- Accounting Outsourcing for Vietnamese Small and Medium-Sized Enterprises and Its Theoretical Background. - Outsourcing has emerged in the 1980s and has become a popular and effective management tool not only for large companies, but also for small and medium-sized enterprises (SMEs) because it could help SMEs focus on its core competencies and confront their competitors within their limited resources. - In reality, SMEs in Vietnam, they are a core economic component, accounted for more than ninety percent of the total number of enterprises in Vietnam but face a number of resource constraints, typically is constraint in accounting functions. - This study would explore the advantages and disadvantages of accounting outsourcing activities of SMEs in Vietnam based on two background theories: Transaction Cost Theory (TCE) and Resource – based View (RBV). - The study supports the tendency of accounting outsourcing for SMEs in Vietnam when they want to focus on promoting their internal competencies but lack of internal resources. - Future research for deeper understandin g of accounting outsourcing are also discussed in this paper.. - Keywords: Transaction cost economics, Resource-based view, Accounting, Outsourcing, Vietnam. - Outsourcing accounting for SMEs in Vietnam. - Small and medium-sized enterprises (SMEs) play a very important role in the economy of any country, including developed or developing ones. - But it is quite difficult for SMEs in recruiting high quality accountants due to the lack of their internal resources in many aspects (training opportunity for employees, low financial budget, time pressure…).. - In order to overcome the constraints on resources, outsourcing is a strategic solution for SMEs. - Outsourcing researches have been carried out in large enterprises (Li et al., 2008), and there are also a number of studies that focus on SMEs (Everaert et al., 2010. - Shina et al., 2011). - In any economy, SMEs are core economic components but also face a number of constraints, especially in the context of resource constraints (Everaert et al., 2010. - Shina et al., 2011).. - This study selected SMEs in Vietnam as research objective for the following reasons:. - Firstly, SMEs are the mainstay of the economy, accounting for 97% of the total number of enterprises. - Thirdly, long- term outsourcing will be an important strategic tool for SMEs to promote their internal capabilities and external resources.. - Starting from the issue of SMEs in terms of financial resources and human resources, the study found that many SMEs find it difficult to find good people in charge of accounting due to resources constraints. - Advantages and disadvantages for SMEs in accounting outsourcing. - Devi (2011) identified some main advantages and disadvantages of accounting outsourcing as the following:. - Access to professional service: in limited conditions, consulting and accessing professional services from accountants or accounting professional providers could permit business in lowering costs compared to do it internally due to the scale of economies (Jayabalan et al., 2009).. - Cost reduction: reducing cost is one frequent reason for accounting outsourcing. - It helps business to reduce many types of employment and administrative costs (Everaert et al., 2010). - Focus on core competences and innovation: In operating a business, many types of supporting activities are called non-core activities besides main activities in running business such as accounting, IT, human resource management, and logistics….Many studies provided evidences that outsourcing practices permit company to concentrate and focus on their core activities and do it in a more creative way, shift to innovation (Gilley et al., 2004b. - Gooderham et al., 2004).. - Loss of Internal Expertise and Skill: A key disadvantage of outsourcing practice is that it leads to a loss of opportunity to train and develop internal expertise and skills (Everaert et al., 2010). - Loss of Management Control: When firms outsource their functions to external service providers, they may lose control of the process and the outcome to an external service provider (CIMA, 2008).. - Doubtful Cost Savings: It is not cost-saving when SMEs may suffer from low quality output by external service providers who have low knowledge of the activities and the firms. - It is also important to consider the transaction costs in dealing contract, monitoring the performance, and connecting with external providers (Everaert et al., 2010). - In total, these added charges may cause outsourcing practice being more costly and it may not meet the goal of cost-cutting (Everaert et al., 2010).. - Risk taking: Sometimes, advantages may become disadvantages, when you outsource some functions, your employees have no chance to be trained in an in-house training ground, and it can not be a source of competitive advantage in the future (Everaert et al., 2010. - Outsoucing, especially outsource finance and accounting functions, it cause the risk of violating the confidentiality of the company. - Transaction Cost Economics. - Transactional Cost Economics (TCE) was first published the article “Nature of the Firms” (Coase, 1937) and the author received the Nobel Prize in Economics in 1991 for this project. - TCE perspective suggests that firms are existed and organized in order to minimize transaction costs (Lamminmaki, 2007) and a firm has tendency to seek to balance transaction cost and production costs when it decides to internalize (insource) or externalize (outsource) activities or functions transaction (Jiang et al., 2007).. - Transaction cost economics (TCE) is important for understanding the effect of different types of costs in the business (Williamson, 1983. - Kang et al., 2009). - This theory becomes the standard theoretical framework for explaining why some SMEs transfer accounting functions to external accountants, and hiring professional accountants in reducing costs and it can explain how are transaction cost handled? (Carey et al., 2006,. - Everaert et al., 2010). - TCE is also used to explain the economic efficiency achieved when accountants provide professional services to the firms (Carey et al., 2006).. - The biggest purpose of accounting outsourcing is to maximize the cost savings while improving the quality of accounting information. - Outsourcing is also the tendency that shows the specialization in the doing businesses.. - Resource-based View. - Barney (1991) is considered one of the pioneers for Resource-based View. - In order to implement such strategies, enterprises need to have resources to ensure some basic conditions of the VRIN standards as follows: valuable, rare, can not be completely imitated and no substitution.. - Daou et al., 2013). - Kamyabi and Devi, 2011, Daou et al., 2013) in analyzing the shortage of SMEs. - In the time of intense competition, small businesses must be proactive in seeking to reduce costs and create new opportunities by making the most of the support of external resources.. - (Sinha et al., 2012). - RBV is the theoretical basis for SMEs in outsourcing accounting functions and handling financial information of enterprises (Gooderham, 2004). - TCE argues that outsourcing will help SMEs save costs rather than trying to do it themselves in a limitation of capacity both in scale and experience (Gilley et al., 2004b). - In the same view, Melvor (2009), Everaert et al. - (2010), also stated that "outsourcing is a powerful means of cutting costs, improving performance because we do not have to invest more in equipment or hire more staffs” (Jiang et al., 2006).. - For example, General Anderson signed a contract with Arthur Anderson worth up to $ 335 billion (in dollars annually) to handle annual transactions and saved 60% of the cost. - This paper has only reviewed some main points related to accounting outsourcing for SMEs in general and for Vietnamese SMEs in particular. - For further study, it is necessary to explore the motivations for SMEs to choose outsourced solutions for their accounting works.. - Theoretical model could be built on the integration of Transaction Cost Theory (TCE), Resource-Based Management (RBV) to understand factors influencing accounting outsourcing decisions.. - Journal of Management Accounting Research . - Investment Carey, P., Subramaniam, N., &. - Finance and accounting outsourcing. - The nature of the firm. - Intellectual Capital In Mexican SMEs From The Perspective Of The Resource-Based And Dynamic Capabilities Views. - The Journal of Applied Business Research – November/December 2013. - Everaert, P., Sarens, G., &. - Using Transaction Cost Economics to explain outsourcing of accounting. - Gilley, K., McGee, J., &. - Journal of Small Business Management . - N., Tobiassen, A., Doving, E., &. - Jayabalan, J., Raman, M., Dorasamy, M., &. - Outsourcing of Accounting Functions amongst SME Companies in Malaysia: An Exploratory Study.. - Journal of Operations Management . - International Journal of Operations &. - An Empirical Investigation of Accounting Outsourcing in Iranian SMEs: Transaction Cost Economics and Resource-Based Viesws.. - Outsourcing in Australian Hotels: A Transaction Cost Economics perspective. - Journal of Hospitality &. - empirical evidence from alliances in China”, Journal of Operations Management, Vol. - Lowe, P., &. - Marriott, N., &. - How the transaction cost and resource-based theories of the firm inform outsourcing evaluation. - Journal of Operations Management, 27, 45-63. - The impact of the global crisis on SME and entrepreneurship financing and policy responses.Centre for Entreprenuership, SMEs and Local Development.. - Facilitating offshoring with enterprise technologies: reducing operational friction in the governance and production of services. - Finance and Accounting Outsourcing: The Solution for the New Economy. - A Resource-Based View of the Firm
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