Factor affecting the decision on outsourcing accounting tasks of SMEs in Hanoi

MSc. Nguyen Tra My (International School, Vietnam National University, Hanoi)

This study aims to identify factors affecting the decisions to outsource specific accounting tasks of Small and Medium - sized Enterprises (SMEs) in Hanoi, Vietnam. A quantitative descriptive research design was adopted whereby a questionnaire was designed to gain information about outsourcing intensity of SMEs in Hanoi and factors that may affect their outsourcing practice following the Transaction Cost Economics (TCE) model. The result of the regression analysis showed that only three out of six independent variables had significant impact on accounting outsourcing decisions of SMEs in Hanoi, namely asset specificity, environmental uncertainty, and trust of CEO in external accountants. This study contributes to the literature regarding outsourcing practice of SMEs in developing countries and application of TCE model in explaining outsourcing decisions of service functions.
Keywords: Accounting outsourcing, SMEs, strategic management, competitive advantage.

1. Introduction

In the wake of a rapidly developing economy that is Vietnam, outsourcing has become a strategic choice of businesses to enhance their competitive advantage (Click and Duening, 2004). Outsourcing refers to contracting out business processes to a third party, which inevitably involves the transfer of specific responsibility whilst the enterprise focuses on their core businesses (Dorasamy et al, 2010, p.40). Hines and Rich (1998) studied the Japanese giant car manufacturer, Toyota, and claimed that “outsourcing” - or leveraging of knowledge and skill - has proven to be the “holy grail” of strategic management. An exploratory study conducted by Jayabalan et al (2009) showed that many small and medium-sized enterprises (SMEs) are at risk of significant monetary losses due to unqualified staff, especially accounting personnel. This study aims to identify factors affecting the decisions to outsource specific accounting tasks of SMEs in Hanoi, Vietnam. Existing research has studied outsourcing in various areas such as IT (Willcocks and Lacity, 2001), HRM (Gilley et al, 2004) but has paid limited attention to the accounting area. This paper is a contribution of knowledge in the field of accounting by investigating the decision drivers of outsourcing accounting tasks of SMEs in Hanoi. The remainder of this paper consists of 4 parts: Literature review, Methodology, Findings and Discussion, and  Conclusion.

2. Literature review

Quandt (2012) found that for a specific accounting task, the cost of an internal accountant compared to that of an outsourced accounting service provider is ten-fold. The cost of accounting can be strategically minimized by utilizing computerized software and external support such as outsourcing. Previous studies state that outsourcing accounting tasks help simplify the administration work, create flexibility in management and operation, which in turn enhances business efficiency (Bendor-Samuel, 1998; Krell, 2007). “Asset specificity” has been identified as a critical driver of outsourcing decisions of SMEs (De Vita et al, 2010, Aubert et al, 2004, Lamminmaki, 2005). One of the most fundamental theories used by researchers to approach the phenomenon of outsourcing is Transaction Cost Economics (TCE) first introduced by Coase (1937) and has been one of the most widely-used frameworks in studies of outsourcing decisions (Klein, 2005). The theory states that the concept of transaction costs is critical for understanding of decision to outsource or internalize of organizations. According to TCE theory, two major factors creating transactional difficulties are bounded rationality and opportunism. According to Williamson (1985), transaction difficulties and associated costs are more likely to increase when transactions are characterised by asset specificity (transactions requiring high investments which are specific to the requirements of a particular exchange relationship); uncertainty (ambiguity as to transaction definition and performance); infrequency (transactions which are seldom undertaken). By examining several studies applying TCE model, Anderson and Gatignon (2008) found that both asset speci?city and behavioral uncertainty are significant in explaining outsourcing production activities. Widener and Selto (1999) examining outsourcing of the internal audit function found that both asset speci?city and frequency have substantial impact on the outsourcing decision of firms. Besides, study of Kamyabi (2011) about accounting outsourcing in Iranian SMEs found that asset specificity is negatively associated with outsourcing intensity. Hafeez (2013) also found that that several factors including frequency of routine tasks and non-routine tasks, environmental uncertainty, asset specificity, behavioral uncertainty, have an important impact on management accounting outsourcing. A review of prior literature has aided in collating the following conceptual framework: (Figure 1).

Conceptual Framework
Conceptual Framework

3. Methodology

A quantitative descriptive research design was deemed appropriate for this study (Babbie, 2002), whereby a questionnaire was designed to gain information about outsourcing intensity of SMEs in Hanoi and factors that may affect their outsourcing practice on the basis of TCE model. Based on previous studies, independent variables, dependent variables and control variables were identified and research questions were developed. The questionnaire was divided into three main parts. The first section was background information of participants and their company including gender, educational level, experience, firm age, firm size. The second section examined influential factors of outsourcing practice in SMEs in Hanoi. The last section sought information related to outsourcing intensity of companies. An online questionnaire-based survey was conducted designed and sent to 250 SMEs in Hanoi. A total of 119 answers were received with response rate of 47.6 percent. However, only 117 questionnaires with effective response rate of 46.8 percent of the total questionnaires were valid and used for further analysis. The questionnaire is considered reliable with a Cronbach’s Alpha coefficient of 0.865 (greater than 0.6). All 7 variables (V1 to V7) are considered strong and valid through Factor Analysis which shows a total variance of 25,114% and Varimax Rotation with extraction of 8 factors with eigenvalues greater than 1, which explained 73.61% of the underlying factors that influence outsourcing practice of SMEs.
Dependent variable: Outsourcing intensity (V1)
Regarding the annual accounting process in a company, there are four major tasks: (1) entry of invoices and Financial transactions; (2) preparation of an interim pro?t and loss account (such as monthly pro?t calculation); (3) period end accounting (such as depreciations, interest accruals); (4) preparation of ?nancial statements (balance sheet, profit and loss account, notes to financial statements) (Everaert et al., 2010). Thereby, in order to measure outsourcing intensity of these accounting tasks the measurement developed by Kamyabi & Devi (2011) on a 7-point Likert type scale was used in this study in which respondents were asked to indicate the level of accounting tasks being outsourced for each item with 1= not outsourced to 7= totally outsourced.
Independent variables: Asset specificity (V2), frequency (V3), environment uncertainty (V4), behavioural uncertainty (V5), trust of CEO in external accountants (V6), accounting competence (V7) (Everaert et al., 2010; Kamyabi & Devi., 2011)
Control variables: Firm size, firm age, education level, experience (Kamyabi and Devi, 2011).

4. Findings and Discussion

* Descriptive analysis
A descriptive analysis of independent and dependent variables shows an output as presented in Table 1:

Descriptive analysis of research variables

Particularly, means of outsourcing intensity are 2.5 for routine and 2.8 for non-routine accounting tasks. When enterprises go further in the accounting process from entry of invoices towards more judgmental tasks such as period-end and financial statements, the level of outsourcing intensity increases. Specifically, the mean levels of outsourcing for entry of invoices, interim reporting, period-end and Financial statements are 2.35, 2.64, 2.76, and 2.93 respectively. Examining independent variables, the table shows that frequency of accounting tasks has the lowest mean which is 3.82, while mean values of other variables are relatively high from 4.14 to 5.59. This indicates that the levels of asset specificity, behavioral uncertainty, environmental uncertainty, trust in the external accountants, accounting competence are relatively high. In addition, it can be seen from Table 1 that, mean values of all variables are higher for non-routine accounting tasks than for routine accounting tasks.

* Regression analysis
The multiple regression analysis was conducted to identify factors influencing accounting outsourcing decisions of SMEs in Hanoi. Specifically, the study aims at measuring the impact on outsourcing practice of 6 independent variables. Furthermore, impact of five control variables were also examined to provide a comprehensive understanding of factors affecting accounting outsourcing decisions of SMEs in Hanoi. Table 3 shows the output of F-test to help determine whether the overall regression model is a good fit for the data.
The results of the regression analysis showed that only three out of six independent variables had significant impact on accounting outsourcing decisions of SMEs in Hanoi. Particularly, asset specificity and environmental uncertainty significantly associated with outsourcing intensity of routine accounting tasks while trust of CEO in external accountants is positively associated with outsourcing intensity of both routine and non-routine accounting tasks. Regarding specificity of accounting tasks, the research results proved that there is a significant positive relationship between the asset specificity and outsourcing intensity of routine accounting tasks. This means that the more specific the routine accounting tasks to a firm, the more intensely these tasks will be outsourced. Although it is contrary to results of many prior studies of Everaert et al. (2010), Steven et al. (2009), Alvarez-Suescun, (2010), this finding confirms result of another study on outsourcing intention of enterprises in Vietnam conducted by Le et al. (2017). Although there is a large number of business institutions and university in Hanoi providing thousands of accounting graduates every year, these accountants may not be able to handle complicated routine accounting tasks. For that reason, even if SMEs in Hanoi can access to human resources with relatively low salary and outsourcing accounting tasks which require special knowledge relating to the firms may be costly, most SMEs prefer to outsource their routine accounting functions rather use internal accountants.
Furthermore, the results of regression analysis also supported that trust of managers/owners of SMEs has a positive significant relationship with outsourcing intensity of both routine and non-routine accounting tasks of such enterprises. In other words, the higher the level of trust in external accountants, the more intensely the accounting tasks will be outsourced. Previous studies supported this finding include studies of Kamyabi and Devi, (2011), Everaert et al. (2010). In the cultural context of Vietnam, trust can be considered a critical factor in business relationships. For that reason, most business transactions and associations are based on trust between parties, especially when an enterprise decides to outsource their accounting tasks. This cultural preference may be explained by the characteristics of collective society of Vietnam, where people value trust in one another. Therefore, this study supported that the trust of CEO of SMEs in external accountant is a significant factor in accounting outsourcing decisions.
The results also found strong evidence supporting that environmental uncertainty is negatively associated with outsourcing intensity of routine accounting tasks. In other words, the higher the environmental uncertainty regarding routine accounting tasks, the less likely they will be outsourced. This finding is supported by Lamminmaki (2008), Kotabe and Mol (2009). However, two recent studies carried out by Kamyabi and Devi, (2011) and Everaert et al., (2010) found no evidence to support this finding. However, it is implied from the results of regression analysis that there is no difference in outsourcing practice of accounting tasks in SMEs with owners/managers of different ages, educational levels, experiences and different firm age, firm size.

5. Conclusion

This study is the first research investigating factors influencing outsourcing intensity of accounting tasks of SMEs in Hanoi. In fact, previous research conducted in the context of Vietnam has not examined this specific issue. The research placed a considerable emphasis on the developing economy of Vietnam where SMEs are not yet fully modernized and facing problems of limited resources. Therefore, the study contributes to the literature regarding outsourcing practice of SMEs in developing countries and application of TCE model in explaining outsourcing decisions of service functions. Especially, the empirical findings of this research contribute to the understanding of outsourcing practice of accounting functions of SMEs in context of Vietnam.

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Khoa Quốc tế - Đại học Quốc gia Hà Nội


Nghiên cứu này nhằm xác định các yếu tố ảnh hưởng đến quyết định thuê ngoài các hoạt động kế toán cụ thể của các doanh nghiệp vừa và nhỏ (SMEs) tại Hà Nội, Việt Nam. Nghiên cứu này đã sử dụng phương pháp nghiên cứu mô tả định lượng và một bảng khảo sát nhằm thu thập mức độ thuê ngoài hoạt động kế toán của các SMEs tại Hà Nội và các yếu tố có thể ảnh hưởng đến hoạt động thuê ngoài này theo mô hình Lý thuyết chi phí giao dịch (TCE). Kết quả phân tích hồi quy cho thấy chỉ có 3 trong số 6 biến độc lập có tác động đáng kể đến quyết định thuê ngoài kế toán của SMEs tại Hà Nội, gồm tính đặc thù của tài sản, sự không chắc chắn về môi trường và sự tin tưởng của CEO đối với các kế toán viên thuê ngoài. Nghiên cứu này đóng góp vào các tài liệu về hoạt động thuê ngoài của các doanh nghiệp vừa và nhỏ ở các nước đang phát triển và áp dụng mô hình TCE trong việc giải thích các quyết định thuê ngoài của các đơn vị chức năng dịch vụ.
Từ khóa: Thuê ngoài kế toán, doanh nghiệp vừa và nhỏ, quản lý chiến lược, lợi thế cạnh tranh.