Driving forces of mining outsourcing: Evidence from China

• Main Author: ZHENG, Bingxu
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: mining enterprises; outsourcing; driving force; China; Asian Studies; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/etd_coll/529; https://ink.library.smu.edu.sg/context/etd_coll/article/1527/viewcontent/GPBA_AY2016_DBA_ZHENG_Bingxu.pdf
• Institution: Singapore Management University

The outsourcing of services by mining enterprises has become a significant global trend. Classic studies have demonstrated that outsourcing can help enterprises obtain professional services, improving productivity and reducing production costs. However, as a transitional economy, China has its unique characteristics regarding the driving forces of service outsourcing. By employing a case study method, one mining service outsourcing provider, and five mining enterprises' interviews and archival data, this study constructs a theory to identify the driving forces and mechanisms of mining enterprises' choice of service outsourcing and a logic relationship between variables via a diagram. The case study results reveal that, firstly, through outsourcing, mining enterprises can obtain professional personnel, technology and management and further reduce their economic costs to achieve light asset operation, thereby further driving mining enterprises' choice of service outsourcing. Secondly, The professional services provided by outsourcing providers, including professional personnel, technology and management, can help reduce security risks. In addition, outsourcing can also transfer the safety production risk of mining enterprises to a certain extent and avoid the political risks of mining enterprises' senior executives, thereby prompting mining enterprises to choose outsourcing services. Thirdly, mining enterprises' choice of service outsourcing has heterogeneous ownership characteristics, i.e., private enterprises are more concerned about the cost-reducing effect brought by outsourcing services. In contrast, state-owned enterprises are more concerned about avoiding political responsibility. In the era when the fulfilment of social responsibility has already been incorporated into the management level of enterprise strategy, private mining enterprises need to pay more attention to long-term interests such as safety production. At the same time, influenced by the principal–agent problem, the economic driving force of China's state-owned mining enterprises is insufficient, and thus outsourcing may be a channel for senior executives to transfer the political risks they originally should bear. Therefore, in the transitional period of China, the benefit conversion mechanism behind mining enterprises' service outsourcing is complex, including the transformation of enterprise-borne management costs into market costs and the transfer of political risks borne by individual executives into economic costs of outsourcing enterprises. Furthermore, this study demonstrates that there is not only a transaction cost problem between internalization and externalization of the production links but also the conversion of different types of cost. From a practical point of view, regulatory authorities should not attribute mining enterprises' safety production accidents to outsourcing services and crudely impose a ban on agencies. Instead, they should encourage the development of qualified and capable outsourcing providers. At the same time, considering that outsourcing is also a channel for senior executives of mining enterprises to transfer political risks, it is also necessary for regulatory authorities to define the responsibilities of the contracting parties more precisely. From the perspective of outsourcing providers, on the one hand, enterprises need to improve production efficiency through technological innovation. On the other hand, they need to improve service flexibility through perfecting incentive mechanisms.