Is the European view on Human Resources holding back offshoring?

I recently talked to a senior IT executive from a large insurance firm and they are considering (offshore) outsourcing certain additional activities, while they are at the same time contemplating whether some of the IT activities they outsourced more than ten years ago should be insourced again. See also this post. While discussing their rationale behind their sourcing strategy and why they are happy with some vendors and unhappy with others, we also got into the effects of the economic situation on retaining employees in general. Within the American branches of the insurance firm employees had seen already seen several rounds of retrenching, while a hiring frees was as far as it went within European entities (so far).

Another example demonstrating the difference in handling the economic crisis. A Dutch friend of mine just came back after having worked in NY for 3 years for a consulting company. She survived three rounds in layoffs in NY and after coming back two months ago she started working for the Dutch entity again. There she discovered that the only measurement taken here is employees being asked to give back a number of holiday days. No plans for laying off people while the consulting industry is also hit very hard here. The rationale of the Dutch management behind this approach is apparently that the employees will be needed again when the economy picks up and that in the long/medium term it is cheaper to retain them than fire them now and re-hire new people later.

One of the reasons behind the differences in policy is of course the ‘toughness’ of European labour laws which makes it more expensive to layoff employees. This is however slowly changing as recent interpretation by the courts of Dutch labour laws has resulted in companies being able to reduce the costs of layoffs with 30-40%. The cost of retrenching can thus not be the only reason to retain people.

My thinking is that in Europe, more than in the U.S., the social aspect influences the decision to layoff people or not. This also brings me back to outsourcing again, and more specifically to offshore outsourcing. With offshore outsourcing, local people typically loose their job as Dutchies do typically not fancy to be relocated to India or Vietnam and work for a local package… Typical reasons given why offshoring does not have the same traction within continental Europe compared to the U.S. are culture, language, regulations, IPR and time zones.

I thus wonder whether there should be one addition reason: the social implications (personally for the executive and brand of the company) of laying off people. So is there a more (fundamental?) different view of looking at human resources in the U.S. versus continental Europe. My hunch is that in the U.S. people are seen more as a ‘resource’ while within continental Europe it is foremost a human with a family to feed and a mortgage to pay.

To the vendors that are used to working with American clients the challenge to tune their commercial approach to the different views of European clients on the ‘human factor’ and adopt their delivery models in such a way that the number of forced layoffs remains at a minimum.