ACCORDING to Daniel Thorniley, the senior vice-president of the Economist Group, human resources in Central and Eastern Europe (CEE) are “the best in the world” – well educated, and relatively deep in talent.
“Don’t complain,” he told about 150 delegates to a human resources conference organised by the Economist Intelligence Unit in Bratislava on September 16. “The challenges you are facing are relatively small”.
Of course, in his chairman’s introduction to the conference, Thorniley was comparing HR difficulties in the CEE region to those encountered in Latin America, Africa and the Middle East – places where, after the top 1-5 percent of people, “you run out of talent very quickly”.
But the speeches that followed – which examined the region’s ongoing labour shortage, high turnover, inflated salaries, low and falling labour mobility, ageing populations and poor leadership skills – painted a gloomier picture, in which HR managers have their hands full handling the challenges they face.
Dogfight for talent
While speakers agreed with Thorniley that indigenous education systems, based on the Soviet model, had produced a solid core of talent in the CEE region, they noted that ever increasing competition for this talent is making it scarce.
“The hunt for talent is one of the big issues in the region, even if you don’t need very qualified people,” said Christophe Chapat, the general manager for Eastern Europe with Saint-Gobain Building Distribution, based in France.
Labour turnover levels in the CEE are higher than in the West – some speakers cited a 45 percent turnover level in Russia, and said that 15-20 percent is considered good in that country, as opposed to a 10 percent maximum for Western countries. Managing talent in the CEE is thus as much about retention as it is about recruitment.
Chapat’s firm employs 3,000 in five CEE countries, and finds itself in a dogfight with local companies for employees. “We have to fight to retain people on the level of phones [for employees], meal vouchers, and medical care. The market is especially short of IT people, controllers, finance people, and product managers – there is negative unemployment for these professions in the CEE. To retain people, we have to spend a lot on training, which eats up 90 percent of our HR costs.”
CEE populations are also ageing quickly, meaning that governments will have to look at immigration to ensure an adequate supply of labour. “Immigration will become a major issue in the CEE, and already we see that governments have a better attitude to it than they did 2-3 years ago,” said Chapat. “They realise they can’t do it by themselves.”
“In the context of the current shortage, working mums are a big thing, we need to stay in touch with female employees to make sure we don’t lose them to maternity,” added Jadwiga Zareba, HR director in Romania for Nokia. “We also have to re-engage with elderly workers and minorities.”
Other speakers emphasised the need for flexibility in salary and work conditions to meet the needs of the new crop of managers working their way up in the CEE region.
“Line managers have to be aware of the individual drivers among their staff,” said Jane Olsen, the HR director for CEE with GSK Consumer Healthcare. “You have to be more flexible about meeting needs, such as working from home or extra holiday time. These days, the critical group of managers in the 25-35 age bracket are demanding more time for leisure, travel and family. They are no longer as willing as their predecessors were to sacrifice everything for work.”
Of course, money is still important to CEE managers, and often becomes the rock on which understanding between local operations and boards back home founders. Young managers have high salary and promotion expectations, and with the number of crucial (and thus high-salary) positions at companies expanding, firms may find themselves held hostage to salary demands. “On the whole, I am seeing more understanding on boards that salary issues are different in the CEE,” said Olsen.
The by-now-traditional theme of the low mobility of CEE workforces also resounded at the conference.
“Labour mobility in general is declining because local managers are often sitting pretty, and no longer have the same motivations as their predecessors,” said Thorniley. “Middle managers from Moscow, for example, may leave a company rather than obey an order to move.”
“For cultural reasons, people from the CEE find it more difficult to move abroad for their careers,” said Olsen. “If you do move people, it is therefore very important to give them a return route home.”
However, Chapat questioned whether the corporate appetite for shuffling people among national operations was really helping business.
“Do we really want labour mobility, if at the same time you want to encourage stability among managers, and to have people doing well where they are?” he asked. “The key issue is to move people within countries”, an area where, speakers agreed, Central Europeans show a certain reluctance.
The flow of expats to the CEE region is also well below what it used to be, and has an entirely different dynamic. Thorniley said that the majority of Western companies in the CEE now have localised staffs, with only 10-20% expats. In addition, very few hand out the kind of expatriate contracts they did in the past (e.g. a bonus of 40% on top of salary, all expenses paid). The reason is that improving local wages mean that expats are often willing to work for local contracts, especially given that their jobs may include a challenge they can’t find at home.
Nevertheless, said speakers, expats can still make significant contributions in terms of project management, mentoring, and ensuring compliance on corruption.
Speakers also identified the unique qualities that make employees in the CEE region different from those in other parts of the world.
First, because of the relative youth of the best talent, and the competition for good people, managers tend to have extremely high promotion expectations, and also tend to need more mentoring than in the West. Managing talent is thus to a great extent a matter of managing expectations – both of the young managers themselves, and of boards back home.
Second, leadership skills are not as developed among managers in the CEE, who often need coaching on how to issue directions, which is seen as “old school” and out of line with the soft skills many of these managers have.
“Blue collar labour is four times cheaper than in Western Europe, and is still a competitive advantage,” said Zareba. “But leadership missing – it takes a lot of work to bring people around to the Western way of thinking. They don’t understand leadership concepts, they don’t know how a company works, and they don’t have right mindset. There is no performance mindset by which performers are rewarded; the local expectation is that people will be rewarded equally.”
Managers from the region also tend to be weaker in terms of inspiring staff and bridging various company cultures, partly because general cynicism in the CEE is more widespread, and partly because many locals lack international experience. One solution may be using managers who have worked in a Western country and are able to interpret the culture to their compatriots.
On the other hand, said speakers, CEE managers are exceptionally good at building relationships and building trust.
It’s not so bad
Despite the challenges of managing human resources in Central and Eastern Europe to support the strategic aims of companies, the region is seen as well placed to ride out the global financial crisis, with its many layers of insulation.
According to Thorniley, as CEE economies continue to grow at rates several times those seen in the West, rural consumers – representing 200 million people out of a total population of 375 million – will grow in wealth and become a solid business opportunity.