care Enterprises
Corporation which is an SME that has been outsourcing since it has been
established. It has outsourced from hiring its employees to delivering its goods.
Healthmax Care Enterprises Corporation is a trader of health and beauty products
and uses outsourcing to maximize the company’s resources.
This is to help contribute, with the growing demands of the economy that
affects the company, minimize expense and maximize profitability. Mainly to help
reduce the operating costs and focus on the ways to increase profits. This study
identifies the effects of hiring an outsource to do some in-house jobs of Healthmax
Care Enterprises Corporation to see whether be it profitable or unprofitable to the
company.
1.2 Research Problems and Objectives
The main objective of this research is to identify the effects of outsourcing
in Healthmax Care Enterprise Corporation’s profitability that has been outsourcing
for seven years.
In accordance to that, the following questions stated below will be
answered:
Major Problem:
1. What is the significance effect of outsourcing on the company’s
profitability?
Minor Problem:
2. What are the problems and coign of vantage of outsourcing in
Healthmax Care Enterprise Corporation?
3. Is Healthmax Care and Enterprises, Corp. stable enough to
continue its service without the assistance of outsourcing?

In addition, it also aims to:
1. know if outsourcing has a great effect in Healthmax Care Enterprise
Corporation’s profit;
2. identify the problems or advantages brought by outsourcing in
3. Healthmax Care Enterprise Corporation and;
4. know if Healthmax Care Enterprise Corporation still need to
outsource.
1.3 Assumptions
Stated below are the assumptions made by the researchers to identify who
are the effective respondents of this study. The following assumptions will also
guide the researchers during the research process.
1. The respondents are from Healthmax Care Enterprises Corporation;
2. The respondents must be part of the outsourcing;
3. The respondents from the study willingly answered the researchers’
questionnaires and;
4. The participants will provide forthright statement of their
knowledge.
1.4 Significance of the Study
The researchers will conduct this study because the existing supplement
manufacturing company assigns the operation of their business functions to
external workers. The significance of this study is to determine what are the effects
of outsourcing in Healthmax Care Enterprises Corporation. The results of this
research may be beneficial to:
1. The owners of Healthmax Care Ent. Corp. may use this research as
reference to see and identify the effects of outsourcing; if there is an
increase or decrease of efficiency in development, research, marketing
and distribution expenses in their enterprise. The owners may also use
this research to know what are the advantages and problems in assigning
external workers to their business operations;
Since outsourcing played an important role in business, thus far, the overall
significance of outsourcing on performance remains dubious. Consequently, this
research may be useful to the following:
2. Other businessmen may also use this as guide in decision making if
outsourcing is better than hiring own employees and; Students,
specifically, Business and Management students may use this research
for future references in their study.

CHAPTER 2
REVIEW OF RELATED LITERATURE
The review of the literature for this study focuses on the effects of
outsourcing in Healthmax Care Enterprises Corporation’s profit. The chapter
begins with a definition of the business process outsourcing, followed by the
process of outsourcing and its advantages to the business.
2.1 Review of Related Literature
Outsourcing
It all started in the 1950’s but outsourcing really flourished in the 1980’s
where it was widely accepted. Outsourcing has grown from being very cost focused
strategy into a cooperative one (Hätönen & Eriksson, 2009). According to M.
Dabhilkar & L. Bengtsson (2009), outsourcing can be a positive and a negative
effect on the business. One of its positive effects on a manufacturing company is
that it allows it to predict improvement that is related with operating performance
and one of its negative side is that it cannot be depended on for the improvement
of the company. Thus, outsourcing has limited downsides and huge upsides
potential. Outsourcing has become an important part of the supply chain
management strategies. it refers to the allocation of business related tasks from a
source within the organization to a source outside of the organization (Kroes &
Ghosh, 2010). The application of outsourcing principles becomes a potential way
of reducing overheads costs. (Giertl et. al., 2015). It is one of the important
economic benefit that is practiced by many, it allows the outsourcing businesses to

decrease its fixed costs such as expenses on their equipment, information
technology, salaries of their employees, etc., and translate those things into a
variable cost in the form of the purchase price that the outsourcing business then
pays the outside industry, these things were mentioned by the buyers and suppliers.
(Liu & Tyagi, 2017). Although outsourcing boosts profit it also negates the
improvement of innovation among the business (Stanko & Olleros, 2013).
Researcher Dabhilkar & Bengtsson (2009) says that outsourcing can be a positive
and a negative effect on the business. One of its positive effects on a manufacturing
company is that it allows it to predict improvement that is related with operating
performance and one of its negative side is that it cannot be depended on for the
improvement of the company. Thus, outsourcing has limited downsides and huge
upsides potential. Outsourcing is an effective way to cut costs, improve
performance, and refocus on the core business. In the field of services, outsourcing
was originally focused down to basic support activities. It was also used to help the
businesses that are going downhill financially (Baitheiemy, 2003). Outsourcing
businesses can arguably enhance competition by expanding their possible market
(Vining & Globerman, 1999)
Business Process Outsourcing (BPO)
In 1980s, firms started to turn over the execution of routines tasks to third
parties which popularized the outsourcing (AMA, 1997). In BPO, organization
enters into a contract with an external firm to manage and to deliver one or more
business functions or processes (Gartner, 2013). BPO has been a good practice in
business transformations and an instrument in realizing business strategic goals and
in managing its operations (Handley & Benton, 2009; Mani, Barua, & Whinston,
2012; Narayanan, Jayara-man, Luo, & Swaminathan, 2011). Outsourcing boomed
in the past decade including tasks in the organization’s core – management of
customer service and information technology (Eppinger & Chitkara 2006,
Kalleberg & Marsden 2005).
Despite its popularity, outsourcing has a very complex structure, which
consists of numerous activities and functions giving rise to series of administrative
and managerial dilemmas. A number of theories have been used to help scientists
understand the nature of these operations and activities, as well as to help the
managers of enterprises and organizations handle these processes in an effective
manner (Vaxevanou & Konstantopoulos, 2014). According to Vaxevanou &
Konstantopoulos (2014), the Transaction Cost Economics (TCE) theory has
traditionally been the most widely-used outsourcing theory. It is considered that the
TCE theory provides the best decision-making tools in order to assist organizations
in deciding which of their operations should be outsourced and, thereafter, to
prepare themselves in order to implement the necessary organizational changes
arising from outsourcing. The characteristics of this model allow for its
implementation both at the relationship management phase and at the
reconsideration phase. Another extremely useful feature of the TCE theory is that
it can be used for the analysis and selection of outsourcing contracts, which are
often of great complexity.

In recent years, two research streams emerged to foster outsourcing
performance. One stream draws upon control-based theory and emphasizes the
significant role of formal control practices (Choudhury & Sabherwal, 2003;
Rustagi, King, & Kirsch, 2008). Control in outsourcing relationships refers to the
mechanism that an outsourcer (controller) uses to regulate the actions of outsources
(controlees) to achieve desired goals (Choudhury & Sabherwal, 2003; Tiwana &
Keil, 2010). This study focuses on formal control mechanisms, which are exercised
intensively in managing outsourcing relationships. In formal control, controlee
behavior is influenced by adherence to prescribed processes and outcome- based
evaluations (Choudhury & Sabherwal, 2003; Tiwana & Keil, 2007). Process
control (or behavior control) is implemented by the client to evaluate vendor
performance based on how prescribed procedures and methods are adopted by the
vendor (Tiwana, 2008). Outcome control is practiced by the client to assess vendor
performance according to the extent to which desired final targets and outputs are
achieved regardless of the process (Henderson & Lee, 1992; Tiwana & Keil, 2010).
For instance, Tiwana and Keil (2010) argued that the performance of outsourced
projects was positively influenced by outcome control but insignificantly
influenced by process control because of the difficulty in implementing process
control in outsourced projects. As a result, the effect of outcome control on
performance may be stronger than that of process control in outsourced projects.

Process of Outsourcing
Despite the impressive number of studies focusing on the process of
outsourcing, only a few models reflect the actual phases and present the overall
structure of the outsourcing process. The critical issue at hand is how to divide the
process into distinct phases in order to understand its structure and appreciate value
generation (Kutsikos & Sakas, 2014). In particular, the researcher, Vaxevanou &
Konstantopoulos (2014), proposes the phases of Preparation, Vendor Selection,
Transition, Relationship Management and Reconsideration. Each phase contains a
significant number of individual sub-activities, whereas phases are involved in the
outsourcing process in the order presented below.
a. Preparation Phase
In this phase, one must answer some questions before proceeding to the next
phase. These questions relate to the reasons for being involved in this process, the
expected benefits, as well as the general philosophy behind the firm’s decision to
be involved in this process (Heywood, 2001; Shepherd, 1999). The most important
aspect of this phase of outsourcing is that the firm should explore all alternative
strategies using specialized analysis and decision-making models in respect of
outsourcing.
b. Vendor Selection Phase
The second phase relates to Vendor Selection. Associate of the firm for a
considerable period of time, during which the two parties will be forced to
cooperate and support each other in good and bad times (Perunovic &
Christoffersen, 2005). Cullen and Willcocks (2003) highlight that completing a
significant part of the preparation phase and setting the stage for operation
outsourcing is an important prerequisite for every firm, prior to entering the
selection procedure. This will allow the firm to proceed with the outsourcing
process when the most appropriate vendor is identified.
After making this preparation, the organization must announce its intention
to find a Vendor and collect the offers of tenderers, which may be evaluated using
a series of criteria as laid down in numerous studies (Greaver, 1999; Heywood,
2001; Cullen & Willcocks, 2003). The question to be answered at this phase by the
firm is: "To whom?"
c. Transition phase
After completing the selection procedure and signing the contracts, the
organization enters the next phase of the outsourcing process, namely Transition.
During the Transition phase all the operations scheduled in the previous two phases
are starting to be implemented. Its aim is to guarantee the smooth productive and
functional transition from the previous situation to the scheduled operations (Cullen
and Willcocks, 2003; McIvor, 2010). A series of questions must be addressed and
resolved during the transition phase, such as maintaining contact among internal
and external operations, the redeployment and adjustment of human resources, as
well as the reorganization of the overall productive activity (Greaver, 1999).
Another sensitive issue relates to the management of workers who will either have
to be moved to the vendor’s premises or lose their job (Ordanini & Silvestri, 2008;
Miozzo & Grimshaw, 2011; Picard & Wildasin, 2011).
d. Relationship Management Phase
The next phase is relationship management. Some researchers (Barthelemy,
2003) call it the “soft” approach to outsourcing, as opposed to contract
management. On the other hand, other researchers (Perunovic, 2006) are of the
opinion that Relationship Management is far more difficult and complex than
contract management.
The success of the relationship between the organization and the vendor is
largely determined by the way in which this relationship is managed at the business
level (Marinagi et al., 2014). According to Melvor (2005), the strength of the
relationship is determined by four main factor categories.
e. Reconsideration phase
Reconsideration is the last phase of the outsourcing process.
Reconsideration takes place when the outsourcing process is nearing its end. Apart
from its scheduled time of expiry, a contract may also be terminated earlier for
reasons such as: changes in the ownership structure of the organization or of the
vendor, mutual interest, and insolvency of a party, breach or violation of certain
contract terms by at least one of the two parties (Cullen and Willcocks, 2003).
Whatever the time or cause for terminating a contract, the organization must
consider whether it has drawn benefits from this particular relationship, whether it
will benefit from its continuation in the future, as well as which are the elements
that should be maintained or changed in the same or in a similar outsourcing
contract. The key options of the organization are: repeating the outsourcing process
with the same vendor; repeating the process with another vendor; or transferring
these operations into the internal structure of the enterprise.
Opportunities of Outsourcing
The advantages of the outsourcing process relate to the fact that the
executives of these companies are able to move behind the production line. One of
the most important features of the outsourcing agreement is securing an
employment relationship with the human resources of the contracted enterprises
(Banerjee & Williams, 2009). Outsourcing has generated considerable interest
among academics and practitioners. However, much of this interest has been in the
economics, rather than the sociology, of outsourcing. A key source of this interest
is that outsourcing is sometimes associated with the transfer of jobs between firms
and between nations (Sallaz, 2004). This interfirm transfer of jobs sometimes flows
from high-wage firms with strong internal promotion systems to lower-wage firms
with less secure employment (Pfeffer & Baron, 1988; Kalleberg et al., 2000),
generating public policy concerns about the effects of outsourcing on worker
wages, benefits, and job security. According to Davis-Blake & Broschak (2009),
when outsourcing occurs, tasks are organized between rather than within firms, and
the resultant design of jobs, work groups, and subunits differs from what would
have occurred if those tasks were organized inside the boundaries of a single firm.
Because outsourcing changes what workers do, how they do it, with whom they do
it, and what they are paid for it, outsourcing is as significant a change to the nature
of work and organizations as the industrial revolution, scientific management, or
the emergence of the mature bureaucratic form, each of which fundamentally
affected both work and workers, and each of which has been the subject of
substantial research. By means of outsourcing, companies manage to liberate their
administration from certain operations, limiting its responsibilities only to the
control of external vendors and allowing it, therefore, to focus on more fundamental
operations, which can bring a competitive advantage to the organization
(Vaxevanou & Konstantopoulos, 2014).
Dangers of Outsourcing
Outsourcing can be a tool to improve company performance, cut costs, and
refocus on the core business. In contrast, outsourcing initiatives often fall short of
the management’s expected outcomes. Outsourcing activities that should not be
outsourced, selecting the wrong vendor, writing a poor contract, overlooking
personnel issues, losing control over the outsourced activity, overlooking the
hidden costs of outsourcing and failing to plan an exit strategy are some of the
problems that may arise when a company practices outsourcing (Barthelemy,
2003). According to (Knight and Walker, 2005), outsourcing should be viewed
holistically, connecting organizational issues with sectors and national level
outcomes. By doing this, aggregate risks and benefits can be assessed at different
systems levels (Knight and Walker, 2005). At the organizational level, management
may face difficulty in deciding how close to core outsourcing should get, gaps like
lack of skills and competence to manage outsource relationships, increased costs in
relationship management, and lack of understanding, skills and competence to
design appropriate service level agreements with outsource company. Although
limited to a firm’s financial data as a whole rather than just the department that
practices outsourcing, a research conducted by Jiang, Frazer, and Prater (2006)
reveals no evidence that outsourcing will improve a firm's productivity and
profitability. Another study done by Delmotte and Sels (2008) found out that
Results indicate that organisations with a strong focus on HR cost‐cutting do not
outsource more than organisations with a weaker focus on HR cost‐cutting.
Outsourcing-Profitability
Lankford and Parsa (1999) defined outsourcing as the procurement of
products or services from sources that are external to the organization and it is
believed that certain functions of outsourcing can be completed faster, cheaper, or
better by an outside organization. And outsourcing has been an effective business
strategy for reducing costs. Firms opt to “buy” than “make” goods as long as the
cost of outsourcing is lower than the in-house production (Abraham and Taylor,
1996).
Need for Specialized Proficiency
According to the Transaction cost theory, outsourcing is usually associated
with specialization (Ono & Stango, 2005). Outsourcing influences product quality
and has an impact on the firm’s revenue (Moya et.al., 2014) “You outsource when
someone else can perform the activity better than you”, (Marchington et. al., 2016).
Companies hire external workers due to paucity of internal workers to
accommodate the company’s needs and standards. In an empirical research
conducted by Bengston & Dabhilkar (2007), outsourcing has a far greater
performance improvement potential in a company’s performance. Hence, expertise
of external workers contributes and improves company’s service and performance.
Thus, companies who hire experts will yield to financial gain. Quinn (1999) said
that “Outsourcing can provide access to the “best in the world” quality for particular
activities or components that will increase your market share.”
In spite of that, researchers Jiang, Frazier and Prater (2006) revealed that
there is no affirmation that outsourcing will increase firm’s productivity and
profitability.
Cost-Efficiency
According to Wang, Chen, Wang, & Su (2009), to maintain
competitiveness, outsourcing must achieve cost, quality and production efficiency
in the supply chain systems. The need to consider outsourcing opportunities forces
firms to assess their effectiveness. When companies select from outsourcing
alternatives, their aim is to minimize costs especially to the vendors, since
companies prioritize the fixed costs, variable costs and related material supply
costs, and transportation costs. Gencer and Gürpinar (2007) constructed an analytic
network process for solving the vendor selection problem. The proposed approach
included six steps: analysing the vendor selection problem; determining goal and
vendor selection criteria; selecting alternative vendors; building the vendor

selection model; making paired comparisons; and developing the solution
algorithm and making the final decision. Thus, companies does not make
adjustments for the vendors, vendors are the ones who makes adjustments to the
criteria and requirements of the companies since they can be always be replaced by
another vendor. Outsourcing methods appear to be based the focus on lesser, more
controllable core activities and earning benefit from outsourcing non-core to
specialist providers that will improve the company’s performance, Kristner (2000).
Ford (2000) states that the reasons for outsourcing decisions as cost reduction,
leveraging to make businesses focus on their core functions leaving assignment
details assumed by an outside expert. According to Gilley and Rasheed (2000),
company that outsource are aiming to realize gains such as lowering of overall cost
of the service to the business.
2.2 Conceptual Framework
The factors why businesses outsource is because businesses want to (1)
improve company’s performance, (2) to transfer jobs to external workers, (3) to
focus on company’s core, (4) engage expertise, and (5) reduce operating costs.
These factors will lead to demand for hiring outsource.
In the process of outsourcing, the firm must consider different strategies
regarding outsourcing, in preparation for outsourcing. In order to achieve this, the
questions that are to be answered by the organization are “If”, “What”, and “How.”
The firm would now select its’ vendor to work with that would do the job the firm
wants to give to the vendor. This would finish the preparation phase. The firm must
define its’ technical and business requirements, the vendor also must state its’
requirements. The question to be answered is “To whom?”. On to the transition
phase, the goal is to have an easy transition from in-house to the vendor. Certainly,
there will be an issue that will arise concerning the jobs of the in-house employees,
that they will be either redeployed or they might lose their job. The relationship
management phase is where the organization aims to create or maintain a positive
relationship with the vendor. This would establish the support between two parties
and would benefit from each other in the long run. The last phase, which is the
reconsideration phase, it is the near-end contract of the outsourcing process of firms
to vendors. It is up to the organization whether to reconsider hire the vendor or not.
After the process of outsourcing, the result is cost-efficiency and is able to
specialize in the supposed department. Cost-efficiency has the goal of minimizing
expenses while maximizing performance. The company is able to focus on
improving its’ specializations.
FIGURE 1. OUTSOURCING PROCESS AND ITS EFFECT TO A COMPANY’S PROFIT

2.3 Theoretical Framework
Evolutionary Economic Theory
The Evolutionary Economics Theory was proposed in the mid-19th century
but was revived by Nelson and Winter in 1982. According to Andersen (2008) there
are six basic assumptions for the theory. First is that employees and firms cannot
know everything so they need to adjust and focus their efforts on a local level rather
than reaching hard for an international level.
Third is that employees and the administration may have to resort to mimic
other individuals to gain more knowledge and diversification. Fourth assumption is
about the third assumption, the imitation and innovation procedures are needed to
be continued but can only be stopped and disrupted via extreme cases and
circumstances.
The fifth one talks about the interaction between the people in the firm and
how unbalanced it is, the external factors such as the individuals themselves and
their techniques are the catalysts for such result. And the last assumption is about
the other five assumptions create a framework where changes are unpredictable and
the end result cannot be changed.
Economical Approach Theories
a. Transaction Cost Economics (TCE)
The most used and effective theory that is used by businesses is
Transactions Cost Economic theory (TCE). TCE theory gives off the best decision
making tool in terms of knowing what operations in the business are needed to be
outsourced and after knowing that, TCE also helps the administration to cope up
with the changes within the company after the said outsourcing.
(Anthi Vaxevanou, Nikolaos Konstantopoulos, 2015). According to Lacity
and Willcock’s (1995) research on the decision making about the outsourcing on
IT operations, they managed to explore the phases of preparation, vendor selection,
relationship management and reconsideration using the point of view of the TCE
theory.
In 1996, researchers Aubert, Rivard and Patry created a model which they
fused it with TCE to come up with the theory Incomplete Contracts. After eight
years, the said researchers (Aubert et al., 2004) came up with another theory the
combined the theories again to interpret primarily the preparation phase of
outsourcing.
The resources and capabilities of an enterprise can be different amongst other
firms and the said differences stay secured (Barney & Hesterly, 1996). If the
resources and capabilities of an enterprise are exercised effectively they can know
have a competitive advantage over other firms. In 2010, a research by Alvarez-
Suescun presented a model in which she combined the TCE theory and Resource-
based Theory to expound the implementation of outsourcing processes of an IT
operation.
b. Economic Information Theory
Economic Information Theory was created when people realized that
Classical Economic Theory cannot give every information needed and neither it is
dependable. After which, people started their own theories to replace the Classical
Economic Theory and supply whatever it lacked. The first ever to do it is Stigler in
1961. Stigler proposed the Search Theory in which it focused on the verification of
the vendors and the prices they offer is just a standard of the area and importance
of knowledge hunt in economic theory.
In 1973, a researcher named Spence created a concept of economic
information theory called “signaling”, it focused mainly on the signals that the
organizations make that alters the decision-making of other firms.
Psychological Approach Theories
a. Core Competencies Theory
The Core Competencies Theory evolved from the Theory of Resources. The
two researchers who proposed this theory (Prahalad and Hamel,1990) said that it is
the joint knowledge of an entire organization, more importantly, it is focused on
fusing together their skills that will contribute to the company and integrate them
with technology. (Anthi Vaxevanou, Nikolaos Konstantopoulos, 2015 The
explanation on how businesses can get and maintain competitive advantage over
different enterprises is defined in the Relational Theory by McIvor in 2005.
b. Agency Theory
In 2016, Nasiopoulos, Sakas, and Vlachos create the idea of Knowledge-
based View. It is defined as how individuals understand the concept of cooperation
to manufacture and supply services. The theory that is focused on the relationship
between an enterprise and all of its stakeholders is called Agency Theory (Jensen
& Meckling, 1976). The Agency theory has been used to clarify the relationship
between the organization and the vendor.
Social Approach Theories
a. Relational Theory
This theory is used to know the phases of transition, relationship management and
reconsideration. In short, Relational theory is the only theory that people can use in
the investigation of all the outsourcing stages. In 1995, researchers Willocks and
Choi found out that through enterprises can turn outsourcing from just a simple
partnership into a tactical partnership via well laid out plans before-hand.
Yahnyong (2011) related his outsourcing model’s focus that was based from the
Relational Theory in interpreting the stages of Preparation, Vendor Selection and
Relationship Maintenance. His research concluded that the advantages of the
outsourcing process are set on by the value of the relationship the two parties give
off each other.
b. Neo-Classical Theory
Hodgson (1994) came up with the Neo-Classical Theory. It has three
characters, first is that employees and firms act reasonably to comply with their
idea to maximize their benefits. Next is constantly creating and hitting a target. Last
is that the said theory does not answer the issue of inadequate information between
the organization and its employees. The theory was heavily criticized for that flaw.
c. Social Exchange Theory
In 2005, researcher Gottschalk and Solli-Sæthe explained the Social
Exchange Theory. They said the theory forecasts interpersonal transactional
relationships with the help of economic cost benefit analysis for the social
participation and social exchange.

CHAPTER 3
RESEARCH METHODS
This chapter includes the research methodology of the study. In this
part, it presents the methods to be used in the study. In more details, the researchers
outline the research design of the subject of the study, the instruments used, the
procedure of data gathering, the statistical treatment of data, and the analysis of
data.
3.1 Research Design
This research aims to identify the effects of outsourcing in Healthmax Care
Enterprises Corporation’s profit. It investigates the profitability effects of
outsourcing under control of other relevant factors affecting the company’s
profitability.
To successfully carry out the study, a mixed method (qualitative &
quantitative) is done. Researchers will use descriptive and analytical designs. This
research will scrutinize the public accounting data of the company. The researchers
will collect the sales report of the company from 2015 to 2017 to compare its profit
for the actual analysis.
A survey research will be used. According to Fowler, F. (2014), survey is
asking a set of questions from a sample of people from a population in which their
answers are used to describe that population. In accordance to this, an open-ended
inquiry with the chosen people in the company is conducted. The researchers will
use a five-point Likert-scale design the degree to which the enterprise rate the
influence of outsourcing to the company’s profitability. Along with this survey, an
in-depth interview will also be conducted to specify more the perception of the
qualifiers on using outsourcing in the company. The researchers will also use the
inductive approach. Hence, beginning with the specific observations in the
company. This approach can produce reliable and valid findings in which a
systematic set of procedures for analyzing qualitative data was used (Thomas,
2006).
3.2 Subjects and Study Site
The company Healthmax Care Enterprises Corporation, a food trading
company, which is an SME located in 747 Purok 5, M.L. Quezon St., Sucat,
Muntinlupa City will be the subject of this study.
The respondents of this research will be the owner/s and workers of
Healthmax Care Enterprises. They will provide the necessary enterprise’s statistics,
financial data, and other information needed to conduct the research. The owner/s
and workers will also answer the questionnaire provided by the researchers. The
company have 3 active owners which will be part of the survey anf workers will be
selected based on their experience related to outsourcing.
The technique that will be using is purposive sampling. A purposive
sampling, also called judgement technique, is the need to choose an informant
carefully by the qualities he or she possess. Thus, the interpretation of results is
limited to the population under the study providing the questions to answer by the
following qualifiers (Tongco, 2007).

The researchers will use purposive sampling to study the paradigmatic
effects of outsourcing to Healthmax Care Enterprises Corp. The qualifiers for this
sampling method are the owners and the employees. They are eligible to proffer the
necessary information that the researchers want since they observe, manage, and
evaluate employees who’re part of the outsourcing. Therefore, this will give the
researchers a sense of security in obtaining the information they needed to gather.
3.3 Research Instrument
The researchers will administer a Likert scale design survey questionnaire
entitled “Effectiveness of outsourcing in Healthmax Care Enterprises, Corp.,” that
is designed only for the owners and the employees of Healthmax Care Enterprises.
The questionnaire is parted into 2 sections.
The first section is structured in a Likert- scale model to examine how the
subject agree or disagree from outsourcing towards the success of outsourcing in
the company. In the second section of the questionnaire, composed of open-ended
inquiries in compliance with the owners and employees at the managerial level’s
own perception in using business outsourcing at Healthmax Care Enterprises, Corp.
(see Appendix I for questionnaire items).
3.4 Statistical Treatment of Data
The researchers will use descriptive statistics for the statistical treatment of
data of our study. In extent to which the observations are described by the central
tendency which is the mean, median and mode, including percentages.

Given a certain population on our study, a desirable measure of central
tendency would be consistent from sample to sample.
3.5 Data Gathering Procedure
Before gathering data in the company, the researchers will send a request
letter to the company’s administration asking for permission to conduct a study to
their company.
Given that mixed method is used on this study, the researchers used
sequential design as their model. It is the collection and analysis of quantitative data
followed by a collection and analysis of qualitative data and a purpose of using
qualitative results to assist in explaining and interpreting the findings of a
quantitative study (Creswell, 2003). Hence, we will carry out triangulation for the
validation of our study. Triangulation implies a combination of more than one set
of insights in an investigation together (Downward & Mearman, 2006). Therefore,
the researchers agree on using this method for it will help them analyze the data
easily.
Assuming that the Enterprise allow the researchers to conduct a research to
their company and guaranteed the researchers that they will participate during the
entire research process. The researchers will send a feedback letter to the company,
requesting to set a schedule for the researchers formally distribute the
questionnaires and have an observation.
During the research process, on consensus time, the researchers will
collect documents of the company for the document analysis. The researchers will
use primary data collection method for the document analysis procedure. The
researchers will collect all public documents of the company such as financial
statement, income statement, statistics, etc. depend on what they will provide.
Before proceeding to document analysis, the researchers must plan out to guarantee
valid and inerrant outcome.
The researchers will distribute the questionnaires and will visit the company
for observations during the mid-month of January 2018.
After collecting the questionnaires and analyzing the documents,
researchers will tally the questionnaires. after tallying, they use graphs and tables
to illustrate the findings. from that, they can start interpreting and analyzing the
information.
Results from their analysis and interpretation will be the basis of the
researchers to conclude for recommendation and to know the answers in their
problems.
3.6 Data Analysis
In this study, the researchers will examine the significant impact of
outsourcing to Healthmax Care Enterprises Corp., which focuses on the company’s
activities to lead to specialization and cost-efficiency. To measure participants’
respond the researchers will distribute a five-point Likert scale (see Appendix).
The questions under study will be treated by using central tendencies and
percentage. Also, it will measure the data about the company’s profile on their sales
to determine its profitability.

3.7 Ethical Considerations
Confidentiality of Client Matters
All identifying information that will be given by the respondents will not be
accessible to anyone except the researchers.
Anonymity of Personnel
The identity of the respondents will be kept unknown. This is to avoid any
potential harm to the research participants.
Only Assess Departments That Practice and Has the Capability to Practice
Outsourcing
The departments where outsourcing can help are the population that is
highly relevant to the study. The study will focus on these departments to avoid
distractions and complications from irrelevant sources.

CHAPTER 4
RESULTS AND DISCUSSION
The chapter discusses the variables of the study, present the results of
the surveys to Healthmax Care Enterprises Corporation, and interpretation on the
results and its analyses.
4.1 Presentation of Data
Presented below are the corresponding percentages of each items in
the questionnaire.
Reasons to Outsource
Figure 2. Outsourcing helps the company improve its performance
OUTSOURCING HELPS THE COMPANY IMPROVE ITS

PERFOMANCE
33%
67%
Strongly Disagree Disagree Neutral Agree Strongly Agree
The graph shows that 67% Agreed while 33% answered Neutral. This means that
the respondents agree that outsourcing helped the company’s overall performance.
Figure 3. The company outsource for transference of jobs
THE COMPANY OUTSOURCE FOR THE

TRANSFERENCE OF JOBS
11% 11%
78%
The graph above presents that 11% of the respondents both Strongly Agreed and
answered Neutral. And 78% of the respondents Agree in this question. This means
that the respondents agree that the company should outsource for the transference
of jobs.
Figure 4. The company outsource to focus more on their core
THE COMPANY OUTSOURCE TO FOCUS

MORE ON THEIR CORE
11%
11%
78%

Based on the graph above 11% of the respondents both Disagreed and answered
Neutral. And 78% of the respondents Agree in this question. This means that the
respondents agree that the company outsource to focus more on their core.
Figure 5. The company hire external work for expertise
THE COMPANY HIRE EXTERNAL

WORKERS FOR EXPERTISE
11%
34%
22%
33%
The graph above shows that 11% Disagree, 22% Neutral, 33% Agree, and 34%
Strongly Agrees in this statement. This means that the respondents strongly agree
that the company should outsource to gain more workers with expertise.
Figure 6. Outsourcing can reduce the operating costs of the company
OUTSOURCING CAN REDUCE THE

OPERATING COSTS OF THE COMPANY
11%
45%
44%
Strongly Disagree Disagree Neutral Agree

The graph illustrates that 45% of the respondents agreed in this statement. This
means that the respondents Agree that when it comes to outsourcing as a cost-cutter
in the company.
Figure 7. There are operations in the firm that are appropriate for outsourcing,
and there are some that are not
THERE ARE OPERATIONS IN THE FIRM THAT

ARE APPROPRIATE FOR OUTSOURCING, AND
THERE ARE SOME THAT ARE NOT
11%
33%
56%
This means that the respondents agree that outsourcing is not for every field of work
in a company. 56% of the respondents agree that some operations are appropriate
for outsourcing and some are not.
Figure 8. The company's transition from in housing to outsourcing is relatively
easy
THE COMPANY'S TRANSITION FROM IN HOUSING TO

OUTSOURCING IS RELATIVELY EASY
11%
34%
22%
33%

The pie graph shows that 34% is the highest percentage. This means that the
respondents agree when asked if transitioning from inhouse to outsource in a
company is relatively easy.
Figure 9. Outsource employees had caused quality/ product failure
OUTSOURCE EMPLOYEES HAD CAUSED

QUALITY/ PRODUCT FAILURE
11%
56% 33%
The graph states that 56% Agreed in this statement. This means that the respondents
agree when asked if outsourcing has caused product or quality failure.
Figure 10. External workers regulate the intellectual property of the company.
Hence, the company should not dispense with patent protection

EXTERNAL WORKERS REGULATE THE INTELLECTUAL
PROPERTY OF THE COMPANY. HENCE, THE COMPANY
SHOULD NOT DISPENSE WITH PATENT PROTECTION
22%
56%
22%

The graph above shows that 56% of the respondents Agreed in this question agreed.
This means that the respondents agree when asked if the company should not
dispense with patent protection.
Figure 11. External workers fail to deliver product on time. Therefore, it's
better to hire internal workers to deliver products
EXTERNAL WORKERS FAIL TO DELIVER PRODUCT ON

TIME. THEREFORE, IT'S BETTER TO HIRE INTERNAL
WORKERS TO DELIVER PRODUCTS
11% 11%
33%
45%
45% answered neutral. This means that the respondents feel neutral when asked if
the external workers fail to deliver on time.
Opportunity – Profitability
Figure 12. Outsourcing maximizes and improves the overall capability of a

company
OUTSOURCING MAXIMIZES AND IMPROVES

THE OVERALL CAPABILITY OF A COMPANY
11%
56% 33%

56% agreed in this statement. This means that the respondents agree when asked if
outsourcing maximizes the company’s capability.
Figure 13. Outsourcing gives a company a competitive advantage in terms of

productivity over other firms
Outsourcing gives a company a competitive

advantage in terms of productivity over other
firms
33%
67%
More than half of the respondents (67%) feel neutral when asked if outsourcing
gives the company a competitive advantage.
Figure 14. A company can make the most out of its financial resources through
cost-cutting which is a result of outsourcing
A COMPANY CAN MAKE THE MOST OUT OF ITS

FINANCIAL RESOURCES THROUGH COST-
CUTTING WHICH IS A RESULT OF
OUTSOURCING
Agree
Disagree
22% 22%
Neutral
56%

56% answered neutral in this question. Therefore, the respondents feel neutral when
asked if a company can make the most out of its financial resources through cost-
cutting which is a result of outsourcing.
Figure 15. Outsourcing results to specialization, which improves the company's

production quality
OUTSOURCING RESULTS TO SPECIALIZATION, WHICH

IMPROVES THE COMPANY'S PRODUCTION QUALITY
33%
67%
Based on the graph above 67% agreed to this statement. Therefore, the respondents
agree that outsourcing results to specialization, which improves the company’s
production quality.
Figure 16. Outsourcing has a significant influence to the company's profit

since it has a large contribution to the company's productivity and cost-cutting
OUTSOURCING HAS A SIGNIFICANT INFLUENCE TO THE

COMPANY'S PROFIT SINCE IT HAS A LARGE CONTRIBUTION TO
THE COMPANY'S PRODUCTIVITY AND COST-CUTTING
11%
89%

The graph illustrates that 89% agreed to this statement. This means that the
respondents agree that outsourcing has a significant influence to the company’s
profit
Figure 17. Some functions in the company can be completed faster, cheaper or
better because of outsourcing
SOME FUNCTIONS IN THE COMPANY CAN BE COMPLETED

FASTER, CHEAPER OR BETTER BECAUSE OF OUTSOURCING
11%
89%
On the graph above, 89% of the respondents agree in this question. This means that
the respondents agree that some functions in the company can be completed faster,
cheaper or better because of outsourcing.
4.2 Analysis and Interpretation of Results
This section presents the data analysis and interpretation of the
results that the researchers collected.
Summary of Answers in Open-ended Questions and Analysis
All of the respondents say that outsourcing leads to its positive results when
Healthmax Care conduct a proper and thorough research before hiring external
workers. Meaning, a business must choose the right person, study the pros and cons,
define clear objectives, and monitoring for evaluation. One hundred percent (100%)
of the respondents agree that interpersonal relationships between the management
and the employees are significant. The reason is for the workers and management
to have better cooperation to prevent conflicts and overlapping duties &
responsibilities. Healthmax Care’s management also acquires some insights while
outsourcing. The company learned the system of outsourcing and their efficiency
& professionalism to do their work. Aside from gaining knowledge about
outsourcing, the company learned the value of cooperation, and techniques and
skills. All respondents agree that outsourcing maximizes the company’s resources
and capabilities. Respondents responded that due to outsourcing reduces the
company’s cost and the company is more focused on the things needed to be
focused on, which results to decrease in work hours and/or workloads. Others
responded that the company was able to do improve their performance since
external workers are screened carefully before hiring. Based on the results 77.78%
agreed that outsourcing leads to a better cooperation between the management and
the employees while 22.22% answered somehow. To Avoid risks of outsourcing,
common responses of the respondents are to be careful, to be aware, and to hire the
right person. Others also advised to give clear instruction, should be clear of the
outsourced employees' job, and to have equal control.
All answers pertaining to the questions given by the researchers agreed that
outsourcing is necessary for the company. Based on what the owners and workers’
response, outsourcing aid the business to function well, be productive, and to help
them focus on their core so the business can yield a greater profit.
Summary of Responses & Analysis
Table 1.1 Summary of Responses
RATINGS
1 2 3 4 5
Reasons for f % f % f % f % f %
Outsourcing
Improvisation of 0 0% 0 0% 3 33.33% 6 66.67% 0 0%
Performance
Transference of Jobs 0 0% 0 0% 1 11.11% 1 11.11% 7 %
Focus on their Core 0 0% 1 11.11% 1 11.11% 7 77.78% 0 %
Tasks
Acquire Expertise 0 0% 1 11.11% 2 22.22% 3 33.33% 3 %
Reduce Operating Costs 0 0% 1 11.11% 4 44.44% 4 44.44% 0 %
Operations 0 0% 0 0% 1 0% 5 55.56% 3 %
Dangers of
Outsourcing
Transition from in- 1 11.11% 2 22.22% 3 33.33% 3 33.33% 0 %
housing to outsourcing
Cause of Product/Quality 1 11.11% 0 0% 3 33.33% 5 55.56% 0 %
Failure
Intellectual Property 0 0% 2 22.22% 2 22.22% 5 55.56% 0 %
Fail to Deliver Product 1 11.11% 0 0% 4 4.44% 3 33.33% 1 %
on Time
Opportunities –
Profitability
Maximization & 0 0% 1 11.11% 3 33.33% 5 55.56% 0 %
Improves Overall
Capability of a Company
Competitive Advantage 0 0% 0 0% 6 66.67% 3 33.33% 0 %
Financial Resources 0 0% 2 22.22% 5 55.56% 2 22.22% 0 %
Specialization 0 0% 0 0% 3 33.33% 6 66.67% 0 %
Productivity 0 0% 0 0% 1 11.11% 8 88.89% 0 %
Cost Reduction 0 0% 0 0% 0 0% 8 88.89% 1 %
1 – SD 2–D 3–N 4–A 5 – SA
MEAN VERBAL
INTERPRETATION
Reasons for Outsourcing
Improvisation of Performance 3.67 Neutral
Transference of Jobs 4 Agree
Focus on their Core Tasks 3.67 Neutral
Acquire Expertise 3.89 Neutral
Reduce Operating Costs 3.33 Neutral
Operations 4.22 Agree
Transition from in-housing to 2.89 Disagree
outsourcing
Cause of Product/Quality Failure 3.33 Neutral
Intellectual Property 3.33 Neutral
Fail to Deliver Product on Time 3.33 Neutral
Opportunities - Profitability
Maximization & Improves 3.44 Neutral
Overall Capability of a Company
Competitive Advantage 3.33 Neutral
Financial Resources 3 Neutral
Specialization 3.67 Neutral
Productivity 3.89 Neutral
Cost Reduction 4.11 Agree
1-1.99 SD, 2-2.99 D, 3-3.99 N, 4-4.99 A, 5-5.99 SA
The respondents generally answered neutral based on the table above. The
company’s reasons to outsource are valid and that the company can either benefit
from this practice or not. The respondents also feel neutral about its dangers. This
means that they recognize that these dangers really happen in the company if not
managed properly. When it comes to the opportunities and profitability given by
outsourcing, the respondents answer was averagely neutral. Respondents agree that
the company’s profit increases due to outsourcing, however some respondents still
believes that everything still boils down to the management. This is because some
of the operations are best done with outsourcing and there are some that aren’t best
done with the said practice.
Sales Descriptive Analysis
Healthmax Care outsourced workers from Primemed Co., a company
specialized in pharmaceuticals/healthcare distribution and a solution provider for
marketing, contractual sales force and regulatory & licensing assistance, for the
month of January and Mazingraz Corporation, a company that also offers the same
services, from February to July. In January of 2015, Primemed Co. was hired for
Contractual Sales Force and to produce Purchase Order (PO), a document that
authorizes purchase transactions, from Mercury Drug. Primemed Co. failed in
producing a PO and was replaced with Mazingraz Corporation, also hired for
Contractual Sales Force. Sales started to generate in March, a PO of 960 boxes of
Healthmax Care Capsule. On May, two POs with quantities of 480 and 960 boxes
was produced in preparation for the promo called, Suki Sabado, an event where
selected brands are offered at a discounted price, in Mercury Drug Store but the
promo was not effective. This resulted to the replacement of Mazingraz
Corporation to RBC-MDC Corp., a company that offers Warehousing, Collection
& A/R Management, and Delivery, which is hired from September of 2015 to the
present day. The outcome of the promo, Suki Sabado, resulted to a decreased PO
in November and December with only 240 boxes. Total PO for the year 2015 was
2,880 boxes.
In 2016, from January to March, PO was stagnant and sluggish with
quantities of 288 in January, 360 in February, 288 in March. Healthmax Care
partnered up with Philusa, a company that engages in the business of distribution
of branded products, for the promo of free wipes/med kit in which the PO has
increased immensely in the month of April. Stocks lasted until November and was
issued a new PO with 240 and 55 boxes. On December, Mercury Drug issued five
POs with quantities of 240, 120, 60, 288, and 144 boxes because of newly launched
promo pack which is 10 capsules instead of 100 capsules. RBC-MDC Corp. was
inactive and did not contribute to the sales thereafter. Total PO for the year 2016
was 4,498 boxes.
In 2017, POs became regular every month because of marketing
activities mainly, radio broadcasting. Healthmax Care switched to in-housing of
sales force because of stagnant performance. The company also outsourced
logistics, Mober, to prevent delayed delivery of stocks to warehouse.

CHAPTER 5
RESULTS AND DISCUSSION
This chapter presents the summary of the findings, conclusions,
recommendations, and direction for future research based on the data analyzed in
the previous chapter.
5.1 Summary
The researchers conducted this study to assess the effect of
outsourcing to SMEs, specifically to Healthmax Care Corporation. The conductors
of this study helped the owners see the different perspective of their workers. This
study may help them hit their goal as a company. The significant effect of
outsourcing is evaluated based on the impact outsourcing has on the company’s
cost, efficiency, and level of expertise in different departments. The participants are
the owners and workers of Healthmax Care Enterprises, Corp. The researchers
found that outsourcing has a significant positive effect on the company’s overall
performance. The researchers made a survey to determine if the respondents agree
or disagree from outsourcing towards the success of outsourcing in the company,
they used mixed method (Quantitative and Qualitative) in order to successfully
complete the study. The researchers found that outsourcing has a positive and
negative effect on the company’s overall performance. Findings on the survey
resulted generally as neutral. The sales analysis also proved that the company can
either hire external workers or internal workers. Above all, the effects of
outsourcing affect Healthmax Care Enterprises Corporation’s profitability.
5.2 Conclusions
Based on the findings of the study, the following conclusions are drawn:
1. The researchers conclude that Outsourcing has a significant effect on
Healthmax Care Enterprises Co.’s profitability. It is, however, co-exist with
some risks taken by the company just as the promo they market but then
failed and did not contribute to the sales thereafter.
2. The researchers conclude that Outsourcing has a neutral impact on
Healthmax Care Enterprises Co.’s specialization and cost-efficiency. Based
on the results of the survey conducted to the company’s workers, most of
the population confirmed that they either agree or disagree to the
contribution of outsourcing to the company’s productivity.
3. The researchers conclude that Healthmax Care Enterprises Co. is stable
enough to continue its service without using outsourcing as their main
method of dispersing work. As of 2017, the company decided to in-house
sales force because of stagnant performance on sales the past years but they
still outsource logistics, Mober, for the prevention of delay in delivering
stocks on the warehouse.
5.3 Recommendations
Upon concluding the results of this research, the researchers
recommend to Healthmax Care Enterprises Corporation the following:

1. The researchers suggest that the business can either hire external workers
or hire internal workers.
If the company continues to practice outsourcing the researchers
suggest:
2. The company must have control over the project that is given to the
outsourcing company to avoid the dangers of outsourcing. The company
must demand transparency by conducting meetings from time to time to be
updated with the development of the project.
3. One of the benefits known for outsourcing is cost-cutting. The company can
cut the cost of recruitment, training, and benefits for employees because
outsourcing already has employees and their knowledge to do the work. But
not everything should be outsourced, it is because there are occurrences that
increase costs rather than cutting it. The company should always consider
what can be done by the company instead of placing the responsibility to
others and what should be outsourced to prevent unnecessary costs.
4. The researchers recommend that the company must evaluate the
departments that are eligible for outsourcing for the maximization of the
benefits of outsourcing. There are departments wherein the company has no
resource for doing the job, but if the company decides to outsource, the
company will be able to have access to resources they do not have. The
company should outsource only the aspects that are lacking, to be able to
manage effectively the company’s core strength.

5.4 Directions for Future Research
The recommendations below are directions for future researchers that
will review or use this study. The said directions are in not in any way factual but
are only assumptions of the researchers based on their study.
1. Future researchers need to change the different independent variables to
attain accurate results to their respective researches.
2. Future researchers may apply this research to a different kind of business to
make further improvements to the said research.
3. This study serves as a warning to future researchers that they cannot apply
the data that the researchers of this study accumulated and analyzed because
it was specifically gathered for the Healthmax Care Co. and the said results
may not be apt for the succeeding researches.
4. The future researchers may get data from the company that Healthmax Care
co. is outsourcing from to get a stronger basis of the said research. In
addition to that, they can also help the company to improve their overall
efficiency.
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APPENDICES
Appendix I. Questionnaire Items
UNIVERSITY OF STO. TOMAS

SENIOR HIGH SCHOOL
ACADEMIC YEAR 2017-2018
A Research Study on the Effects of

Outsourcing in Healthmax Care Enterprises Corporation
QUESTIONNAIRE
Name:
___________________________________________________________
_______________
Position:
___________________________________________________________
_____________
I. DIRECTIONS:
Each item included a response scale from 1 to 5 up to which extent you
agree or disagree on each item. Respond to the following statements by
SHADING THE CIRCLE INSIDE THE COLUMN which best expresses
your own opinion regarding that statement.
1 = strongly disagree/SD 2 = disagree/D 3 = neutral 4 = agree/A 5=
strongly agree/SA
QUESTIONS 1- 2- 3- 4- 5-
SD D N A SA
Items measuring the prerequisite of the company
to outsource.
Reasons to Outsource
1. Outsourcing helps the company improve its ○ ○ ○ ○ ○
performance.
2. The company outsource for transference of ○ ○ ○ ○ ○
jobs.
3. The company outsource to focus more on ○ ○ ○ ○ ○
their core.
4. The company hire external workers to be ○ ○ ○ ○ ○
engage with expertise.
5. Outsourcing can reduce the operating costs ○ ○ ○ ○ ○
of the company.
6. There are operations in the firm that are ○ ○ ○ ○ ○

appropriate for outsourcing, and there are
some that are not.
Items measuring effects of outsourcing to
company’s profitability.
1. The company's transition from in housing to ○ ○ ○ ○ ○
outsourcing is relatively easy.
2. Outsource employees had caused ○ ○ ○ ○ ○
quality/product failure.
3. External workers regulate the intellectual ○ ○ ○ ○ ○
property of the company. Hence, the
company should not dispense with patent
protection.
4. External workers fail to deliver product on ○ ○ ○ ○ ○
time. Therefore, it’s better to hire internal
workers to deliver products.
Opportunities – Profitability
1. Outsourcing maximizes and improves the ○ ○ ○ ○ ○
overall capability of a company.
2. Outsourcing gives a company a competitive ○ ○ ○ ○ ○
advantage in terms of productivity over other
firms.
3. A company can make the most out of its ○ ○ ○ ○ ○
financial resources through cost-cutting
which is a result of outsourcing.
4. Outsourcing results to specialization, which ○ ○ ○ ○ ○
improves the company’s production quality.
5. In regards to item no. 4, outsourcing has a ○ ○ ○ ○ ○
significant influence to the company’s profit
since it has a large contribution to the
company's productivity and cost-cutting.
6. Some functions in the company can be ○ ○ ○ ○ ○
completed faster, cheaper or better because
of outsourcing.
II. DIRECTIONS:
Please answer the following questions. Write your answers on the space
provided below each questions.
1. How does the steps to be taken when transitioning to outsourcing lead to its
positive results?
________________________________________________________________
________________________________________________________________
________________________________________________________________
2. Are interpersonal relationships between the management and the employees

significant when practicing outsourcing?
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
3. What are the things that the management learned from the outsourced
employees?
________________________________________________________________
________________________________________________________________
________________________________________________________________
4. How did outsourcing maximize the company’s resources and capabilities leading
to the company’s overall improvement?
________________________________________________________________
________________________________________________________________
________________________________________________________________
5. Did outsourcing lead to better cooperation between the management and the
employees?
________________________________________________________________
________________________________________________________________
________________________________________________________________
6. What are the ways to avoid the risks of outsourcing from happening?
________________________________________________________________
________________________________________________________________
________________________________________________________________
Appendix II. Sales Report of Healthmax Care Enterprises Corporation
2015
2016
2017
CURRICULUM VITAE
YENZ PARAN MAGCALE finished his High School
at Colegio De San Lorenzo, the year 2016. He then
obtains a High School Diploma. Currently, he is studying
at the University of Sto. Tomas as a Senior High School
student taking up Accountancy, Business, and
Management (ABM) Strand. He plans to pursue a Bachelor’s Degree in Accounting
in the same university.
Mr. Magcale attended a Student Council Leadership Training as Level
Representative for the year 2011, 2012, and 2015. He can speak fluently in Filipino
and English. He is able to work under time pressure and can work well with others.
Some of his interests include organizing activities, basketball, creating a plan to
gain profit, and spending time with family and friends. Magcale's professional
qualities include Financial Management, Building Strategies, Leadership, Project
Planning, Communication and Negotiation, Problem Solving, and Marketing and
Sales. Aside from his qualities, he is also capable of using Microsoft Word, Excel,
PowerPoint, Access, Outlook and Adobe Photoshop.

WEE HANSEI DAEP MERIDOR is a Senior High
School student-athlete at the University of Sto. Tomas,
under the Accountancy, Business, and Management
Strand. He completed his Junior High School also at the
same university. He plans to pursue Bachelor of Science
in Business Administration, Major in Marketing Management.
Meridor was a Leader of the Boy Scout of the Philippines in Masbate when
he was in elementary at the Jose Zurbito Sr. Elementary School. He was also the
Student Council President at their school at his last year in elementary. He played
at the Palarong Bicol and Palarong Pambansa in 2010. He plays football to
represents UST at the UAAP. He still plans to play football until college to help his
single mother parent.

HANNAH LEANN S--- NAVARRO is an
Accountancy, Business, & Management (ABM),
Senior High School student in the University of Sto.
Tomas (UST) that will take up Entrepreneurship in
college. Navarro is a quiet and friendly individual and
an honest person. She is flexible with whatever work is given to her. Navarro is
also determined and persistent on finishing a task. She is also knowledgeable in
photo editing and Microsoft office. July 2017, she enrolled at Inventive Media to
study Adobe Photoshop CC. She also attended a Marketing Seminar February of
this year at the UST Central Seminary. Ms. Navarro can also speak Filipino and
English fluently.
SHANNEN JANN MARI ORAYANI TRIA is a
Senior High School Student in Accountancy, Business,
& Management (ABM) Strand at the University of Sto.
Tomas. In college, she plans to pursue Bachelor of Arts
in Political Economy and gain a Master’s degree. She
finished her elementary level at Lubang Integrated School and graduated as 3 rd
Honorable Mention, the year 2012. She continued her secondary level at Stella
Maris School of Lubang, Occ. Mindoro for three years, then transferred to Holy
Spirit School of Cubao, Q.C. to finish Junior High School.
Tria was a member of their school’s first concert chorus (2013-Present) in
Stella Maris School. She is also Student Council member and a class president from
School Year 2012-2015. Tria’s technical skills are editing in Microsoft Word,
Publisher, and Powerpoint. She attended special training programs and seminars, it
includes John Robert Powers’ Personal Development Level IV (2017-Present),
John Robert Powers’ English Learning Program (2017-Present), Leadership
Training Seminar in San Carlos, Cebu City with its theme: “BIDA Change You
Want to See in the World” (2013), and a Marketing Seminar held last February
2018. Tria received numerous academic awards during her elementary & high
school. She also received certificates for leadership and for participating in the
District Sports Meet event for 4 years.

RALPH WILLIS LALIN TURBANOS graduated last 2012 with a 3rd
honorable mention award in Nazareth School of Hijas de Jesus (now known as NS-
NU). In his stay in Nazareth School of Hijas De Jesus, he became a Student Council
Officer during his grade 3 & 4 in elementary. Mr. Ralph Turbanos also participated
in various spelling bees, quiz bees, and declamation contest in the said school. After
graduating elementary, he moved to Holy Trinity Academy where he spent his high
school life. In his first three years, he made the basketball varsity team. In his last
year, he opted to not be a part of the team and became a Student Council Officer.
And the time in between all that, he starred in different plays, emceed school events,
and participated in various school activities. He graduated with distinction and a
bronze co-curricular medalist. Now he is a candidate for graduation as a Senior
High School student in University of Sto. Tomas and is set to go to the College of
Science to study Actuarial Science in the same university.

CHRISTIAN LIANNE A--- VALLEJOS is a Senior
High School student-athlete at the University of Sto.
Tomas (UST) under Accountancy, Business, &
Management (ABM) Strand. She finished High School
at Spirit of Joy School in San Jose del Monte, Bulacan.
She plans to pursue Bachelor of Science in Accountancy.
Vallejos’ skills are swimming, biking, taking photographs, entrepreneurial skills,
leadership, public speaking, and numerical ability. She is also the President of her
Junior High School Science Club, the year 2014 and participated as a volunteer in
a Tree Planting Activity. During her Junior High School Vallejos is a consistent
honor student and was awarded for 9 consecutive years in Spirit of Joy School. As
a swimmer she also received numerous medals and awards, some of her awards
include, UAAP Athlete (October 2016 & 2017 - University Athletic Association of
the Philippines), Athlete of the Year (March 2016 Junior High School), Leadership
Award (March 2016 - Junior High School), ROTC (March 2016 - Junior High
School extracurricular activity), and Palarong Pambansa Athlete (May 2012-2016
– Country’s most prestigious athletic competition among high school).

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UNIVERSITY OF SANTO TOMAS SENIOR HIGH SCHOOL PAGE 1

STUDY ON THE EFFECTS OF OUTSOURCING IN

to finish this research.

We would like to express our special gratitude to our professor in Practical

expertise in this study.

To the owners of the Healthmax Care Enterprises Corporation, thank you

and for giving your forthright knowledge about outsourcing to us.

this research study.

Outsourcing became popular in SMEs (Small and Medium Enterprises)

Healthmax Care Enterprises Corporation. However, previous empirical evidence

is no concrete evidence that the company’s profitability will improve through

outsourcing. The growing prevalence of outsourcing on SMEs questions its

profitable or not profitable with the help of Healthmax Care Enterprises

Keywords: outsourcing, effects of outsourcing, profitability, SMEs

CHAPTER 1 PROBLEM RATIONALE 9

CHAPTER 2 REVIEW OF RELATED LITERATURE 13

2.1 Review of Related Literature 13

CHAPTER 3 RESEARCH METHODS 31

3.1 Research Design 31

CHAPTER 4 RESULTS AND DISCUSSION 37

4.1 Presentation of Data 37

CHAPTER 5 SUMMARY, CONCLUSIONS,

Curriculum Vitae (one page per author)

Table 1. Summary of Responses in the Questionnaire 45

Figure 1. Outsourcing Process and Its Effect to a Company’s Profit

Appendix I. Questionnaire Items

Appendix II. Sales Report of Healthmax Care Enterprises Corporation

medium enterprises. Outsourcing has improved the flexibility, quality and

efficiency of a company especially departments in marketing, manufacturing,

human resource, customer service, and IT.

projects and may have clashing conceptions, etc.

Previous empirical evidence shows a negative conclusion between outsourcing and

outsourcing on firms’ operational performance, the research revealed that there is

will perform an empirical research to perceive the effects of outsourcing to a

Healthmax Care Enterprises Corporation is a trader of health and beauty products

and uses outsourcing to maximize the company’s resources.

identifies the effects of hiring an outsource to do some in-house jobs of Healthmax

Care Enterprises Corporation to see whether be it profitable or unprofitable to the

1.2 Research Problems and Objectives

The main objective of this research is to identify the effects of outsourcing

in Healthmax Care Enterprise Corporation’s profitability that has been outsourcing

for seven years.

In accordance to that, the following questions stated below will be

1. What is the significance effect of outsourcing on the company’s

2. What are the problems and coign of vantage of outsourcing in

Healthmax Care Enterprise Corporation?

3. Is Healthmax Care and Enterprises, Corp. stable enough to

continue its service without the assistance of outsourcing?

In addition, it also aims to:

1. know if outsourcing has a great effect in Healthmax Care Enterprise

2. identify the problems or advantages brought by outsourcing in

3. Healthmax Care Enterprise Corporation and;

4. know if Healthmax Care Enterprise Corporation still need to

guide the researchers during the research process.

1. The respondents are from Healthmax Care Enterprises Corporation;

2. The respondents must be part of the outsourcing;

3. The respondents from the study willingly answered the researchers’

4. The participants will provide forthright statement of their

1.4 Significance of the Study

manufacturing company assigns the operation of their business functions to

of outsourcing in Healthmax Care Enterprises Corporation. The results of this

research may be beneficial to: