Abstract

This study examined the effect of outsourcing on capital structures of Igara Growers Tea
Factory (IGTF). A conceptual framework was developed about outsourcing functions. The
findings of this research will be useful to the government agencies, private sector
foundations for example Uganda National Chamber of Commerce among others to evaluate
the roles of outsourcing on Tea factories. The findings will also help business stakeholders
on how to manage their financial performances on the decision to outsource and finally the
study will also help future researchers as a reference on similar studies. Simple random and
purposive sampling techniques were used to select the respondents. Cross sectional and
descriptive research designs were used in the study to collect data from the field. Qualitative
and quantitative approaches were also used. The results from this research showed that the
organization outsources quality resources with high efficiency level; the outsourced human
resource, machinery and other inputs help to improve productivity and improves service
delivery a prerequisite for capital development. 99% of the respondents agreed that
outsourcing helps an organization to improve and create more capital for the factory. The
researchers found out that Igara Growers Tea Factory outsources from members when they
buy shares. These shares form “owners’ equity” and they greatly improve the capital
structure of the business. On the same issue 98% of the respondents agreed that outsourcing
helps to increase owner’s equity of the factory. The researchers found out that Igara Grower’s
Tea Factory cannot provide / produce all the required resources to effect production.
However, when they outsource, they are able to contract external suppliers and service
providers to improve and sustain production. Through the interviews with some
respondents, the researchers found out that outsourcing is a strategic management skill
where non-core functions but which functions are vital in the production process are
outsourced from specialized and reliable service providers so that organizations perform best. For example the researcher found out that procurement of firewood, computer and general equipment repair and servicing in Igara Grower’s Tea Factory is outsourced from external sources to improve performance and service delivery. It was found out that outsourcing has reduced overhead costs in Igara Growers’ Tea Factory because it is cost effective and certain costs like depreciation maintenance of equipment and machinery among others are then met by contractors / external service providers while Igara Growers Tea Factory concentrates on core production areas. The results showed that outsourcing increased the capital structure of the factory of IGTF. In conclusion, the results from this research showed that outsourcing improved the capital structure of the factory of IGTF.