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SMEs turn to outsourcing to survive Covid disruptions

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SMEs turn to outsourcing to survive Covid disruptions


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An Uber Eats cyclist pedals his bike after picking up food for delivery at Chicken Inn, Kenyatta Avenue. FILE PHOTO | NMG

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Summary

  • Firms have been forced to make quick changes in the way they deliver services and interact with their customers in line with the advisory to reduce social contact.
  • Logistics remains the most outsourced service among the businesses interviewed at 65.5 percent followed by branding personnel at 64.8 percent and ICT (61.3 percent).
  • Kepsa survey: The prime reasons to outsource are a lack of internal competencies, focus on core business, lower costs and greater flexibility.`

When Kenya recorded its first positive case of the Covid-19 in March last year, firms were forced to make quick changes in the way they deliver services and interact with their customers in line with the advisory to reduce social contact.

Services firms took their business online, while those dealing in physical goods had to invest in last-mile delivery infrastructure to serve their housebound customers.

The result was the adoption of remote working and outsourcing of services, opening new opportunities for the information communication and technology (ICT) and logistics sectors. In the past 15 months, they have been among the most vibrant in creating new startup opportunities.

Courier

A courier truck on Kimathi Street in Nairobi. A new survey by Kepsa has revealed that logistics services are some of the most sought after by SMEs since the outbreak of the virus. FILE PHOTO | NMG

A new survey by the business lobby Kenya Private Sector Alliance (Kepsa) shows that ICT experts and logistics personnel are, therefore, the most sought after by small and medium enterprises (SMEs) since the outbreak of the virus.

The survey was done jointly with the Ajira Digital Programme, a joint initiative of the ICT, Innovation and Youth Affairs, Public Service and Gender, Education and Foreign Affairs ministries, which trains young Kenyans in digital skills and connects them to online jobs. The survey targeted 322 small businesses in 29 counties with a response rate of 79 percent.

“The prime reasons to outsource are a lack of internal competencies, focus on core business, lower costs, and greater flexibility. It is also undertaken to accelerate a business change (business restructuring) due to their status of keeping fixed costs (of staff/technology) lower and controlling the risk of goods or services availability on time and budget,” says Kepsa in the Outsourcing Barometer Survey.

Some 24 percent of the businesses surveyed said they outsource driven by the need to increase efficiency, followed by 20 percent whose staff lack the capacity for particular tasks and 17 percent outsource in a bid to cut costs.

Logistics remains the most outsourced service among the businesses interviewed at 65.5 percent followed by branding personnel at 64.8 percent and ICT (61.3 percent).

Scores of staff, especially those in services that require minimal face-to-face interactions continue to work from home and this has ramped up demand for teleconferencing platforms and Internet connections.

Companies have since set up remote working platforms or strengthen the existing ones, increasing the need for ICT support services. However, firms cited security and confidentiality of information and affordability as major challenges in outsourcing ICT services.

Trading firms such as supermarkets have also scaled up home deliveries for their customers, increasing the need for logistics services and couriers for customers keen on having products delivered at their doorstep.

SMEs spend between Sh100,000 and Sh500,000 a month for outsourced ICT services and logistics personnel and services, making them the highest paying of all outsourced professionals.

“The highest proportion of businesses paying above Sh100,000 being those seeking services on ICT/IT systems set-up (development and support) at 10.5 percent followed by those seeking transport and logistics (10.3 percent),” said Kepsa.

However, outsourced services for office deliveries and messengers top the list of those taking home the lowest pay per month.

The survey shows that 56.9 percent of small businesses spend less than Sh50,000 per month to outsource messengers and office delivery service providers, followed by logistics at 51.7 percent and accountants (47.1 percent).

Low budget

Kepsa attributed the low budgets on office deliveries and messengers to a range of factors including low demand and low quality of the services.

“The low budget towards outsourcing confirms that these services are either provided at small-scale, providers are underpaid, or they are not provided to the levels expected hence only attracting low costs to the businesses,” said the report.

Overall, 44.4 percent of the businesses surveyed said they spend less than Sh50,000 per month to outsource services, followed by those spending between Sh50 000 and Sh100,000 at 8.7 percent.

Only 1.4 percent of respondents said they spend between Sh500,000 to Sh1 million per month on outsourcing services, while 1.1 percent spend more than Sh1 million.

Kepsa, however, says the number of businesses outsourcing remains low as a percentage of total SMEs in Kenya, which goes to show the scope of growth of this line of business remains high going forward.

“The rate of usage of outsourced services is significantly low, with a majority of the businesses using the outsourced services either several times per quarter or on a monthly basis,” the lobby said.

The low penetration of outsourcing has also been attributed to the gaps in policies to guide how firms can tap external workers to deliver services and products.

This is especially the case for sectors, which have trade unions that sometimes see outsourcing as a threat to jobs and a way out for companies to avoid paying fair wages.

There have also been questions over the rights accruing to outsourced staff, especially those from third-party companies.



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