Background of the Research
Discuss about the Challenges and Opportunities of the Construction Industry in Abudhabi7.
Background of the Research
The construction industry of the United Arab Emirates experienced a major downfall during 2009 followed by the Global Financial Crisis as well as the Dubai World debt crisis. As a result of this a numerous planned projects were cancelled or kept on hold. However, the economy of UAE developed gradually with the aid of higher revenues from the gas and oil prices during the time period 2008-2014, the flourishing tourism industry as well as the significant expansion of the industry sectors (Rui et al., 2016). By the end of 2012 the consumers again gained their confidence level and the price level of the real estate assets increased again. Overhead expenses can be regarded as the ongoing costs accrued by a business in order to operate effectively and these costs are quite different for the construction firms as compared to any other firms operating in other industries. The nature of the construction works, relationship between the independent contractors, rigorous changes in the work location and the associated labor cost makes the industry completely different from the other industries (Ibeh, 2018). Now as the construction industry of Abu Dhabi is experiencing a tremendous growth and advancement presently, it would certainly try to determine certain plausible way outs through which it can curtail the cost. This is to reduce the cost of production and thereby increase the level of profit. This research work will focus on the key strategies which are generally adopted by the construction industries in order to reduce the overhead cost. This will also evaluate the suitability of outsourcing as a strategy for reducing the overhead cost of the construction industry.
Aim of the Research
The broader aim of this research work is to identify the suitability or usefulness of outsourcing as a measure to minimize the overhead cost of the construction industry of Abu Dhabi.
Objectives of the Research
The objectives of the research can be stated as follows,
- To develop a broader understanding about the overhead cost in the context of the construction industry.
- To outline the strategies adopted by the construction industry to minimize the overhead cost.
- To develop a better understanding of the outsourcing activities in the context of the construction industry of Abu Dhabi.
- To examine the appropriateness of the using outsourcing as strategy of reducing overhead cost.
Research Questions
The research questions which are designed in accordance with the research objectives are stated as follows,
- What is overhead cost in construction industry?
- What are the strategies to reduce the overhead cost of construction industry?
- What is outsourcing in the construction industry?
- How efficiently outsourcing can reduce the overhead cost in construction industry?
Research Rationale
As presently the construction industry of UAE is booming and so is the case for the construction industry of Abu Dhabi as well. Henceforth, in order to sustain in the competitive business environment the businesses are willing to reduce the overhead cost and thereby increase profitability. As a result of this the organizations operating in the construction industry are hustling to determine plausible strategies through which the overhead cost can be reduced. In such a case determining the appropriateness of outsourcing as a strategy to reduce the overhead cost can be considered as a major issue of research. The justification behind the research work is if the firms operating in the construction industry of Abu Dhabi find that outsourcing is a plausible method for reducing the overhead cost, they would be able to enhance their profitability. Furthermore, as this specific industry sector is experiencing significant growth at present it has become necessary to shed light on this specific issue.
Aim of the Research
Concept of Overhead Cost in Construction Industry
Number of accepted definitions of overhead cost are available across the scientific literatures available worldwide. The most suitable definition in the context of construction industry has been obtained. As pointed out in that definition, overhead costs can be characterized as the costs which are essentially not a major component of the actual construction work but accrued by the contractor in order to support the work (Kabi et al., 2017). In general the project contractor’s overhead cost is divided into two subparts which are company’s overhead costs and project overhead costs. The project overhead costs ate the expenses which are not charged directly to specific branch of the work but are inevitable to continue with the construction project. On the other hand, company’s overhead costs which is also known as the general overhead costs is defined as the cost which is associated with the successful operability of the business or the fixed expenses which are essentially needed to be accrued by the contractor (Modarress et al., 2016).
Analogically the company’s overhead cost in the context of a construction company represents the items that portrays the cost of carrying out the business effectively and are considered as the fixed expenses for the company. The general and Administrative functions such as the Finance and Accounting, Human Resource, Purchasing and procurement, Information technology and the Legal Services are included within the overhead costs. The overhead costs associated with the construction company directly projects its management system, arrangements of the business activities, management systems and allocation of the available resources and facilities. The structure of the overhead costs in the context of the construction industry can be represented with the help of the figure below,
In accordance with the figure above it can be stated that the overhead cost of a construction company can be classified into mainly four categories which are expenses of head office that includes the cost associated with building facilities, utilities, and clerical as well as the other fees and taxes (Hussain et al., 2015). The expenses of common transport which includes the cost of amortization, fuel and rental, salaries of the head office employees and finally the proceeded taxes.
Strategies for Minimizing the Overhead Cost
The overhead cost minimization strategies are generally adopted by the organizations to reduce the extremely high expenses associated with the management systems and thereby increasing the competitiveness of the organization. Since the past few years most of the global organizations have adopted different strategies of restructuring so as to cut the overhead costs (Mazzola et al., 2015). These restructuring methods include the reengineering of the business process, strategic outsourcing and shared services. Generally the cost optimization process of a construction company can be stated as follows: the real estate organization of the company, redesigning its administrative structure or sometimes altering the entire management system of the company.
Objectives of the Research
Figure 1: Optimization Techniques of Overhead Costs
(Source: Al Jeaidi et al., 2016)
For each company the optimization methods can be defined individually in alienation with the operational conditions as well as the other important factors within or outside the organization. The management structure of the organization and the administrative costs associated with it can be reduced significantly with the help of restructuring and reorganizing the strategies (El-Sayegh and Al-Haj, 2017). Selecting the proper strategy and implementing the strategy in the organization is quite a difficult task, which in resolution in most of the cases requires the engagement of professionals from the genre of strategic management. Generally a new system of management is created which is comprehensible and transparent to all the employees within the organization (Behery et al., 2014). After carrying out the administration audit the possibilities of the new structural operations are assessed which are,
- The employee workload flow redistribution
- Assigning the exact job
- Establishing a stronger subordination and accountability
- Disestablishing a few specific job positions and replacing those with outsourcing.
- Attracting the highly qualified professionals
While minimizing the overhead costs the organizations should try to take into account the possibilities of reducing the cost associated with advertising and research before anything as these are the costs which can be reduced immediately (Kuwaiti et al., 2017). Outsourcing the services and sharing of the services are identified as the two most frequently applied methods for reducing the overhead costs due to the restructuring of the business process of the organization. The shared service model is considered as another effective method for reducing the overhead cost. Majority of the long term gains is achieved in most of cases when the organizations operational efficiency is achieved when the business organizations redesign the business processes so as to implement fundamental changes in the work process (Issa, 2015). Moreover, it can also be observed that the largest expenses are generally incurred by the organization for its employees. Hence a significant reduction in the overhead costs can be done by reducing the number of people employed within the organization or reducing the staff hour or restricting overtime.
Outsourcing in Construction Industry
Previously outsourcing was mainly concerned or synonymous with managing the technical infrastructure of the organization. Presently, outsourcing is considered more like a method of contracting. Whittaker (2015), defined outsourcing as a simple strategic decision through which goods and services from the independent organizations can be obtained from outside the legal boundaries of the company. Through this the company makes purchase of various goods and services rather that manufacturing or performing them. The construction companies have always performed these outsourcing activities for years (Cugurullo, 2018). The traditional construction companies have labelled a few business processes such as payrolls, administration, human resources as the in house functions while the Construction Project Management companies generally outsource these non-core business functions.
Research Questions
In order to develop a broader understanding about the significance of outsourcing in the construction management companies it is essential to get acquainted with the drivers of outsourcing. The key drivers of outsourcing are stated one by one below,
Driven by Organization: The organizations assume that outsourcing may enhance the effectiveness and improve flexibility which helps the organization to amalgamate the changing business environment. It is further pointed out by You (2016), that outsourcing can transform the traditional organizational culture and thereby increase productivity as well.
Driven by Financial Benefits: Liquidation of the asset based investments while facilitating the cash flow and generate cash by transferring assets to the partner involved in outsourcing.
Driven by Cost: Utilizing the outsourcing partner’s enhanced and efficient performance the outsourcing farm can reduce its costs.
Reduction in the Cost of Operation: The construction companies which are self-dependent and try to carry out all the activities on themselves incurs significantly higher research, development and deployment expenses all of which are again passed on to the clients (Chakravarty, 2016). The lower cost structure of the outsourcing partner which may be because of the increased economies of scale or the advantage of specialization reduces the operating cost of the company.
Outsourcing as a Strategy of Minimizing the Overhead Cost
It has been observed that presently, numerous organizations operating in the corporate real estate industry have accepted the fact that outsourcing can be regarded as the most efficient service delivery model. The key advantage of outsourcing is that it significantly reduces the risk, increase and improve productivity and reliability as well. It has also been observed that in most of the cases where outsourcing have succeeded it was mainly because of its ability to industrialize the assets, functions and capabilities (Chakravarty, 2016).
A larger portion of the construction companies are shifting towards outsourcing comes from the need of reducing the overhead costs. Outsourcing possesses an effect on the bottom line of the business if it is managed properly. Henceforth the management of the construction companies resort to outsourcing activities in order to reduce the overhead cost and as per the previous research works outsourcing can significantly reduce the overhead costs. This is because the outsourcing partner’s low cost structure as well as the economic benefits may allow the company to accrue the necessary resources at a much lower cost. Therefore it can be stated that outsourcing is an efficient strategy of overhead cost minimization.
Research Rationale
Research methodology helps the reader to develop a better understanding about the pattern and flow of the research work. Once the reader is through the research methodology chapter he or she will be able to know about the steps and frameworks applied for successfully carrying out the research work.
Research Approach
A research work may rely on a number of different research techniques which are positivism and interpretivism. However, in the context of the preset research work a pragmatic research technique will be used to achieve the expected research outcome. The pragmatic research technique is a combination of both positivism and interpretivism (Taylor et al., 2015). Positivism emphasizes on the graphs, charts, data and facts associated with the topic. On the other hand, interpretivism concentrates on the emotional responses of the participants of the survey. Therefore this research technique will help to investigate the nooks and corners of the specified research topic.
At the other end of the spectrum, there are mainly two types of research approaches which can be taken into account. These are namely the inductive research and deductive research. Inductive research is used when a new theory or concept is being developed through the research. This will allow the future researchers to make use of the theory or concept developed in the research work. In this case the researcher can use the ideas and concepts of the previous researches but should give rise to a completely new theory of framework. The deductive research approach is used when the theories and concepts which are being used in the current research work were developed earlier. In such a case the researcher make use of the previously proposed theories and models to deduce the research outcome (Mackey and Gass, 2015).
The current research work will follow deductive research approach and the opinions of the previous researchers will be used along with the feedback of the people involved in the construction industry.
Research Design
There are mainly two types of research design which are exploratory research, explanatory research and descriptive research design. In the context of explanatory research work the researcher does not possess a predesigned hypothesis. In such a case the researcher who is carrying out the research work continues the research work as the data is retrieved while carrying out the research (Lewis, 2015).
Exploratory research mainly focus on continuing the research work while taking into account that the happening around the world is because of the laws of nature.
Literature Review
This research work will take into account descriptive research design where the hypothesis will be designed from the beginning. The researcher will take help of the secondary and primary data to substantiate the hypothesis.
Sampling Methods
Mainly two types of sampling methods can be used for carrying out a specific research work. These are probability sampling and non-probability sampling. The probability sampling is used in the context of researches in social science and in this case the exact number of participants are not known from the beginning of the research (Flick, 2015). There may be a handful of respondents or a huge number of respondents in this case. On the other hand, as in the case of present research work 35 employees of the construction industry will be interviewed along with 5 managers and hence in this case non-probability sampling will be used.
Data Collection Method
In order to complete the research work primary and secondary data will be used. The primary data will be collected through a primary survey where people will be provided with questionnaire with multiple choice questions. On the other hand, the secondary data will be collected with the help of reviewing journal articles, case studies.
Data Analysis
The primary data will be analyzed through Microsoft Excel and descriptive methods will be used to represent the attributes of the variable. On the other hand, the secondary data will be analyzed through thematic analysis framework.
Reference List
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Chakravarty, S., 2016. TRADITION AS EVENT: IMAGINED PASTS IN ABU DHABI’S URBAN FORM. Traditional Dwellings and Settlements Review, 28(1), pp.45-45.
Cugurullo, F., 2018. Exposing smart cities and eco-cities: Frankenstein urbanism and the sustainability challenges of the experimental city. Environment and Planning A: Economy and Space, 50(1), pp.73-92.
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Flick, U., 2015. Introducing research methodology: A beginner’s guide to doing a research project. Sage.
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Ibeh, K., 2018. Why do some nascent African multinationals invest outside their home region? Should they?. Transnational Corporations Journal.
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Mackey, A. and Gass, S.M., 2015. Second language research: Methodology and design. Routledge.
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Taylor, S.J., Bogdan, R. and DeVault, M., 2015. Introduction to qualitative research methods: A guidebook and resource. John Wiley & Sons.
Whittaker, A., 2015. ‘Outsourced’patients and their companions: Stories from forced medical travellers. Global public health, 10(4), pp.485-500.
You, N., 2016. The contribution of innovation in urban resilience and sustainability to realizing the urban nexus. In The water, food, energy and climate Nexus: Challenges and an agenda for action chapter 6 (pp. 93-104). Routledge Abingdon, United Kingdom.
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