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The state of outsourcing in the Canadian mining industry

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 Resources Policy xxx (xxxx) xxx–xxx

Contents lists available at ScienceDirect

Resources Policy
journal homepage: www.elsevier.com/locate/resourpol

The state of outsourcing in the Canadian mining industry

⁎
Baljir Baatartogtokh, W. Scott Dunbar , Dirk van Zyl
Norman B Keevil Institute of Mining Engineering, University of British Columbia, Vancouver, BC, Canada

A R T I C LE I N FO A B S T R A C T

Keywords: Outsourcing, the practice of having company activities done by suppliers, has been practiced in the Canadian
Outsourcing mining industry for some time. However, the extent of the practice is unknown. There are sound reasons for
Core competencies outsourcing rooted in some important economic concepts. Of interest is whether outsourcing is evolving to an
Canadian mining industry “extreme” state where a mining company becomes the manager of a network of service and equipment suppliers.
Such a state would have implications for innovation, for the manner in which mineral resources are developed,
and for potential interactions between the industry and governments of developing countries that have large
mineral resource endowments. A survey of 58 producing Canadian mining companies was conducted to de-
termine which companies are outsourcing, how prevalent is outsourcing, what activities are being outsourced,
why companies are outsourcing, what the risks of outsourcing are, and are mining and mineral processing core
competencies of mining companies. The results are generally consistent with the economic concepts but ques-
tions concerning the risks of outsourcing and identification of core competencies of a mining company remain. It
is clear that at present outsourcing is done in a strategic sense, likely dependent on particular situations.

1. Background
There are signs that the traditional structure and organization of
mining companies might devolve into a collection of separate service
and equipment suppliers and operations. Today's large mining company
could be tomorrow's manager of a network of service and equipment
suppliers. This change of business model has implications for innova-
tion in the mining industry, for the manner in which mineral resources
are developed, and for potential interactions between the industry and
governments of developing countries that have large mineral resource
endowments.
How did this arise and how could it change the industry? The
phenomenon of outsourcing, the transfer of activities and processes to
an external party, is actually quite old. In the thirteenth century com-
mercial activities conducted under the “putting out system” linked ar-
tisans, merchants and manufacturers as employers and service provi-
ders in what was essentially an outsourcing network. Gonzales et al.
(2004) cite cases of outsourcing of both services and labor in the late
19th and early 20th centuries in both the US and other industrialized
nations such as Japan and Russia.
A distinction must be made between outsourcing and sub-
contracting or contracting out. True outsourcing entails a long term
relationship between supplier and owner, with a high degree of risk-
sharing, whereas contracting out refers to work assigned to an outside
supplier on a job-by-job basis, usually involving a cost-plus
arrangement. Gilley and Rasheed (2000) are more precise in saying that
outsourcing “represents the fundamental decision to reject the inter-
nalization of an activity” and that organizations who acquire a good or
service externally owing to a lack of capital or expertise are not out-
sourcing because internalization was never an option. Mine shaft con-
struction, mine construction and development are common examples of
contracting out.
The purpose of this paper is to fill a gap in outsourcing literature for
the mining industry. There is no general understanding of exactly how
much or what kind of outsourcing is happening in the mining industry.
The study seeks to discover: who is outsourcing, how prevalent is
outsourcing, what activities are being outsourced, why companies are
outsourcing, what the risks of outsourcing are, and are mining and
mineral processing core competencies of mining companies.
Outsourcing is not a novel or clever business strategy, nor is it
simple a cost-cutting measure. In fact it has deep roots in five well-
established economic theories, some of which resulted in Nobel prizes
(Vitasek and Manrodt, 2012). It is worth reviewing these to understand
the state of outsourcing in mining and how it might evolve.
1.1. Division of labor
The idea of division of labor was first stated by Adam Smith in his
1776 publication An Enquiry into the Nature and Causes of the Wealth of
Nations. Tasks of a production process were to be assigned to specialists

⁎
Corresponding author.
E-mail address: scott.dunbar@ubc.ca (W.S. Dunbar).

https://doi.org/10.1016/j.resourpol.2018.06.014
Received 10 March 2018; Received in revised form 27 June 2018; Accepted 29 June 2018
0301-4207/ © 2018 Published by Elsevier Ltd.

Please cite this article as: Baatartogtokh, B., Resources Policy (2018), https://doi.org/10.1016/j.resourpol.2018.06.014
B. Baatartogtokh et al.
instead of the alternative where all tasks are performed by one in-
dividual or company, a potentially inefficient process. Smith argues
that people acting in their own self-interest, doing what each does best,
resulted in economic growth and more benefits to society. Thus, as a
means of assigning tasks to specialists, outsourcing should be an effi-
cient and productive way to do business.
1.2. The boundary between the firm and the market
But why is so much done within companies if the market is able to
efficiently allocate tasks to individuals or individual specialist firms?
What (or who) decides when parts of a production process are done in-
house and when others are outsourced? The Nobel laureate Coase
(1937) explained this (and indeed the very existence of a company) by a
simple but profound insight, namely that the number of contracts a
company could enter into in order to implement a production process
via division of labor was limited by the transaction costs associated
with contracts such as provider searches, negotiations, and contract
monitoring. Coase defined the ideal boundary between production
within a firm and production by suppliers by suggesting that as more
production processes are done within a company, the marginal costs
associated with adding another process become greater than the costs of
outsourcing the process.
1.3. Complete versus incomplete contracts
However, this did not explain everything. If the company operates a
set of production processes, then which subset of the processes should
be done within the company and which subset should be obtained from
the market, i.e., outsourced? Williamson (1970, 1971) argued that a
company provides a “wider variety and greater sensitivity of control
instruments [to enforce] intrafirm in comparison with interfirm activ-
ities” (Williamson, 1970). The subset of processes to be outsourced
were those for which such control instruments were unnecessary.
Williamson (1971, 1979) distinguished complete from incomplete
contracts. A complete contract can be written for a process whose
outcome is well-defined and thus there is little or no need for internal
control. In mining, an example would be a maintenance contract for a
fleet of equipment where the desired outcome is machine availability.
Thus maintenance would be (and often is) a candidate for outsourcing.
In contrast, an incomplete contract results when the process is more
complex, the desired results may change over time, and it is not possible
to foresee all the situations requiring modification of the contract at the
time of contract negotiation. Such a process would be better managed
in-house.
It is relatively easy to identify a production process whose outcome
is well-defined and for which a complete contract could be negotiated.
Does this mean that all other production processes would lead to in-
complete contracts? Not necessarily. In cases where process changes are
inevitable, it is possible that a series of short-term complete contracts
can effectively deal with uncertainties and the resulting changes. One
mining example would be the transport of ore and waste, the outcome
of which is reasonably certain and can be well-specified, but could
change over the mine life. Another example might be changing parts
supply needs during the life of a mine. However, as pointed out by
Williamson (1979, 1985), the feature of processes that leads to in-
complete contracts is asset specificity whereby either the process re-
quires investment in long-life, special purpose equipment or there is the
potential for advantages to the party that wins the original contract. If
either of these conditions prevails, the original supplier(s) to the pro-
duction process will have an advantage should change or adaptation be
required later on. It would be impossible to manage this in an out-
sourcing arrangement.
2
Resources Policy xxx (xxxx) xxx–xxx
1.4. Outsourcing and innovation
Solow (1957) found that only 13% of economic growth could be
attributed to increased inputs of labor and capital and that the re-
maining 87% was due to changes in process and product improvements,
i.e., innovation. This means that there could be much potential for
outsourcing for the purpose connecting with a supplier who invests in
and implements innovations. In fact, Breunig and Bakhtiari (2013)
found that outsourcing done by the Australian manufacturing industry
may be used as part of an innovation strategy. A question asked in the
survey of Canadian mining companies discussed later is whether out-
sourcing is used to gain access to innovation.
1.5. Cooperate or defect
Outsourcing relationships between a company and a supplier in-
volve potential conflict because the company wants to obtain a product
or service at low cost while the supplier wants to make a profit. In such
a situation companies may try to “grind suppliers into the ground”
using price as the tool. As a result, suppliers could refuse to invest in
product or service improvements or even to supply, resulting in mutual
dis-benefit (An example is described in Hill et al. (2017, p. 295)). This
means that an outsourcing relationship must involve significant prior
communication and be designed carefully so that there are benefits
from cooperation for both company and supplier.
This type of conflict is classic game theory and was studied by the
Nobel laureate John Nash who showed that the best result in such
games comes from everyone in the group acting in their own self-in-
terest and in the interest of the group – a win-win situation.1
2. Literature review
2.1. The practice of outsourcing
Outsourcing has evolved from a cost cutting strategy (“vanilla out-
sourcing”) through to late 20th century “strategic outsourcing” of ac-
tivities for which a company has neither a critical need nor special
capabilities, to the present day “transformational outsourcing” which is
about creating a flexible and adaptive organization consisting of loosely
coupled networks of suppliers (Hätönen and Eriksson, 2009; Linder,
2004; Linder et al., 2002; Mazzawi, 2002). What is interesting to con-
template is the possibility that the mining industry could undergo what
Mella and Pellicelli (2012) call “extreme outsourcing” where “all the
productive and economic processes have been outsourced through the
formation of a stable but flexible network” that has global dimensions.
There are examples of outsourcing approaching the extreme in other
industries such as pharmaceuticals and oil and gas. Entire sections of
the “discovery” end of the pharmaceutical industry are no longer car-
ried out by the major pharmaceutical companies, who now rely on
universities, research labs, and small to medium-sized biotechnology
companies to handle large tranches of drug discovery and development
(KPMG, 2012). The oil and gas industry outsources exploration data
acquisition, drilling, engineering, refining, and distribution (Tholons,
2007). Currently the mining industry acquires good orebodies by means
of aggressive (and successful) exploration programs or by strategic ac-
quisitions, just as the oil industry acquires productive reservoirs or as
the pharmaceutical sector acquires innovative drugs by research. Cost
reductions have traditionally been achieved by introducing economies
of scale or production efficiencies. But there exists enormous potential
to drive additional cost reduction, higher returns, and innovation gains
1
Note that Adam Smith's argument that people acting in their own self-interest is good
for the economy does not preclude acting cooperatively – it might even result in co-
operation under certain circumstances. What Nash showed mathematically was that,
given no knowledge of an opponent's strategy, acting in one's self-interest is an optimal
strategy, but a better outcome would result from cooperation (Tadelis, 2013, p. 53).
B. Baatartogtokh et al.
throughout the mining industry via extreme outsourcing.
For example, an international company based in Australia once only
supplied explosives to mining companies. Today, the company is of-
fering to provide a pile of blasted ore with a specified fragment size
distribution using its own equipment and improved technology. This
means that a mining company no longer needs to own blasting equip-
ment or hire experienced personnel to carry out blasting operations. As
a result, the company can shed assets and experience higher return on
assets, save operating costs, and have access to improved technologies.
One of the advantages of outsourcing is that it allows a company to
focus resources on its core competencies, the attributes and skills that
the company can do better than anyone else and therefore give, or have
the potential to give, the company a competitive advantage (Hill et al.,
2017, p. 302). It would therefore seem obvious that core competencies
should be identified and should not be outsourced. However, as pointed
out by Quinn and Hilmer (1994), core competencies exhibit several key
attributes that can vary over time depending on internal or external
influences. Consequently a true core competency can be a difficult thing
to identify.
2.2. Outsourcing in the mining industry
Outsourcing in the mining industry has not been well studied. There
is limited research on the topic consisting of eight key works. Using
seven key attributes identified by Quinn and Hilmer (1994), Steenkamp
and van der Lingen (2014) address whether mining is truly a core
competency, which is important for the decision to outsource or not.
Steenkamp and van der Lingen also address the decision framework for
outsourcing – to outsource or not – and the critical success factors
(CSFs) in the event of outsourcing. Unfortunately, the study was only
completed within the context of one mid-tier commodity specialist
company in South Africa. Hence, there was room to expand the scope of
the research to companies worldwide and Canada.
Sivakumar et al. (2014) deal with the suitable outsourcing vendor
selection process for the production in the green mining industries
based on economic and environmental benefits and risk factors. They
also discuss various mining business models for outsourcing. Stacey
et al. (1999) deals with the industry problems that have led to an in-
crease in the outsourcing of professional services in the mining industry
as well as the pros and cons of outsourcing. In addition, the paper talks
about the factors to consider when choosing an outsourcing partner.
Kenny and Bezuidenhout (1999) provide an overview of the existing
forms of subcontracting in the South African mining industry, focusing
on subcontracting of labor in South Africa and its various forms. Visagie
(2005) found no evidence of complete outsourcing of maintenance
functions at mines in one northern region of South Africa as of 2005,
but suggested it could happen elsewhere and requires further study.
Niskanen (2013) found that outsourcing at two mines in the Barents
region was guided mostly by the need for additional capacity and for
competent personnel. Kirk (2010) discusses the operational and risk
issues associated with contract mining. In a study concerning man-
agerial preferences in strategic outsourcing, Lin et al. (2016) found that
managers in the mining industry place high value on the specialized
abilities of an outsourcing supplier and on how well the knowledge of
the supplier complements that of the mining company.
3. Survey methodology
The study was conducted using a comprehensive and confidential
survey with twenty-four questions. The study was initially piloted on
one mining company based in Vancouver, British Columbia. The study
then contacted nearly 1450 primarily Canadian mining companies
listed on the S&P Global Market Intelligence database between June
2016 and August 2016.
The study was divided into five parts as illustrated in Fig. 1. In the
first part of the survey, the study created a profile of the respondents.
3
Resources Policy xxx (xxxx) xxx–xxx
Fig. 1. The five parts of the survey questionnaire.
Although the study was confidential and all data were aggregated, the
study asked for the respondents’ details for reference purposes and for
future contact to obtain additional information. The details requested
included name of respondent, name of employer, department and po-
sition, and phone number for future contact. Response was not neces-
sary or required for these questions. The survey then asked for the
commodities mined by the company as well as the location of the mines
and head office.
In the second part of the survey, the study asked whether the
company outsources or has outsourced in the past. At the beginning of
every section the term “outsourcing” is defined as the “procurement of
goods and services and/or the performance of value-adding activities
from outside providers.” The survey also asked whether the respondents
would consider more outsourcing in the future. Then the survey in-
quired about what activities were outsourced by the respondent and the
respondent was asked to choose from a list consisting of production
activities. For example the list of answers included Drilling and
Blasting, Loading and Hauling, and Crushing, Grinding and Flotation.
In the third part of the survey, the study asked about what equip-
ment was provided by the outsourcing supplier. The purpose of this
question was to determine whether mining companies are shedding
assets via outsourcing. If outsourcing suppliers are providing the
equipment, then mining companies do not need to own the equipment
and can thereby increase return on assets. The next question asked
about the reasons for outsourcing. Respondents were asked to rate, on a
scale of one to five, a list of reasons for outsourcing compiled from
existing literature on outsourcing, with one being not important to five
being extremely important.
A similar approach was taken in the fourth part of the survey which
asked about the risks of outsourcing. A list of risks was created using
existing literature and respondents were asked to rate each risk on a
scale of one to five, with one being not risky and five being extremely
risky. Examples of the risks included ability to coordinate with the
supplier, maintenance of the production schedule, and cost control.
In the last section of the survey, the study used the survey ques-
tionnaire by Steenkamp and van der Lingen (2014) who ask whether
mining is perceived as a core competency at a particular South African
mining company. The survey expands this to a mostly Canadian base
and asks whether mining and mineral processing activities are core
competencies. The study vets the answer by asking whether mining and
mineral processing activities in the company have the following seven
attributes of a core competency:
B. Baatartogtokh et al. Resources Policy xxx (xxxx) xxx–xxx

1. Based on skills and intellectual property rather than physical assets Table 1
2. Create flexibility by evolving over time and adapting Company Size.
3. One of the top three capabilities of the company (Yes/No) Number of employees Number of companies Percentage
4. Performed better than service providers (Yes/No)
5. Performed better than industry peers (Yes/No) Less than 10 3 5.2%
10–50 6 10.3%
6. Provide competitive advantage (Yes/No)
50–100 1 1.7%
7. Embedded in company processes and systems rather than people 100–500 10 17.2%
and skills 500–1000 10 17.2%
More than 1000 28 48.3%
Except for attribute #6, this list is the seven attributes of a core
competency defined by Steenkamp and van der Lingen (2014, p. 848)
per an original definition by Quinn and Hilmer (1994). Both of these
authors define attribute #6 in terms of whether shareholders or cus-
tomers care about the activities. It was felt that the notion of a customer
was not clear in the case of a mining company that produces a fungible
commodity. Attribute #6 was therefore changed to asking whether
mining and mineral processing activities provided a competitive ad-
vantage to the company.
Then the two parts – the perception and whether mining and mi-
neral processing activities have the above seven attributes – are com-
pared. If the percentage of agreement with the seven attributes matches
the percentage of agreement with the perception of mining and mineral
processing activities as core competencies, then mining and mineral
processing can be considered core competencies. If there is a mismatch,
then mining and mineral processing cannot be considered core com-
petencies.
In the case of the one company that Steenkamp and van der Lingen
(2014) studied, it was concluded that mining was not a core compe-
tency because there was a mismatch between the perception and the Fig. 2. Commodities mined by the 58 respondents with producing mines.
attributes. In other words, although the company perceived mining as a
core competency, the answers to the questions of whether mining the global distribution of the producing mines of the respondents.
possessed the seven attributes of a core competency were mostly in the The majority of the respondents were in upper management or in an
negative. One task of this study was to investigate this result using a executive role. As seen from Fig. 4, some 33% of the respondents were
larger number of companies. Chief Executive Officers (CEOs), 16% were Chief Operating Officers
The survey focuses on outsourcing of mining and mineral processing (COOs) and 22% and 14% were managers and vice presidents respec-
activities, but does ask whether exploration and construction activities tively. Four percent of the respondents were directors, and other re-
during mine operation are outsourced. It also asks whether and what spondents included Chief Financial Officers or senior mining engineers.
other activities are outsourced. This is done as a check because, as
noted above, internalization is usually never an option for these ac-
tivities and therefore they are almost always done by suppliers. 3.1.2. Outsourcing information
Forty-eight of the 58 companies surveyed who have producing
mines either outsource or have outsourced all or any part of their
3.1. Results
mining and mineral processing activities. There is no evidence of ex-
treme outsourcing, which is defined as outsourcing the majority of one's
3.1.1. Descriptive statistics
business activities. When the companies were asked whether they
One hundred and four companies responded to the survey, of which
would consider more outsourcing, 38 stated that they would.
40 were exploration companies and 58 had producing mines. There
As seen from Fig. 5, 42 of the 58 companies with producing mines
were six duplicate responses, i.e., the survey was completed by people
outsource construction services during mine operation. This might be
in different divisions of the same company. The study focused only on
expected given that there is usually no intent within a mining company
the 58 companies with producing mines since the business model and
to internalize such services. Following closely are Drilling and Blasting
activities of exploration companies are not relevant to the study.2 Of the
(35) and Loading and Hauling (29). Throughout the survey, it became
1450 companies contacted only 128 had producing mines. Thus the
clear that most of the outsourcing occurs in mining operations and less
relevant response rate is 58/128 ~ 45%.
so in mineral processing operations. Concentrate Logistics, Crushing,
In terms of size, as seen in Table 1 about 48% employed more than a
Grinding and Flotation, and Leaching are outsourced but not as much as
1000 people, capturing some of the largest Canada-based global mining
mining activities.
companies.
Other activities outsourced as listed by respondents include (in no
As shown in Fig. 2, the most widely mined commodity by the 58
particular order): maintenance (including that of mining fleet and
companies with producing mines is gold: 39 of the companies mine
smelter); security, environmental and community engagement services;
gold. Silver and copper follow closely at 27 and 21 companies respec-
design and construction of tailings dam; reclamation; and grade control
tively. Other commodities produced include but are not limited to
drilling. This might be expected given that most companies have no
phosphate, diamonds, manganese, nickel, tungsten and uranium.
capacity to internalize these activities.
With the exception of two companies, the 58 producing mining
In addition to the online survey, follow up calls were made to a
companies are based in Canada with mines worldwide. Fig. 3 displays
number of companies to determine who paid for or owns the equipment
provided during the outsourcing process. A majority responded that the
2
In fact a junior exploration company would always outsource its activities, i.e., it outsourcing supplier fully provides and owns the assets needed during
would always “reject the internalization of an activity”. the outsourcing process. The mining equipment provided by the

4
B. Baatartogtokh et al. Resources Policy xxx (xxxx) xxx–xxx

Fig. 3. Geographic distribution of producing mines of respondents.

equipment. Companies that outsource mineral processing own, buy or

rent the necessary equipment (crusher, grinding mills, hydrocyclone,
etc) and hire contractors to operate the equipment. One company ex-
plained that this is because mineral-processing equipment requires
large investments, which many outsourcing suppliers cannot support.

3.1.3. Reasons for outsourcing

Using a Likert scale from 1 to 5, the importance of a reason for
outsourcing was divided into five classes: Not, Slightly, Moderately,
Very, and Extremely. Given the number of answers for a particular
reason, the importance of the reason was computed as a weighted
average of the total number of responses (which varied between 51 and
53). As seen from Fig. 6, the top reason for outsourcing is access to
specialized competencies, including skilled labor, which was rated at
3.7 out of 5. This was followed closely by flexibility, which includes
adapting to seasonality, changes in geology and commodity prices and
short-term needs and life of mine (such as a mine with a life of 5 years
or 7 years). While the companies saw avoiding investment in fixed
Fig. 4. Position of the respondents.
assets as a significant reason for outsourcing (rated 3.3), they did not
rate lowering fixed costs as highly.
Another important reason for outsourcing was the desire to focus on

Fig. 5. Activities outsourced by the 58 respondents with producing mines.

outsourcing supplier includes but is not limited to: blast hole drills,
shovels, haul trucks, scrapers, dozers, explosives and ancillary Fig. 6. Reasons for outsourcing for companies with producing mines.

5
B. Baatartogtokh et al.
core competencies. What defines core competency will be explored
further later in the paper. Interestingly, access to innovation was
Slightly important to respondents (2.2). Relationship with the com-
munity, unions, and suppliers were of Slight to Moderate importance.
One thing that was noticeable from the study was that the top five
reasons for outsourcing were not rated much differently. There is little
difference between a rating of 3.4 (flexibility) and a rating of 3.7 (ac-
cess to specialized competencies). This means that the top reasons for
outsourcing may not need to be ranked at all. They are all equally
important.
It is interesting that relationship with community and relationship
with unions did not feature higher in the rankings. One would presume
outsourcing to local providers would improve relationships with the
community, creating jobs and stimulating the economy. Relationship
with unions should inhibit outsourcing and be of little importance, as
unions would oppose losing their job to outsourcing suppliers.
3.1.4. Outsourcing risks
Respondents were asked to rate the risks of outsourcing on a Likert
scale from 1 to 5. Risk was divided into five classes: None, Slight,
Moderate, Very, and Extreme. Risk level was calculated in a similar
fashion as the importance of reasons for outsourcing. Overall, as shown
in Fig. 7, the respondents did not perceive any of the risks as being
particularly severe. The highest risk, rated at 3.1, was quality control.
Next was delays and disruptions at 3.0 followed by adherence to health,
safety and environmental standards at 2.9. It is possible that all risks are
equally important, but in future studies the question of risk should be
linked to a particular activity to confirm this.
3.1.5. Core competency
Steenkamp and van der Lingen (2014) tested whether mining is a
core competency for one mid-tier mining company in South Africa. First
they asked if the company perceived mining as a core competency and
then they tested their perception against the seven key attributes of a
core competency defined by Quinn and Hilmer (1994) and listed above.
This study included mineral processing in addition to mining. Answers
to all eight questions were received from 43 of the 58 respondents with
producing mines. The results are shown in Fig. 8. Whereas Steenkamp
and van der Lingen (2014) found that 72% of their respondents viewed
mining as a core competency, the present study found a much greater
proportion of respondents, 95%, view mining and mineral processing as
a core competency.
As seen in Fig. 8, none of the attributes of core competencies
reached concordance at 95%. However, 88% believe that their mining
and mineral processing activities can evolve over time to create flex-
ibility. About 81% view mining and mineral processing as one of the
top three capabilities in the company or believe that their company is
technically better positioned to conduct mining and mineral processing
activities than potential service providers.
Fig. 7. Ratings of outsourcing risks.
6
Resources Policy xxx (xxxx) xxx–xxx
The perceptions of other attributes are interesting. About 86% view
mining and mineral processing as embedded in people and skills rather
than systems and processes. However, as pointed out by Steenkamp and
van der Lingen (2014, p. 848), a lasting core competency is determined
by enduring systems and processes and not by the skills of talented
employees who may leave the company. Only 65% believe their mining
and mineral processing activities are based on knowledge and in-
tellectual property rather than physical assets and 63% believe they
perform these activities better than industry peers.
Thus there is a mismatch between the respondents’ view that mining
and mineral processing activities are core competencies (95% of re-
spondents) and the respondents’ view of whether the attributes of core
competencies apply to these activities (< 95%). It is possible that the
results may change if mining and mineral processing were evaluated
separately as we found during this study that many companies out-
source mining operations but not as many outsource mineral processing
operations.
4. Conclusions and future work
The survey results show general agreement with the idea of division
of labor in that activities not directly related to the production process
(e.g., construction) are contracted out. What is also clear is that more
mining activities are outsourced than those related to mineral proces-
sing and tailings and waste management. This seems consistent with the
difficulty of forming a complete contract for mineral processing or
tailings and waste management and the fact that assets associated with
mineral processing are specific. Perhaps more simply, mineral proces-
sing is the only revenue-generating activity and it would seem natural
to want to exercise control over this activity. Similarly, waste man-
agement is associated with significant liabilities (a liability specificity)
and a company would therefore want more control over this activity.
Access to innovation available from suppliers is not a strong reason
for outsourcing.
The answers to questions about whether mining and mineral pro-
cessing activities have the attributes of core comcies were not consistent
with the respondents’ view that mining and mineral processing are core
competencies. Although consistent with the results of Steenkamp and
van der Lingen (2014), there are issues with the definition of a core
competency, especially for a mining company whose activities are so
diverse that it becomes very difficult to determine what is core.
If its core competencies are hard to identify, then two questions
arise. How can a mining company make outsourcing decisions? How
does a mining company build or maintain competitive advantage? This
is a topic for future research, but the competitive advantage of a mining
company must be linked to the superior strategies used by the company
to manage its physical and human resources. Outsourcing is then just
one strategy for managing these resources. An interesting discussion of
the sustainable and temporary nature of competitive advantage is
provided by O’Shannassy (2008) who uses the mining company BHP as
an example.
What is very clear is that outsourcing in the mining industry is still
in the strategic outsourcing phase and has not yet evolved into trans-
formational outsourcing, which is about building flexible and adaptive
organizations consisting of a loosely coupled network of suppliers. In
addition to cutting costs, mining companies are also concerned with
outsourcing to access skills and knowledge where the company lacks
expertise.
4.1. Limitations of the research
There are a number of ways in which the study could be improved
for future studies. One of the ways this could happen is to focus the
study on a global sample. The study only focused on primarily Canadian
companies albeit with international operations. It would have been
interesting to see if samples from Australian or South African mining
B. Baatartogtokh et al.
Fig. 8. Perception of mining and mineral processing as core competencies versus the attributes of a core competency.
companies would have changed the study outcomes.
As described above the return rate for survey questionnaires from
producing mining companies was about 45%. This return rate may been
improved if the study did not ask for personal information (i.e. name,
employer, position). It is possible that some people opted not to take the
survey due to privacy concerns.
One of the questions in the survey was: if your company has out-
sourced, what assets/equipment were provided by the outsourcing
supplier? The purpose of this question was to determine if companies
are shedding assets to improve return on assets using outsourcing.
Unfortunately, the question is vague and does not indicate who owns
the assets/equipment used during outsourcing. This critical question
could have been better phrased such as “who owns the equipment/as-
sets used during the outsourcing engagement?” with the answer of-
fering a) outsourcing supplier and b) the outsourcing company. Because
of the ambiguity of the question, the study had to contact a handful of
respondents post-survey to determine who actually owns the assets/
equipment. This extra step could have been saved if the question was
better phrased, and we would have had a more complete answer set
instead of just from handful of respondents.
Another concern with the study was that the questions on the risks
of outsourcing resulted in importance ratings that did not differ very
much from each other. It is believed that this might be due to the fact
that the risks were not linked with particular activities so that the re-
sults represent a blended response. It is quite likely that different risks
are associated with the outsourcing of particular activities and therefore
questions in future studies should be designed to determine this.
Finally, the study showed that most companies outsource mining
but few outsource mineral processing. As stated above, the simple
reason for this might be that mineral processing is a revenue generator
and a company would want more control of this part of an operation.
However, it would be interesting to phrase the questions to determine
the roles of asset specificity and the difficulty of forming complete
contracts for mineral processing. A similar approach should be taken for
mine waste management.
Acknowledgements
This study was funded in part by an Insight grant to WS Dunbar
entitled Change and Transformation in the Mining Industry from the
Canadian Social Sciences and Humanities Research Council. The au-
thors also gratefully acknowledge Dr. E Van der Lingen of the Graduate
School of Technology Management at the University of Pretoria who
kindly provided the version of the survey instrument used in their
study. The authors also wish to acknowledge the comments made by Dr
John Steen of the University of Queensland Business School. Two
anonymous reviewers also made comments and suggestions that
7
Resources Policy xxx (xxxx) xxx–xxx
improved the manuscript.
The authors declare no competing interests.
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