Managing Human Resources in Central and Eastern Europe David Chelly

Msc. Business and Management in Europe09/17/2004

Aims of the seminarThis 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 managementThe 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

Your instructorDavid CHELLYPh.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 EuropeProfessor of management in various business and engineering schools contacts@centreurope.org

The seminars outlinePart I. The Central and Eastern European cultural and political environmentPart II. Managing Human Resources in Central and Eastern Europe

MethodologyREQUIRED WORK AND FORM OF ASSESSMENTStudents 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

I. The Central and Eastern European socio-economic environment

A rich and ancient historyIt is not because we (French people) dont 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 historyBut they have early fallen under the domination of different empires, which have shaped their future

Charles the IVth (1346-1378), King of Rome and Empereur of the Holy German EmpireCyrille and Mthode, inventors of the Cyrillic alphabet

The empires and their influencesLong 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 KingdomEastern 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.

The communist heritageCentral 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

An inefficient legal frameworkIn 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 enforcedOn the main square of Sofia, one can buy the most recent and expensive software CDs for a few dollars.

Exercise : Central and Eastern European countries on the map

Central and Eastern Europe map

Exercise : sub-groups in Central and Eastern EuropeYou 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 lEst (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

II. Managing Human Resources

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 locationInvestment incentives are offered for Manufacturing investors.But the main reason for FDI is good access to domestic and foreign markets

Where and how to invest ?A few countries attract the majority of FDIIn Eastern Europe, some large companies are scheduled for privatisation, but the best deals have long been doneJoint ventures and licensing also offer limited opportunitiesThe most profitable way of investment is the Greenfield investmentGood personal relationships are crucial to succeed in Central and Eastern Europe

Restructuring and current situation of financial and production systemsPrivatisations of banks and companies are well advancedBut the industrial restructuring is still unsufficientCompetitiveness is high in foreign-owned companiesCentral and Eastern European economies shift towards less industry and agriculture and more services

A qualified workforceThe workforce is Qualified, especially in technical fieldsrelatively cheap, especially in Eastern Europerespectful for hierarchy and rules and able to stand hard working conditionsSo how can we explain such low salaries?In spite of a high qualification in technical fields such as computer science, Bulgarias wages are about 10 times less than in Western Europe

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

How to recruit/sack people?Young graduates are targeted by companiesOutsourcing recruitment is not as common as in Western EuropeAssessment centers, psychological tests and even cvs are not as widespread as in western EuropeSacking employees is easy, as labour laws and trade unions have little influence ; But it is risky especially for seniors.

How to motivate? How much to pay?Money is generally the best incentive to motivate peopleYoung graduate receive higher salaries than their older colleagues with a long experienceBonuses are not much widespread nor much effectiveCellular phones, company car and other non-monetary allowances have more impact than salary increasesHonors and titles are appreciated

What is the importance of training?Central and Eastern European human resources are eager to learnTraining is not perceived by employers as a strategic investment, especially for soft skillsMoney spent on vocational training is very low

HRM strategiesTwo 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 strategiesDifferent environments, cultures and attitudes towards work lead to different practices : corporate communication, pay systems, HRM The new trend in IHRM: Think global, act local

More informationD. Chelly & F. Lafargue, Guide culturel et d@ffaires pour lEurope de lEst, LHarmattan, 2003www.centreurope.org East-west business portal