Managing Human Resources in Central and Eastern Europe

1. Managing Human Resources in Central and Eastern Europe David Chelly Msc. Business and Management in Europe09/17/2004

2. Aims of the seminar • This seminar is designed to acquaint students with Human Resources Management practices and strategies in Central and Eastern Europe. • This course may be useful to them in their careers, as Central and Eastern European countries offer excellent job opportunities for students in management • The topics range from the political and cultural values to the employee, with a special focus on how to manage people in foreign multinationals. • Students are introduced to specialized research sources. The documents of the seminar are fully available at the web address http://www.centreurope.org

3. Your instructor • David CHELLY • Ph.D in Management Sciences, post-graduate diploma in Finance, degrees in Money and Banking, Law, Accounting and Sociology. • Head of a consultancy firm and a website (http://www.centreurope.org) specialized in business with Central & Eastern Europe • Professor of management in various business and engineering schools contacts@centreurope.org

4. The seminar’s outline • Part I. The Central and Eastern European cultural and political environment • Part II. Managing Human Resources in Central and Eastern Europe

5. Methodology • REQUIRED WORK AND FORM OF ASSESSMENT • Students will have to write a 3-page document on how to do business in Russia (or any other CIS or Balkan country). All the documents used (or their reference) will be presented in the appendix. • The documents of this course will be fully available through the internet, in English and in French, at the web address http://www.centreurope.org

6. I. The Central and Eastern European socio-economic environment

7. A rich and ancient history • It is not because we (French people) don’t know Central and Eastern Europe history that these countries do not have any history. • Almost all CEE countries have played a major role in Europe in their history • But they have early fallen under the domination of different empires, which have shaped their future Cyrille and Méthode, inventors of the Cyrillic alphabet Charles the IVth (1346-1378), King of Rome and Empereur of the Holy German Empire

8. The empires and their influences • Long dominated by the Habsburg Empire, the history of Central Europe has been marked by education, art and modernism. • While in 1789 in France only a third of the citizens were able to speak and read French (the rest spoke local dialects), education in German had been compulsory for a century in the whole Kingdom • Eastern European countries used to live under the Ottoman and the Russian Empires rule, which prevented their economic development. Vlad Tepes (1428-1476), a Romanian figure of the struggle against the Ottoman Empire.

9. The communist heritage • Central and Eastern European countries have lived forty (seventy) years of communism, which still influence local behaviors and habits. The communist heritage: Corrupted civil servants, unreliable businessmen, opportunist politicians…

10. An inefficient legal framework • In Central and Eastern Europe, the legal frameworks are very similar to those of Western Europe. • But in practice, the legal environment is a “jungle”. Laws are: • Incomplete (lack of case law, decrees…); • Volatile and contradictory; • Not enough enforced • On the main square of Sofia, one can buy the most recent and expensive software CDs for a few dollars.

11. Exercise : Central and Eastern European countries on the map

12. Central and Eastern Europe map

13. Exercise : sub-groups in Central and Eastern Europe • You are a consultant with the French Center for External Trade (CFCE). Your task is to promote business relationships with Central and Eastern European countries. • Up to now, the CFCE had grouped the countries of this region in a category called « Pays de l’Est » (« Eastern countries »). • Until 1991, the region used to comprise eight countries: Albania, Yugoslavia, Bulgaria, Romania, Hungary, Czechoslovakia, Poland, and USSR. But now they count up to more than twenty. • Your mission is to split them in different subgroups, that should be geographically close and economically homogeneous. Explain your decisions. • The countries are : Albania Armenia Azerbaijan Byelorussia Bosnia-Herzegovina Bulgaria Croatia Estonia Georgia Hungary Latvia Lithuania Macedonia Moldova Poland Czech Republic Romania Russia Serbia-Montenegro Slovakia Slovenia Ukraine

14. II. Managing Human Resources

15. Why do foreign investors invest in Central and Eastern Europe ? • Foreign direct investments in all sectors and from all countries are welcomed and little restricted. • Central and Eastern European countries benefits from a cheap and qualified workforce and an advantage of territorial location • Investment incentives are offered for Manufacturing investors. • But the main reason for FDI is good access to domestic and foreign markets

16. Where and how to invest ? • A few countries attract the majority of FDI • In Eastern Europe, some large companies are scheduled for privatisation, but the best deals have long been done • Joint ventures and licensing also offer limited opportunities • The most profitable way of investment is the Greenfield investment • Good personal relationships are crucial to succeed in Central and Eastern Europe

17. Restructuring and current situation of financial and production systems • Privatisations of banks and companies are well advanced • But the industrial restructuring is still unsufficient • Competitiveness is high in foreign-owned companies • Central and Eastern European economies shift towards less industry and agriculture and more services

18. A qualified workforce… • The workforce is • Qualified, especially in technical fields • relatively cheap, especially in Eastern Europe • respectful for hierarchy and rules and able to stand hard working conditions • So how can we explain such low salaries? In spite of a high qualification in technical fields such as computer science, Bulgaria’s wages are about 10 times less than in Western Europe

19. A low labor productivity • commitment (especially towards foreign investors), sense of initiative, mutual trust between workers, customer satisfaction, ability to communicate and ethics at work are low • « pretend to pay us and we will pretend to work » • « the one who does not steal, steals his family » (Czech proverbs) • People behave in a more productive way in Eastern Europe

20. How to recruit/sack people? • Young graduates are targeted by companies • Outsourcing recruitment is not as common as in Western Europe • Assessment centers, psychological tests and even cv’s are not as widespread as in western Europe • Sacking employees is easy, as labour laws and trade unions have little influence ; But it is risky especially for seniors.

21. How to motivate? How much to pay? • Money is generally the best incentive to motivate people • Young graduate receive higher salaries than their older colleagues with a long experience • Bonuses are not much widespread nor much effective • Cellular phones, company car and other non-monetary allowances have more impact than salary increases • Honors and titles are appreciated

22. What is the importance of training? • Central and Eastern European human resources are eager to learn • Training is not perceived by employers as a strategic investment, especially for « soft » skills • Money spent on vocational training is very low

23. HRM strategies • Two HRM strategies coexist in Central and Eastern Europe: • A culture-free model based on the global best practices • Corporate cultures must be stronger than national cultures. • A cross-cultural management model based on contingent strategies • Different environments, cultures and attitudes towards work lead to different practices : corporate communication, pay systems, HRM… • The new trend in IHRM: Think global, act local

24. More information… D. Chelly & F. Lafargue, Guide culturel et d’@ffaires pour l’Europe de l’Est, L’Harmattan, 2003 www.centreurope.orgEast-west business portal