salman danish 1457 (thesis proposal)

8/6/2019 Salman Danish 1457 (Thesis Proposal)

1/21

Business Opportunities & Financial Outsourcing in Pakistan:

Communication Gap

A thesis submitted

by

Salman Danish

to

Department of Business Administration

In partial fulfillment of the requirement for the

degree of

MASTER OF BUSINESS ADMINISTRATIONin

Finance

This thesis has beenaccepted for the

FACULTY OF BUSINESS ADMINISTRATION

by:

Name of Chair Chair

Name of Advisor Advisor


2/21

Business Opportunities & Financial Outsourcing in Pakistan:Communication Gap

CHAPTER 1

INTRODUCTION

Nowadays, there is a recession in almost every economy. There are many reasons

behind it including bad economic situation of Pakistan, but the most important is the

financial crises of the world due to Sub Prime Crises. Due to the same, organizations

now emphasizing on developing an active sourcing strategy, making a combination of

internal team having assistance from external workforce, via outsourcing and

developing a relationship as helping each others. This step of tactical advancement is

made expedite by making cutthroat pressures and indistinctness. This paper is to

examine the outline of sourcing strategy, which has been grown by making various

societies, groups or forums, and the forms of strategic advantage that have been

realized so far by those sourcing strategies. Despite the advantages realized, in the

most of the societal strategy supervision are found to be casual and the traditions of

these societies, groups of forums found opposing to further outsourcing. In previous

era, Volks Wagon also decided to outsource a few of its operations, as mentioned by

Horngren, Foster (Datar; 386), VW has completely outsource manufacturing to a

team of carefully selected supplier-partner in a radical experiment in production

operations. But the future growth and success of outsourcing, is mostly in the

services of firms, and not completely in the products. Those service providers are

commonly based on Non-Producing Operations of the Organization, and cover

various departments within an organization. Non-productive operations that are

usually outsourced to third party service providers may include;

1


3/21


HR Operations:

Recruitment process

Appraisals

Counseling, Coaching & Mentoring

Training and Development

Selling & Distribution:

Marketing

Selling

Distributors

Agencies

I.T. Operations:

Hardware Maintenance

Software Maintenance

Database Backups

Data Compliance, Confidentiality & Security

Disaster Management & Recovery Plans

Accounting & Finance:

Taxation

Audit

Controls

2


4/21


Planning & Reviews

Book Keeping & Account Finalization

Looking towards the Financial Institutions providing a vide range of services to their

clients. There are following various modes of outsourcing and is carried in variety of

areas that include:

1. Tax Advisors

a. Tax Deductions

b. Tax Appeals

c. Tax Hearings

2. Filing of Returns

a. Income Tax

b. Sales Tax

c. Federal Excise Duty (FED)

d. Custom Duty

3. Audit coordination

4. Internal Audit

5. Basic book keeping

6. Accounts finalization

These are the ground outsourcing areas in financial sector of an economy. And in

order to maintain a balance between the financial operations and outsourced

3


5/21


entities, organization must review the operational framework (Terms of Reference)

to avoid a Communication Gap.

1.1 Background

This dissertation endeavors for identification if there is a communication gap between, what

an organization expects from an external firm and what an external firm believes in providing

the services to the outsourcing organization.

1.1.1 Contextual Frame

Despite some negative perceptions regarding the outsourcing industry in Pakistan,

various organizations are now looking towards finding a way thru which they can

minimize their expenses and can have an expert view over to their non-operational

divisions, with high concentration over to the core operational activities. Based on the

current economical situation, organizations tend to hire the external accounting &

financing service providers, which can only provide organizations what they are

looking for, having an expert view on accounting & financing operations as well as

saving time and money of the principal organization, which results in relaxation for

principal organizations for concentrating in their core activities.

1.1.2 Problem Identification/ Statement

The basic problem faced when a corporate is outsourcing a division to a third party,

especially when it is finance division, is when third party restricts itself from engaging

into various activities through signing a specific Term Of Reference (TOR) for the

4


6/21


assignment. However the Organizations that are outsourcing their departments to third

party service providers, assume that all the obligations of department or division are

held upon the third party service provider.

1.2 Purpose of the Research/study

The objective of this dissertation is to identify the business opportunities and financial

outsourcing in Pakistan with overview of the communication gap.

1.3 Research Questions

The current dissertation is going to focus over below mentioned questions:

Is the proposal of outsourcing gaining the same results as required when

starting the relationship?

Is your leading team for outsourcing fully employing the tools in the

workplace that are required for an effective management of the relationship?Is there any change of regulatory environment that has brought your

organization at stake for the outsourcing efforts?

Is there any surety for the integrity of the operations of your firm from the

service providers?

1.4 Justification/ Significance

To identify and govern the policies that can effectively work in the favor of both

organizations. And to create a balanced link between the outsourcing operations

within the scope as agreed between the two.

1.5 Scope

(1.4 and 1.5 can be combined as one heading)

1.6 Delimitation of research

5


7/21


1.7 Definition of key words

6


8/21


CHAPTER 2

LITERATURE REVIEW

Outsourcing is defined as the process of getting goods manufactured or getting

services from an external party rather than producing the goods or getting services

from within the same Organization. Today outsourcing is considered as the best mean

for both reducing costs and achieving strategic aims.

Outsourcing has various benefits despite to the fact that there are also some demerits

attached to it. The main risk involved in outsourcing is that in outsourcing,

organizations have to share their products, services or any other confidential data with

the outsourcing agencies and have to leave them in the hands of someone who is

beyond their control. Various ethical issues and general practices are at hand here,

like trust worthiness.

In the past few years, outsourcing has become more popular in small and medium

business and organizations. "Outsourcing is becoming popular even in small and

midsize companies. Nowadays, a small business may not have staff members such as

Human Resources recruit. As the Internet transforms the way businesses

communicate with their clients, vendors, and employees, many of these functions are

being handled by outsourcers." Because of the popularity in small and medium sized

businesses, and even large corporations, the popularity graph of outsourcing is on

upward trend. Now market giants are also emphasizing on outsourcing tactics for

various divisions of their core operational or non-operational activities. As an

example, IBM and Compaq are the two giants in computer manufacturer & assembler,

and are drawing attention to use outsourcing to overcome the storage problems. "IBM

7


9/21


and Compaq are offering distinctly different models, however. Compaq rents storage

hardware and software that are kept on the customers' premises. The service is

tailored to IT managers wary about giving up control of their storage," (Lelii).

Another example for market giants is of Volkswagen Company. "VW has completely

outsourced manufacturing to a team of carefully selected supplier-partner in a radical

experiment in production operations."

The future of outsourcing is mostly in the services of firms, and not completely in the

productive operations. Another way of outsourcing that is showing a fast growing

energy is offshoring, i.e., getting products or services from producers or service

providers residing in any other country and not where the outsourcing firm is located.

Many giant corporations are tending to achieve strategic efficiency by offshoring

basic transaction processing or call centers like service help lines. For example,

Deloitte estimates that US Financial services industry will offshore US$356 billion inthe next five years after 2003. The Financial Institutions are providing a vide range of

services to their clients not only in Pakistan but in other countries around the world.

There are following various modes of outsourcing and is carried in variety of areas

that include:

1. Tax Advisory

a. Tax Deductions

b. Tax Appeals

c. Tax Hearings

2. Filing of Returns

a. Income Tax

b. Sales Tax

8


10/21


c. Federal Excise Duty (FED)

d. Special Excise Duty (SED)

e. Central Excise Duty (CED)

f. Custom Duty

3. Audit coordination

4. Internal Audit

5. Basic book keeping

6. Accounts finalization

These are the few sectors of Pakistan economy that are highly emphasizing on the

outsourcing of their financial & other operations:

Textiles and Garments

In the Textile and Garment sector of Pakistan, outsourcing is seen to be an active part

of business processes. Textile & Garment sector of Pakistan is now heavily

emphasizing on outsourcing their financial operations to well known and reputable

third party service providers, resulting in highly cost control due to this outsourcing as

well as getting higher level of expertise in routine tasks of the organization. Due to

the outsourcing of financial operations, Organizations are now at ease to emphasize

their expertise in their production or development area.

Cement Sector

In the Cement sector of Pakistan, outsourcing is seen to be an active part of business

processes. Cement sector of Pakistan is now emphasizing on outsourcing their

financial operations to well known and reputable third party service providers,

9


11/21


resulting in highly cost control due to this outsourcing as well as getting higher level

of expertise in routine tasks of the organization. Various Cement producing

Organizations are now saving huge amount through reduction in layers in hierarchy of

Finance / Account Division, and are now moving towards better profitability.

Due to the outsourcing of financial operations, Organizations are working for the

enhancement of their production capacity and their production activities. New

researches are also carried out in the area of Cement sector, coming up with a variety

of new products that include Grey Cement, White Cement, Hi-Bonds, Tile Adhesives,

Sealers, Sealer Cements and many more of the same kind.

Financial Institutions

Various Financial Institutions including; Non Banking Financial Corporations

(NBFC), Commercial Banks, Development Financial Institutions (DFI), Leasing

Companies, Saving Institutions, Assets Management Companies, Insurance

Companies, and many more are also looking forward for hiring services from third

party service providers for their specialized working areas like SOPs, Equity trades,

Lending & Borrowings, Asset Management, Projections, Estimations and many more.

Currently, Financial Institutions in Pakistan, are hiring various professional

organizations, a few of big names providing these services in Pakistan are: A. F.

Ferguson, Ford Rhodes Sidat Hyder, KPMG Taseer Hadi, Anjum Asim Shahid

Rehman & Co., JSF Consulting Private Limited, TAG Consulting Private Limited,

and many more.

10


12/21


IT Based Service Centers (Call Centers, Service Centers, Software Houses &

etc.)

It is a surprising but a ground reality that I.T. based services sector has not shown a

remarkable progress in Pakistan, particularly when it is compared with India.

Currently there is an un-established industry in Pakistan, a few call centers are still

working in Pakistan, opened by financial institutions or some overseas Pakistanis, and

almost all of them are contributing towards the outsourcing factors of financial sector.

Foreign investment in Pakistan

A large number of Multinational organizations are operating their businesses in

Pakistan for around thirty years or some more. But no any new or remarkable entry

has been reported in Pakistans market. These Multinationals are currently covering

these industries: Cement industry, Textile sector, Oil & Gas exploration / refinery /

marketing, Electrical equipments, FMCG, & other consumables, Medicines &

Medical equipments, and Chemicals etc. These Multinationals are also now trying to

remain in competition by emphasizing on their core operations, after outsourcing the

non-operational activities considered as fat of the organizations.

11


13/21


CHAPTER 3

METHODOLOGY

Chapter 3 portrays the assurance of the methodology exercised for collection of data

for investigation and ensures the pursuance of proper procedure thereon. This chapter

is systemized with the help of nine headings arranged as: Introduction, objective,

research design, research purpose, and selection of sample, research instrument,

validity and reliability, process of data collection, data analysis technique.

3.1 Introduction

The aim of this chapter is the provision of an overview for the methodological

approaches and research design that can be selected for relating to a study on the

factors of Financial Outsourcing in Pakistan (Communication Gap). In the exploration

of the phenomenon of these outsourcing, the dissertation shall investigate the effect of

Communication Gap on the Financial Outsourcing, in the various sector contributing

towards the economic growth of Pakistan and seek to answer whether or not the

communication gap discussed herein, can be overcome. In the light of different

literatures reviewed, the market leaders are capable of overcoming the above cited

gap, and there is a possibility of joint efforts contributing towards the economical

growth as One Nation. A proposal for implementation of the guidelines and rules &

regulations for the service providers of Pakistan shall be proposed, followed by the

analysis of secondary data extracted by conducting Group Discussions, Interviews,

Open Forums and working with the Chartered Accountants of Pakistan, and then the

proposal shall be defended through empirical evidence.

12


14/21


3.2 Objective

The objective set for the present paper is to classify the Business Opportunities &

Financial Outsourcing in Pakistan (Communication Gap).

3.3 Research Design

According to Beiger and Gail (1996) the research design is the systematic fine points

of the dissertation with the help of which, data collection is carried, and its aim is to

define the set of methods and procedures that assists in testing the research hypothesis

and with a degree of confidence. In this study the data collected from various sources

was used as substantiation in decision making and testing hypothesis. Gay and Peter

(2000) had provided four types of research design mentioned below:

Descriptive Research Design

Correlational Research Design

Causal-comparative Research Design

Experimental Research Design

3.3.1 Descriptive Research Design

It involves collecting data in order to test hypothesis or to answer questions about the

opinions of people on particular issue. It is also called Survey design.

3.3.2 Co-relational Research Design

Involves collecting data to determine whether and to what degree a relationship exists

between two or more variables. The degree of expression is expressed as co relation

coefficient.

13


15/21


3.3.3 Causal-comparative Research Design

This involves selecting two groups differing on some independent variable and

comparing them on some dependant variable. These two groups are known as

experimental and control groups.

3.3.4 Experimental Research Design

Involves an experimental study in which at least one independent variable is

manipulated and other relevant variables are controlled and effect is observed on one

or more dependant variables.

The research design used in the current dissertation belongs to the co-relational

research category. The variable types are dependant and independent. Different tests

were use to measure the relationship between the dependant and the independent

variables.

The research design aimed to ensure that the obtained results were due to the factors

under study and not to extraneous or irrelevant factors. It helped in achieving greater

accuracy in the results and increased confidence in outcome of the research.

3.4 Research Purpose

Research scholars have identified three main purposes to the research activity. These

are the exploratory, the descriptive and the explanatory purposes (Saunders et al.,

2000).

3.4.1 Exploratory

Exploratory research unfolds through focus group interviews, structured or semi-

structured interviews with experts and a search of the relevant literature (Saunders et

14


16/21


al., 2000). Its primary purpose is the exploration of a complex research problem or

phenomenon, with the objective being the clarification of the identified complexities

and the exposition of the underlying nature of the selected phenomenon. In other

words, and as Robson (2002) explains, exploratory research investigates a specified

problem/phenomenon for the purpose of shedding new light upon it and,

consequently, uncovering new knowledge.

3.4.2 Descriptive

Punch (2000) explains the purpose of the descriptive research as the collection,

organization and summarization of information about the research problem and issues

identified therein. Similar to the descriptive research, it renders complicated

phenomenon and issues more understandable. Danes (1990) definition of the

descriptive research and its purposes coincides with the stated. Descriptive research

entails the thorough examination of the research problem, for the specified purpose of

describing the phenomenon, as in defining, measuring and clarifying it (Dane, 1990).

Jackson (1994) contends that all research is partly descriptive in nature. The

descriptive aspect of a research is, simply stated, the (1) who, (2) what, (3) when, (4)

where, (5) why, and (6) how of the study.

3.4.3 Explanatory

Miles and Huberman (1994) define the function of explanatory research as the

clarification of relationship between variables and the componential elements of the

research problem. Explanatory research, in other words, functions to highlight the

complex interrelationships existent within, and around, a particular phenomenon and

contained within the research problem (Miles and Huberman, 1994). Expounding

15


17/21


upon this, Punch (2000) asserts that explanatory, or causal research, elucidates upon

the nature of the problem under investigation and explains the basis for the proposed

solution. It is an explanation of the complex web of interrelated variables identified

and follows directly from a clearly stated central research hypothesis and research

question.

The research purpose of current dissertation is explanatory as the primary goal is to

identify the impact the relationship of dependant and independent variables.

3.5 Selecting a Sample

Selection of sample is a very important step in conducting a study because the quality

of the sample determines the generalizability of the results. A primary characteristic

of good sample is the degree to which it is true representative of the population from

which it was selected Gay & Diehl (1992).

Sampling technique can be classified into two types

Probability Sampling

Non-Probability Sampling

3.5.1 Probability sampling

In probability sampling, selection of the sample is based in a way that each individual

in the population has an equal chance of being selected. It is this concept of "known

chance" that allows for the statistical projection of characteristics based on the sample

to the population Gay & Diehl (1992). As an advantage of probability sampling,

sampling error can be calculated easily. Sampling error is the degree to which a

sample may differ from the population. Probability method includes.

Random sampling

16


18/21


Stratified sampling

Cluster sampling

Systematic sampling

3.5.2 Non-Probability Sampling

In non-probability sampling, the selection of the sample carried in a way that the

chance of being selected for each individual from the population is unknown. Indeed,

the selection of the subjects is random or subjective, as the researcher relies on his/her

experience and judgment. Resulting in, no statistical techniques for the measurement

of sampling error, and the degree to which the sample differs from the population

remains unknown and therefore it is not appropriate to project the sample

characteristics to the population (Saunders, 2000). Non-probability includes:

Convenience sampling

Judgment sampling

Quota sampling

Snowball sampling

3.5.1.1 Random Sampling

In the process of sample selection, the sample is drawn in a way that all the

individuals are from defined population and have an equal and independent chance of

being selected. It is the best single way to obtain a representative sample.

In the current dissertation the random sampling method is obtained and is employed

over the various organization representing different sectors of Pakistan.

17


19/21


3.6 Measuring the validity and reliability

In order to reduce the possibility of getting incorrect answers, attention needs to be

paid to validity and reliability (Saunders et al., 2003).

3.6.1 Validity

Validity is concerned with whether the findings are really about what they appear to

be about (Saunders et al., 2003).

Validity defined as the extent to which data collection method or methods accurately

measure what they were intended to measure (Saunders et al. 2003)

(Yin, 1994) states, no single source has a complete advantage over all others

3.6.2 Reliability

According to Saunders et al. (2003), reliability means the degree to which the

methods of collecting data will provide steady findings, consistent observations would

be found or end results reached by other researchers or there is precision in how sense

was made from the raw data.

The role of reliability is to minimize the errors and biases in a study [Yin (1994)].

This means that reliability is to ensure that during the operations of the study, all the

times the data collection is processed; it will be repeated with the same result.

Saunders et al. (2003) asserts that there may be four threats to reliability. The first of

these is subject of participant error, which means that a questionnaire may generate a

different result at different times of the week. The second threat to reliability is

subject or participant bias, which is when interviewees may have been saying what

they thought their bosses, wanted them to say. Third, there may have been observed

error that different interviewer may approach the questions in different ways. Finally,

18


20/21


there may have been observer bias, which means that there may have been different

approaches to interpreting the replies.

The work on this thesis started with a considerable literature study. The literature

came across (research papers) was from several authors and most of them covered the

Financial Outsourcing and had a great coverage for the communication gap

mentioned in the Thesis Paper, which meant that the covered area of the topic has

been taken in the lights of these papers. It is therefore suggested that bias, form

reading only one author and reading only about one topic, assured and held at a

minimum level.

3.7 Data Selection

The data selection is the significant part of the methodology, in current dissertation

the data of various organization involved in the business of third party accounting

service provider as well as from various organizations who outsourced their functions

and had variety of experiences based on to these outsourcing.

3.8 Data Collection

The data collection is based on the interviews with third party service providers

(especially Chartered Accountants), Heads of different Organizations (who have

outsourced their operations), Group discussions, Counseling sessions with working in

outsourcing.

19


21/21

salman danish 1457 (thesis proposal)

Documents