Mediating Role of Risk Management and Profitability of Manufacturing Firms

Abstract

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.

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

“…Such contradictions leave management with mixed feeling about its application. However, other scholars propose risk management as a key strategy to influence profitability of manufacturing firms [41], [57], [47], [18], [38], [48], [29]. With these direct strategies determining firms' profitability performance, lays a ground to slot in interactive effect among these strategies to see if profitability can be achieved through mediation since mediation studies pays vital role [6], [62], [4], [8], [1].…”

“…This notion is supported since risk management enables firms to measure and quantify risks detrimental to their financial performance [31], [50], [61]. This approach is equally useful for manufacturing firms since managing risks would enable them to breakeven and hence profitability [38]. The discussion above demonstrates use of multiple strategies to directly enhance profitability of firms without considering mediation effects among established strategies.…”

“…This slogan has forced management of manufacturing firms to be more innovative to adopt strategies that are superior to encounter their business rivals and survive economic meltdown. Researchers have established that outsourcing and risk management directly influence profitability of many companies [1], [2], [63], [20], [11], [38], [23]. Profitability is a key measurement indicator for firms' financial performance that many scholars are arguing manufacturing firms to pay attention to it [41], [5], [2], [14], [55].…”