Globalization and advances in technology have brought about major changes in the construction industry. Successful construction firms have introduced new processes to handle ever larger and more complex projects with greater efficiency and quality. And, although not as robust as in the boom years before the economic crisis, industry growth remains steady and positive due to large infrastructure projects worldwide, rising corporate profit, and new demand for nonresidential property.
In 2013, market analysts estimated construction services to have made up 7 percent of the engineering outsourcing market. According to research firm IBISWorld, construction project management services in the United States alone is a $158 billion industry, with almost 64,000 companies employing more than half a million employees in 2015. However, construction firms face many challenges going forward that may hinder growth: a highly competitive market, difficult access to financing, the rising cost of raw materials leading to lower margins, and a shortage of skilled labor.
The construction industry and the successful execution of construction projects rely on a wide range of technical professionals and field personnel working in close collaboration and processing huge amounts of information. Electrical engineers, architects, mechanical engineers, chemical engineers, IT professionals and support staff are among the many roles that professionals fill in this industry.
In the United States, the demand for design and detailing work by structural engineers cannot keep up with the supply, making outsourcing and offshoring a compelling possibility for construction and engineering firms (Outsourcing and Offshoring: Options for the US Construction Industry, International Business and Economics Journal). Many companies have already adopted an offshore model where structural design work is performed locally, while detailing work is offshored to emerging economies.
The pressure to reduce costs and maximize resources while delivering high-quality services is another key driver of outsourcing engagements in the industry. For years, U.S. firms have had captive centers in developing countries to perform design and construction management tasks. However, rapid advances in technology have made offshoring a more attractive proposition than the establishment of captives (Offshoring of Engineering Services in the Construction Industry, National Academy of Engineering).
Outsourced Construction Solutions
Outsourcing Construction Services to the Philippines
Large construction firms with a global reach face a unique set of challenges. They must contend with the difficulty in sourcing capital project investment, as well as lower margins, operational inefficiencies, fragmented processes, and the demands of sustainability.
Financing issues. According to a 2012 industry report, construction project development is driven by private initiatives due to the reduced level of public borrowing in the U.S. and developed countries. The search for financing continues to be a threat to growth, with only financially sound firms capable of finding the investment needed.
Fragmented processes. Large construction firms with decentralized operations often endure higher operating costs and internal inefficiencies. The sheer size of global outfits requires a new business model and integrated solutions that take advantage of market opportunities and meet the needs of customers.
Low margins. High global demand for raw materials is increasing building, energy and transport costs, which in turn are affecting trading margins negatively. Companies need to optimize procurement processes to boost margins and operational efficiency.
Demands of sustainability. Construction and energy firms in particular face pressure from many sides to reduce their environmental impact. This requires the use of greener materials and innovative tools and solutions.
Skills shortages. The aging population in developed countries, rapid technological changes that require employees to learn new skills, staff turnover during lean times, and salary conditions in the construction industry are contributing to a talent shortage and decreased productivity.
A carefully planned and executed outsourcing strategy can help construction firms develop into innovative, global organizations.
Access to domain expertise. An outsourcing services provider has the experience and resources to position a construction firm for growth. The vendor’s capabilities and domain expertise can be integrated into internal decision-making loops to improve process efficiency. A third party also provides custom, end-to-end solutions and support that include front-end planning, timely decision making, and management of all project participants. This allows the client to control costs and scale easily.
Improved scalability. Working with a specialist allows a company to expand easily into regions that are less sensitive to economic cycles. These regions have higher demand for infrastructure and facilities, providing new sources of revenue to companies.
Cost efficiency. Project margin is closely linked to purchasing performance. An outsourced construction services provider has sophisticated tools to optimize internal purchasing functions (which account for as much as 60 percent of some construction budgets).
Skilled, low-cost talent. A third party provider already has a deep network of low-cost, but skilled professionals that can be deployed depending on business needs and market demands. Because these professionals are held to the same high standards as in-house staff, they become a seamless extension of the business. After the project is completed, the tight-knit group of construction professionals can be deployed elsewhere.
Companies now go beyond finding low-cost offshore staffing solutions when outsourcing construction services to the Philippines and other outsourcing destinations. The goal is to find a long-term partner for success, such as Sourcefit, and focus on adding value to the business through the use of innovative and intelligent staffing methodologies.
Please contact us to find out about Sourcefit’s custom outsourced construction solutions.