Title: THE IMPACT OF COST REDUCTION ON PROFITABILITY OF
MANUFACTURING COMPANIES IN HARGEISA SOMALILAND.
Authors: Maxamed Hassan Muhumed
Cabdirizaq Mohammed Ahmed
Whatsapp number: 0633818818
Gmail: moh09152269@[Link]
CHAPTER THREE: RESEARCH DESIGN
Introduction
This chapter presents Area description the research design, the research population, and the
sample size, sampling procedures, research instruments, validity and reliability of
instruments, data gathering procedures, data analysis, ethical considerations.
3.1 Area description
The manufacturing industry in Hargeisa, Somaliland, is the main focus of this study, with
special attention paid to three manufacturing companies: ILO-TANGO, Sagal Jet, and U
Fresh. These businesses, which are important participants in Hargeisa's expanding industrial
scene, were specifically picked because they are pertinent to the study's focus on the
connection between profitability and cost-cutting strategies.
Based on their organizational structures, the variety of their production activities, and the
presence of important departments directly involved in cost and profit management, these
three manufacturing companies were chosen. The study focuses on branches where cost
control procedures are most likely to directly affect the overall profitability of the business.
The Finance Department, Sales and Marketing, Human Resources, Production and
Processing, Quality Control, and Product Development are among them. These divisions are
essential for operational and strategic decision-making in areas like workforce management,
production efficiency, budgeting, and product quality—all of which have an impact on
profitability.
As Somaliland's capital and a significant commercial center, Hargeisa offers an ideal setting
for manufacturing operations. It supports a variety of industries, including printing,
packaging, and the processing of food and beverages. This diversity is reflected in the chosen
businesses: Sagal Jet focuses on packaging and printing, U Fresh produces food and
beverages, and ILO-TANGO is renowned for its general manufacturing capabilities. This
diversity guarantees that the research captures a wide view of how cost reduction strategies
are applied across different manufacturing domains.
These companies were selected for accessibility and data availability because they keep
sufficient records of their operational and financial performance. Additionally, their corporate
culture encourages transparency and scholarly research, which makes it easier to gather
accurate and legitimate data. The companies' internal departments and processes are well-
defined, enabling focused data collection on profitability and cost control metrics.
55 people in total, including middle management, senior administrators, and support staff, are
involved in this study across the three companies. Using Slovene's formula, a sample size of
48 respondents will be chosen from this population. A balanced representation from all
pertinent departments will be guaranteed by the sampling. Budgeting, production supervision,
procurement, sales forecasting, quality assurance, and other positions that impact cost-related
choices and financial results will be among the respondents.
These businesses serve as a practical field for researching how cost reduction techniques are
used in the real world and are a microcosm of Somaliland's larger manufacturing sector. They
are perfect for examining how cost control techniques are being applied to improve financial
performance because they are susceptible to typical manufacturing issues like shifting input
prices, labour costs, operational inefficiencies, and market competition.
In conclusion, this research area offers a rich, contextual environment for analysing how well
cost-reducing measures work to increase manufacturing industry profitability. By specialising
on ILO-TANGO, Sagal-Jet, and U-Fresh, the study is based on real-world business
procedures and incorporates input from seasoned staff members who actively manage and
control expenses on a daily basis.
3.1.1 Variables definition/Operationalization of Variable
Cost Reduction Techniques a set of practices or strategies a company implements to decrease
its overall expenses. This can be measured this using a score derived from a survey
completed by company management.
The survey would assess how well the companies implement various cost reduction
techniques. Examples include waste reduction, process improvement, and supplier
negotiation.
The score would be a weighted average of the implemented techniques, with weights
reflecting the potential impact on cost reduction. For instance, a technique with a high
potential impact (like waste reduction in a manufacturing setting) would get a higher weight
than a technique with a potentially lower impact (like switching to a different brand of office
supplies).
Profitability the ability of a company to generate profit, measured as the difference between
total revenue and total expenses. This can be measured using the company's net profit margin,
calculated by dividing net profit by total revenue, net profit and revenue data can be obtained
from the company's financial statements.
3.2. Research Method
We will use mixed approach- both qualitative and quantitative research approaches, due to
increase of validity and reliability of research so the variable of the research is partially
numerical and non-numerical. Research approach is what determines which approach that the
researcher uses. So that the researcher’s research approach is mixed of numerical and non
numerical data. That is why the researcher has used this method. Mixed approach combines
both qualitative and quantitative, qualitative approach deals with the subjective assessment of
attitudes, views and behaviors of the respondents while, quantitative approach is used to
measure by numbers, ratios and percentages (Sajjad, 2016).
3.4. Sample design
3.4.1. Population
Mugenda and Mugenda (2003) defined population as a set of people, services, elements, and
events, group of things or households that are being investigated. This study will be
conducted in manufacturing firms of Hargeisa and therefore, the population of this study will
be included the support staff, middle managers and administrators from the three
manufacturing firms in Hargeisa. This population is chosen because of having adequate data
concerning cost reduction and profitability trends in the organization (Human resource
Manual for the Manufacturing organizations). The targeted population for the research
constituted ILO-TANGO, Sagal-jet and U- fresh Manufacturing companies especially
departments which were directly linked to cost control, which are Finance, Sales and
Marketing, Human Resource, Production and Processing department, Quality control and
Product and development department.
3.4.2. Sample Size
Part of the target population (or accessible) population that has been procedurally select to
represent it. Although the number of populations was known the sample size and isn't
necessary to draw sample size because its accessible and interview every one of these target
population (Alvi, 2016).
The target populations for this study will be selected from manufacturing companies in
Hargeisa Somaliland and then the sample size will be respondents. The sample size will be
determined by using Slovene’s formula.
n=
N
1+Ne2
Where:
N = Total population
n = Sample size
e = is the confidence level at 0.05 Substituting into the formula
55
n= 1+50(0.05)2
55
n=
1+50(0.125)
55
n=
1.125
n= 48
The target populations for this study are 55 from some selected manufacturing companies in
Hargeisa Somaliland and the sample size will be 48 respondents only.
3.4.3. Sampling Techniques
According to Sekaran (2003), sampling is the process of choosing the research units of the
target Population, which are to be included in the study. The study used simple random
sampling during the process of data collection from the study respondents. The study applied
purposive sampling technique because it gave all the people the chances of being selected.
Simple random sampling was used to select all the study respondents during data collection
process in the study area.
3.5. Data sources
We have gathered information through both primary and secondary sources to ensure a
comprehensive analysis, drawing on a wide range of data to provide a well-rounded
perspective.
3.5.1. Primary source
This enables the researcher to attain information from the field. Data collection in this case
was done through the use of questionnaire. Data was collected from people's opinions, ideas
through questioning and interviewing the study respondents.
3.5.2. Secondary Data Sources
Secondary data comes from information that has already been collected, analyzed, and
published by someone else for purposes other than the current research. Here's a broad
overview of secondary data sources related to cost reduction and profitability Financial
Reports: Companies often publish detailed financial reports that include information on their
cost structures, revenue streams, and overall profitability.
These reports are valuable secondary data sources for understanding how cost reduction
strategies impact financial performance over time.
Industry Publications: Journals, magazines, and trade publications within specific industries
may contain articles, case studies, or analyses related to cost reduction initiatives and their
effects on profitability. These publications provide insights into industry trends, best
practices, and successful cost-saving strategies implemented by companies.
Academic Research: Academic journals and research papers contribute to the body of
knowledge on cost management and financial performance. Scholars conduct empirical
studies, meta analyses, and literature reviews to explore the relationship between cost
reduction techniques and profitability in various contexts.
3.6 Data collection instrument
3.6.1 Questionnaire
A questionnaire was the instrument used for data collection. The questionnaires preferred for
this study because they will enable the researcher to reach a larger number of respondents
within a short time, thus making it easier to collect relevant information. The first section in
the questionnaire will be the face sheet, to collect data on the profile of respondents. The
second section in the questionnaire will cover cost control, and the third section of the
questionnaire will have questions on the profitability of manufacturing firms.
All the questions will be Likert-scaled on four points, ranging from 1 = strongly disagree, 2 =
disagree, 3 = agree, and 4 = strongly agree. The questionnaires will contain close-ended
questions to collect quantifiable data relevant for the precise and effective correlation of
research variables. They will also be preferred to save time, enabling respondents to easily fill
out the questionnaires and keep them on the subject and relatively objective.
3.7. Data Presentation
Tools The researcher has presented the data using charts, figures, and other statistical tools
derived from the study. Additionally, the researcher has used it after the data is collected from
the study area, the variables under this study and the result has presented in tables for an easy
interpretation.
3.8 Data Analysis and Interpretation
To analyze objectives of the data the researcher has chosen descriptive analysis especially
bivariate analysis for quickly examining the relationship between each cost reduction
technique and profitability.
It allows the researcher to focus on the direct association between the variables (cost
reduction techniques and profitability without the complexity of analyzing multiple variables
simultaneously. This approach can provide valuable insights into the effectiveness of cost
reduction techniques in impacting profitability.
The researcher has presented and analyzed the data using Excel and SPSS, the researcher
likely chose Excel and SPSS for data analysis due to their Flexibility, commonly used, and
strong. analytical capabilities. Excel is commonly used for basic data manipulation and
visualization, while SPSS is preferred for more advanced statistical analysis and modeling.
Their combined functionalities likely offer a comprehensive toolkit for analyzing various
aspects of the data efficiently.
3.9 Ethical Considerations
In this study the researcher kept on the ethical issues through the research project by keeping
the privacy, confidentiality and anonymity of respondents. To maintain ethical issue, the
researcher has requested from companies’ administration the permission to distribute
questionnaires to their employees telling them that the information will be used only for
academic purpose. The researcher kept the privacy, confidentiality and anonymity of
respondents. In addition, no participant’s name was mention to keep anonymity and any
result from any respondent wasn’t shared with anyone else.