Outsourcing

Latest revision as of 11:12, 1 March 2021

Outsourcing is a concept that stands for a larger company that employs a smaller company generally abroad to complete a specific activity that was traditionally performed internally by staff in the Danish company. The article focuses on outsourcing within the construction industry, where the advisers in the Danish companies share work with a foreign company. Today, outsourcing became very common in several work areas. In Danish engineering companies, outsourcing agreements are used primarily due to financial pressure from competitors in the market in order to save costs, where collaboration and communication are largely digital. Here we will examine the advantages and disadvantages of outsourcing abroad. The advantages are generally cheaper labor, where the disadvantages may be in the quality of material. Many of the Danish engineering companies outsource to countries such as Bangladesh, the Philippines and India where the time difference between countries can be one of the size challenges as working hours are different. Danish companies believe that outsourcing has been successful, as they can see the efficiency of the delegated tasks.

[edit] Big idea

Outsourcing is a strategy companies use, where a company hires a small company to be responsible for a specific task, which is generally performed internally within the company. Globalization can provide very large economic savings from cheap labor, which can be an important motivation for outsourcing. But one must always be aware that there can be many challenges. “The current challenge experienced by the AEC industry with relation to the use of BIM is the lack of standards for the software or its use. Without a standard for the software there are communication problems… The lack of usage standards affects the communication between the different employees and their managers. Each uses the tools as they think best but may end up disagreeing when integrating them as part of the whole project.” (Brogan et al., 2010) Companies outsource both to subsidiaries abroad and to external companies. Many Danish companies started by renting an office space abroad and employ people who need to understand how to make projects in Denmark. It is a little easier for Danish companies to get into an existing organization that has been around for many years. According to Smith & Furneaux, (2013) there are three main reasons for outsourcing, which are described in the quote below: "There are three main reasons why an organization outsources: because another organization can provide the good or service more cheaply, to cover peak demand periods, or as a result of a strategic assessment of the core business of the organization." (Smith & Furneaux, 2013)

[edit] Application

The global development and in construction projects in Denmark increased after the financial crisis in 2007-2009, when the growth in construction started and both construction and renovation took place all over Denmark. Housing, metro, motorways and hospitals were built, where competition between companies became very great and common. This development and competition has given rise to other tools for companies to meet their financial expectations. Many Danish engineering companies believe that globalization opens up opportunities and challenges. Therefore, outsourcing was explored as one of the tool options. Danish engineering companies outsource to complete the company's financial expectations and this is due to financial pressure from competitors in the labor market. In addition, some companies need scars reducing the number of full-time employees in Denmark, where today many engineers in Denmark fear losing their jobs due to outsourcing. The Danish engineering association IDA in 2018 has conducted a survey amongst the 80 top managers in Denmark. The survey shows that 18 percent of the 80 Danish top managers expect to outsource tasks to foreign engineers during 2018 and this is due to the lack of qualified labor in Denmark. Many Danish companies have chosen to outsource their material to countries such as India, China, Ukraine, Bangladesh, the Philippines and Romania in order to achieve lower prices and better quality. Communication between the partners takes place through social media such as Microsoft Teams, E-mail, Zoom and Skype these programs are used to communicate together. “The use of electronic building models means that communication over long distances is no longer a barrier to the distribution of work. In this sense, BIM facilitates increased outsourcing and even globalization… that were previously the domain of local subcontractors and manufacturers. ” (Eastman et al., 2011, p.327) Outsourcing agreements help companies to do well in their organization and reduce skills shortages and those between large companies to bid on larger projects. In addition to this, many of the consulting engineers have problems finding permanent solutions or under time pressure on other projects, and to solve the problem cheaply, they choose and send the tasks abroad. Other companies send the easy and clear tasks within design which in turn can cost many hours in the preparation. Many companies believe that there is a shortage of people who are good at Revit in Denmark and therefore outsourcing is an opportunity to expand at a better price. In addition, the need for cost minimization, speed and flexibility. “Current technologies have radicalized the way many industries and companies operate. Digitization of information and computing related technologies have changed the way data is gathered, stored, updated, reused and shared. This is no different for the AEC industry. Although 3D design is not new, simultaneous utilization of several technologies like voice over internet protocol (VOIP), cell phones data capabilities, the Internet, databases, and computer software for design & scheduling have allowed for projects to be built more efficiently, in consequence faster and cheaper than ever before. ”(Brogan et al., 2010) Danish companies are aware of which material they want and outsource, as calculation tasks can be very complex, and here they become difficult to find errors. Complexity is another issue that can affect the outcome of outsourcing decisions. … The more complex an outsourcing decision is, the harder it will be to specify all of the details in a contract, to anticipate all of the potential problems, and to know when something has gone wrong. ”(Smith & Furneaux, 2013) The hourly wage is significantly lower than abroad than in Denmark and they have made Danish companies outsource to countries such as India, where an engineer who is just as well educated as the Danes under a third in salary as the Danish engineer. According to Smith & Furneaux, it is: “… Is because the other firm can deliver the same good or service for less cost. There are many reasons why this may be so:… the other firm may have lower labor costs, perhaps because it operates from another country with different labor laws… ”(Smith & Furneaux, 2013) Companies in Denmark believe that they can win more projects by developing the company's competitiveness by reducing the price of projects where the quality must be high or earn more on projects by outsourcing some of the work. Geographical locations of the partner are an important factor companies need to be aware of for how work processes work. Outsourcing to European countries has been much better than outsourcing to Asia as European countries have the same mentality as in Denmark and therefore have given better value.

[edit] Limitations

Organizations that know their challenges and keep an eye on what is a successful organization. Successful organizations are able to effectively and efficiently identify the risks that directly influence goals and objectives. The challenge for most organizations is making the best use of resources by focusing on the right risks. This depends on the characteristics of the organization, its environment, internal maturity, culture, and strategy. Determining the most impactful risks can be difficult. Organizations develop and improve by refining the processes for risk prioritization. (The Standard for Risk Management in Portfolios, Programs, and Projects)

[edit] Language barriers

The language barrier can also affect work processes in a negative way and reduce efficiency, therefore is chosen by countries that can speak English at a high level and in an easy-to-understand way is an important perimeter when outsourcing abroad. Countries such as India and Vietnam where employees speak a slightly different English than here in Denmark, where accent and dialect have created misunderstandings, where it has been difficult to understand each other purely linguistically.

[edit] Time zone

The time zone difference is an important factor to be aware of, as a big difference can create many challenges, especially if you outsource to Asia or the USA. The same time zone also means the same working time, in contrast to if you outsource to Asia as the time difference is large, so only when the employees here in Denmark go home do the employees take over work from Asia. The employees in Denmark who work with outsourcing to countries such as India, the Philippines, Vietnam will have to work in the evenings sometimes to talk to each other.

[edit] Culture

The cultural difference between Europe and Asia has created many work problems, as the employees in Asia have a hard time accepting that the employees in Denmark can also make mistakes, where it becomes very reluctant to ask.

[edit] References