Economist Intelligence Unit 2008

Introduction

The rapid growth of Russia’s economy, coupled with the influx of investment from Western organisations, has renewed pressure on companies to improve their recruitment and retention policies

and boost managerial skills. The demand for experienced managers, for example, is increasing, often outstripping supply.

Problems such as rapid salary inflation are widespread as companies battle with competitors for the best candidates. Faced with an increasingly competitive landscape for local talent, many organisations are being forced to become more creative in terms of how they source and retain talented staff. The situation is likely to be exacerbated by Russia’s decreasing population, which is the result of low birth rates.

This survey of senior executives in European companies examines their attitudes towards talent management in Russia.

Key findingsThis survey explores the issue of talent management in Russian companies and foreign businesses operating in Russia. The most important findings are listed below.

lRetention is getting tougher and finding and keeping talented employees is now a board-level issue. Some 66% of all executives surveyed say that their board will spend more time on talent management now than it had done in the previous three years.lThe cost of acquiring and retaining talent in Russia is increasing. Of those surveyed, 44% said such costs in Russia had grown greatly over the past three years, and 49% expect costs to increase greatly over the next three years.

Bridging the talent gap in Russia

Executive Summary

Sponsored by

Economist Intelligence Unit 2008

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lHuman resources (HR) departments in Russia are likely to struggle when it comes to finding appropriately skilled employees, as 37% of respondents say that the shortage of skilled employees is a “significant challenge”, while only 4% see this as an “insignificant challenge”. lSome 26% of respondents say that they will increase the proportion of senior executives that they recruit from outside Russia.lLanguage and cultural issues are the main barrier when recruiting employees from abroad to work in Russian organisations.

Boards will devote an increasing amount of time to talent management issuesTwo-thirds of respondents (66%) believe that they will spend more time addressing talent management issues in the next three years compared with the last three, while only 4% say that they will devote less time. Managing talent was also cited as the fifth-biggest challenge facing HR departments in Russia, with 22% of respondents seeing this as a significant challenge.

As a result, the role of Russian HR departments is changing rapidly to meet the demands of the market—they are playing a more strategic role when it comes to talent management, rather than simply providing administrative functions, according to nearly two-thirds of those surveyed (61%).

This reflects the increasing pressure that businesses—and not only those based in Russia—are under to address talent gaps in the workplace. In our survey, a shortage of skilled employees was the top-placed challenge facing HR departments, with more than one-third of respondents (37%) citing this, rising to 53% for those respondents based in Russia only. Wage inflation was seen as the second-biggest challenge, chosen by 31% of respondents.

The costs associated with acquiring and retaining talent in Russia are expected to riseSuch pressures are likely to require companies in Russia to invest further in acquiring and retaining talent, in terms of both time and cost. They will also need to be more creative with the benefits that they offer in order to boost retention and grow talent. Among survey respondents, just under one-half (49%) said that they expect to see such costs increase greatly in Russia in the next three years, while only 7% believe that they will stay the same.

Of those surveyed, 27% see the introduction of incentives as one of the most important factors in the battle for recruiting talent, second only to improvement of leadership (29%). While such schemes may be costly to implement, replacing a skilled employee can come at a far greater cost. Enticements that are most likely to make an impact on job candidates are financial incentives, such as regular salary reviews and bonus schemes.

Most important of all though, for nurturing talent, is a competitive salary scheme, chosen by just over half (51%) of respondents. Companies will need to stay informed on wage trends and tie increased pay to meeting specific goals in line with business objectives.

The shortage of skilled employees is the biggest challenge that HR departments will face in Russia, regardless of company size Companies agree that the biggest hurdle facing HR departments is the search for skilled employees. When asked what factors are contributing to a shortage of managerial talent in Russia, nearly two-thirds of respondents (61%) said a lack of exposure to customer-focused culture is a challenge, while 55% said that competition for talent in Russia is increasing. Just under half of respondents (49%) believe that a lack of exposure to international business is a contributing factor.

Education scored fairly low—only 19% of those surveyed say that levels of secondary and tertiary

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education and the lack of postgraduate qualifications such as MBAs were important. This suggests that experience is more important than education, and indeed, workplace training is seen as crucial—the shortage of experienced people with executive-level training came fourth on the list of factors contributing to a shortage of managerial domestic talent in Russia.

Some companies are looking to recruit from overseas to combat the shortage of skilled employees in RussiaIn our survey, 26% say that they expect the proportion of senior executives that they recruit from outside Russia to increase, while 49% expect this number to stay the same and 16% say that this will decrease. Some interesting survey findings are revealed when looked at by company sector. Firms in the energy and natural resources sector are most likely to increase recruitment from abroad (75%), while 23% of those in financial services and 24% of those in IT say that they will. Recruiting from abroad can give Russian companies access to staff with specialist education and experience of international working standards. For foreign nationals, the Russian market’s rapid growth offers opportunities for swift career progression.

Language barriers, however, may be deterring some companies from recruiting abroad as respondents cited this as the major obstacle when placing foreign employees into Russian companies.

General management, sales and marketing and strategy and business development are some of the hardest positions to fillIn recent years some developing countries have shifted from an industrial to a services-based economy, prompting a demand for employees in sales and marketing and business development positions. This trend is reflected in our survey, where just under half (44%) of respondents cited general management, and 39% sales and marketing, as areas where it is hard to attract talent. The ability to think strategically is also important, with strategy and business development placed third, chosen by 38% of those surveyed. For those companies based in Russia only, general management and strategy and business development came first and second, respectively, in terms of positions that are hard to fill, with operations and production third (37%); 32% of respondents chose sales and marketing.

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The growth of the economy and a decreasing population are making it harder for companies in Russia to fill vacancies. Talent shortages in the Russian workplace are now a reality and are likely to

increase in coming years, prompting local companies and those firms with operations in Russia to invest further in recruitment and retention policies. Employees are demanding long-term benefits and career opportunities, and companies will need to respond accordingly.

Sales and marketing experience, the ability to manage change and strategic thinking are becoming increasingly sought after skills, particularly as companies are expanding through acquisitions and joint ventures—both at home and abroad. This is prompting companies to invest further in workplace training and personal development. Financial rewards such as bonus schemes remain attractive and many companies are recognising the need to introduce competitive salary schemes—a failure to address this could lead to many firms losing out in the battle for the best candidates.

Conclusion

About the survey

Bridging the talent gap in Russia is an Economist Intelligence Unit executive summary, sponsored by Neumann International.

The Economist Intelligence Unit surveyed 193 senior executives of companies based in western, central and eastern Europe in July 2008 about their views on talent management in Russia, looking at the challenges that businesses face and the strategies that they are pursuing. All of the companies surveyed have operations in Russia or knowledge of the market, and 32% of respondents are based within Russia and the Commonwealth of Independent States (CIS).

Respondents represent a wide range of industries, including the financial services, professional services, information technology (IT), manufacturing, healthcare, consumer goods, telecommunications and construction and real estate sectors. Some 49% of the firms have revenue in excess of US$1bn.

Our editorial team conducted the survey and wrote the paper. The findings expressed in this summary do not necessarily reflect the views of the sponsor. Kim Benjamin wrote the summary. Our thanks are due to the survey respondents for their time and insight.

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Appendix: Survey results

Compared with the last three years, how much time do you believe your board will spend addressing talent management issues?(% respondents)

More time

Same amount of time

Less time

66

30

4

How much has the cost of acquiring and retaining talent in Russia changed in the last three years?(% respondents)

Increased greatly

Increased somewhat

Stayed the same

Decreased somewhat

Decreased greatly

Don’t know

44

37

11

2

1

5

How do you see the cost of acquiring and retaining talent in Russia changing in the next three years?(% respondents)

Increase greatly

Increase somewhat

Stay the same

Decrease somewhat

Decrease greatly

Don’t know

49

35

7

4

1

4

In your opinion, what factors are contributing to a shortage of managerial domestic talent in Russia? Select up to three.(% respondents)

Lack of exposure to customer-focused culture

Competition for talent in Russia is increasing

Lack of international exposure

Shortage of experienced people with executive-level training

Too few employees have postgraduate qualifications (such as MBAs)

Level of secondary and tertiary education

There is competition from firms located abroad

We don’t believe there is a shortage of managerial domestic talent

61

55

49

43

19

19

19

3

Will the proportion of senior executives that you recruit from outside Russia increase, decrease or stay the same in the next three years, compared with the past three years?(% respondents)

Stay the same

Increase

Decrease

We don’t recruit senior executives from abroad

26

49

16

9

In July 2008, the Economist Intelligence Unit conducted a survey of 193 senior executives around the world. Our sincere thanks go to all those who took part in the survey. Please note that not all answers add up to 100%, because of rounding or because respondents were able to provide multiple answers to some questions.

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In which sectors does your business find it hardest to attract talent? Select all that apply.(% respondents)

General management

Sales and marketing

Strategy and business development

Finance

Customer service

Engineering

IT

Operations and production

Human resources

Legal

Other, please specify

44

39

38

28

24

24

22

20

17

15

6

In which region are you personally located?(% respondents)

Western Europe

Russia and CIS

Elsewhere in central and eastern Europe

54

32

14

Which of the following titles best describes your role?(% respondents)

Manager

CEO/President/Managing director

SVP/VP/Director

Head of Department

Head of Business Unit

CFO/Treasurer/Comptroller

Other C-level executive

Board member

CIO/Technology director

Other

5

18

9

3

7

15

10

12

19

3

What is your main functional role?(% respondents)

General management

Strategy and business development

Finance

Marketing and sales

Risk management

IT

Human resources

Information and research

Customer service

Legal

Other, please specify

24

21

13

11

6

7

5

4

4

3

2

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What is your primary industry?(% respondents)

Financial services

Professional services

IT

Manufacturing

Healthcare, pharmaceuticals and biotechnology

Chemicals

Consumer goods

Telecommunications

Entertainment, media and publishing

Construction and real estate

Agriculture and agribusiness

Transportation, travel and tourism

Automotive

Energy and natural resources

Aerospace/Defence

Education

Government/Public sector

Logistics and distribution

Retailing

25

11

9

8

8

6

6

5

4

3

3

3

2

2

1

1

1

1

1

What is your company's annual global revenue in US dollars?(% respondents)

Less than $100m

$100m to $500m

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

More than $10bn

30

10

11

11

9

29

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What do you believe are the major barriers when recruiting employees from abroad to work in organisations based in Russia? Rate from 1 to 5, where 1=Significant barrier and 5=Insignificant barrier (% respondents)

2 3 4 5 Insignificant barrier1 Significant barrier

36 371638Language barriers

31 361644Cultural understanding

142138206Lower levels of remuneration

27 31 26 12 5Higher levels of bureaucracy

624273310Less attractive benefits than Western employees are accustomed to (such as pension and health benefit schemes)

14 39 27 14 5Costs involved in hiring foreigners

152533215Lack of training opportunities

To what extent do you agree or disagree with the following statements regarding your business operations?(% respondents)

Agree Neither agree or disagree Disagree 5 Strongly disagree1 Srongly agree

15 2132546The HR department is increasingly being viewed as a strategic partner, rather than just an administrative function

83835154There are low staff turnover rates

53326306There is a reluctance to invest in people development

11430459There is a talent review process in place

2931499The company can attract top talent

213294213A shortage of talent is impacting our organisation’s succession strategy (such as replacement of senior management)

2 3 4 5 Insignificant challenge1 Significant challenge

In your opinion, which of the following present the greatest challenges for human resources departments in Russia?Rate from 1 to 5, where 1=Significant challenge and 5=Insignificant challenge. (% respondents)

High staff turnover rate26 382637

Managing talent22 472246

Shortage of skilled employees37 471735

Wage inflation31 37 21 11 1

Low salaries3 20 34 28 15

Legislative barriers24 33 19 617

Establishment of a people-focused company culture23 38 27 7 4

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For companies operating in Russia, which of the following factors are important for finding and retaining talent? Rate on a scale of 1 to 5, where 1=Most important and 5=Not at all important.(% respondents)

2 3 4 5 Not at all important1 Most important

8 7152842The ability to recruit from abroad

27 33040The introduction of incentive strategies

29 132146Improvement of leadership

20 192942The sharing of best practice across the business

14 62456Investment in training

8 1133543The use of external resources for recruitment

Which of the following do you think are important for retaining employees and nurturing talent in Russia? Rate on a scale of 1 to 5, where 1=Very important and 5=Not at all important.(% respondents)

2 3 4 5 Not at all important1 Very important

24 162445Employee benefits (such as a pension and health scheme)

51 111037Competitive salary schemes

37 31544Monetary incentives based on performance (such as regular salary reviews and bonus schemes)

40 11544Opportunities for personal growth, training and career progression

17 163145Attraction of working for a respected brand

12 2113938Provision of clear autonomy/decision-making powers

22 172248Leadership and support from senior managers

17 173342A pleasant and constructive working environment

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the accuracy of this information, neither The

Economist Intelligence Unit Ltd. nor the sponsor

of this report can accept any responsibility or

liability for reliance by any person on this white

paper or any of the information, opinions or

conclusions set out in the white paper.

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