Outsourcing of housing services in Hong Kong: optimization of transaction value

Purpose – Outsourcing is now a common strategy for delivery of property services. Recent reviews of empirical literature find support for the efficiency and cost savings from outsourcing is at best mixed. In the housing context, organizations are still sceptical to the real cost benefit and are reluctant to enter into multiyear outsourcing contracts to deliver their housing management and facilities services. This study aims to investigate whether outsourcing can bring significant cost savings to housing services, and if so to explore how the transaction process should be structured in order to optimize the transaction value through minimization of production and transaction costs. Design/methodology/approach – Single‐case study methodology, based on a typical major housing corporation in Hong Kong, was used to quantitatively examine the impact of outsourcing on cost savings using independent‐samples t ‐test, and competition on fees (production cost) using Pearson correlation analysis. Pearson analysis was also conducted to examine the correlation between the levels of transaction costs and the degrees of complexity of housing services. Findings – The quantitative study found that outsourcing could lead to significant cost savings for housing services in a contestable property service market. The levels of competition had significant negative correlation with the tendered prices, inferring that more competent bidders should be invited for competitive tendering to minimize production cost. Complex services with intensive resident involvement and uncertain scope of works were associated with high monitoring costs, inferring that monitoring resources should be allocated according to the complexity of services to minimize transaction costs. This approach can ensure optimization of transaction value, which is particularly relevant to high‐density developments requiring high transaction costs for performance monitoring of the outsourced housing services. Research limitations/implications – Whilst cost savings and transaction structure for optimization of transaction value are verified in the context of a representative major housing organization, the results form a baseline on which further research can build to test their significance in many other settings. Ultimately, a more robust transaction value theory can be developed for outsourcing of housing services. Practical implications – With the findings of this research, housing organizations can make an informed decision to outsource the services. They can also adopt the transaction structure to optimize transaction value from outsourcing, i.e. minimization of production and transaction costs through market competition and allocation of monitoring resources based on the complexity of services. Originality/value – This study makes economic contribution to corporate outsourcing policy by establishing a transaction structure which policy makers and facilities managers can adopt to optimize cost savings. Consequently, this will benefit the society through optimal use of resources.