Business and Economics Journal

Risk Management Mediates the Relationship between Outsourcing and Profitability of Manufacturing Firms

Abstract

Noah Mwelu*, Susan Watundu and Musa Moya

Over decades, manufacturing firms are struggling to remain competitive in an intense manufacturing industry. The struggle is due to increasing manufacturing companies dealing in similar or related products. Given the competitive dynamics in the manufacturing industry, firms are proactively searching for viable strategies to ensure profitability and survival. Scholars and management have jointly conducted studies to find amicable strategies influencing firms’ profitability. Whereas various studies have been conducted on profitability, majority of these studies were concerned with strategies directly influencing profitability with little attention on the mediating role of other strategies. Specifically, little is known on mediation studies in manufacturing industry. Despite strategies directly influencing profitability being established, firms’ are in receivership with several kicked out of business indefinitely. This study bridges the gap by considering the mediating role of risk management on outsourcing and profitability of manufacturing firms. A cross-sectional research design was adopted. Specifically, a partial mediation approach was adopted following Baron and Kenny mediation guidelines. Results from Med-Graph and Sobel tests proved that risk management significantly mediated the relationship between outsourcing and profitability (Sobel Z-value=3.441, p=0.002). Hence, firms are encouraged to embrace mediation strategies in ensuring profitability and survival in the competitive environment.