From relational employment to relational contracting : outsourcing and dependent self-employment in the British and Austrian insurance industry

Abstract

Labour relations in business organisations are facing a profound change. This paper focuses on one specific change in labour relations, namely dependent outsourcing. Dependent outsourcing refers to contracts over products with little alternative use, where the subcontractor bears the entrepreneurial risk. From the perspective of the contractor, dependent outsourcing represents a business relationship to outsource the entrepreneurial risk. The lack or the high costs of an alternative use creates long-standing ties between the business partners, which allows them to overcome some of the difficulties with formal contracts and utilise their detailed knowledge of the situation to adapt to new contingencies as they arise. Drawing on 57 semi-structured interviews in the British and Austrian insurance industry, I identify the nature and logic of dependent outsourcing, deploying the dimensions control, dependency, support and incentives. Results reveal that the logic of dependent outsourcing is not straightforward. Instead, intensive field research shows widespread reasons for and against dependent outsourcing. In both countries, the changes in the cost structure, the passing of risk, the increase in productivity and the gains through specialisation are the most important reasons for tied agency. The reduction of control and mutual dependency are the main problems of insurance companies using tied agents or the key rationales why they do not deploy them. The paper highlights the hybrid position of dependent subcontractors between integration and non-integration. It is argued that blurring firm boundaries are pivotal to understand new developments in organisational governance.