the challenge of international management and of ihrm in

Dr. József Poór

The Challenge of International Management and

of IHRM in Central/Eastern Europe

January 8, 2015

Ljubljana

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Prepared by

Dr. József Poór

Professor of Management, CMC

Szent István University, Gödöllő Hungary

E-mail: [email protected], phone: +36-20-464-9168

mailto:[email protected]

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Introduction (1)

• My name

• My experiences in CEE region

• My expectations

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1. Institutional environment of transitional

(CEE) economies

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Overview on transitional countries Similarities and differences

•Different languages

•Different religions

•Different working and

business ethics

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Overview on transitional countries Similarities and differences

Cultural dimensions of Hofstede

No Countries Dimensions

PDI IDV MAS UAI LTO

1 Austria 11 55 79 70 n.a.

2 Bulgaria 70 30 40 85 n.a.

3 Croatia 73 80 40 33 n.a.

4 Czech Republic 57 58 57 74 13

5 Estonia 40 60 30 60 n.a.

6 Hungary 46 80 88 82 50

7 Lithuania* 42 60 19 65 30

8 Poland 93 39 36 95 n.a.

9 Romania 90 30 42 90 n.a

10 Serbia 86 92 43 25 n.a.

11 Slovakia 104 52 110 51 38

12 Slovenia 71 88 19 27 n.a.

13 Germany 35 60 45 60 28

• Masculinity/feminity)

• Power distance

• Uncertainty/avoidance

• Individualism/collectivism

• Short/Long-term thinking

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Overview on transitional countries Trends of Changes in Transitional Economies

Management systems and structures supporting

Privatisation Firm restructuring Continuous improvement Road to recovery

1990 1994 1998 2011

New Labor Law Unemployment law Two-three tiers pension & Medicare

Social systems

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Overview on transitional countries Impact of crisis

„EE countries were previously capitalism's rising stars are

now seeing demand for exports collapse, along with their

currencies”

Source: Spiegel

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Overview on transitional countriesBudget deficit

PL - Poland

CZ – Czech R.

SK - Slovakia

HU - Hungary

SI - Slovenia

EE - Estonia

LV - Latvia

LT - Lithuania

RO - Romania

BG - Bulgaria

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Overview on transitional countries Model of SME development in CEE region

Start-up situation is now over this

group

Consolidations has also taken place

Creation of different company

functions is now being emphasized

In this situation review and renewal of strategies in SME business,

become particularly important

Company

creation

Develop-ment

After EU

accession

Focus on firm creation

Focus on consolidaton

Find new sources of

business growth

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Overview on transitional countries Changing role of management at public sector organizations

Eastern Europe

Administrator

Collective

bargainer

Organizational

designer

Change agent

and coach

State-owned and local

organisations

Foreign-owned

and local private firms

1945 1979 1997 Today

New Public Management (NPM)

Partnering Public Management (PPM)

Administrative Public Management

(traditional)

Western world

Administrative Public Management

(traditional)

NPM

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From East to West (1)Different Trends of immigration

0,5 mn Poles

Moving back

1 mn Romanians

2 mn Romanians

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Regular cross-border labor mobility (1)Hungary-Slovakia - cooperation across Danube

• easy transport

• billingual workers

• wage differences

• labor market

discrepances

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Regular cross-border labor mobility(2)Finland-Estonia – cooperation across the sea

• langauge similarities

• historical relationships

• decreasing transport costs

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2. FDI in transitional (CEE) economies

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FDI in transitional (CEE) economiesGlobal trends of the FDI (1996-2014) mrd USD

Source: UNCTAD

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FDI in transitional (CEE) economiesCapital inflow in CEE region (1991-2011) in mrd USD

0

50

100

150

0 0 0,7 4,2 6 5,617,2 16,3 17,9 21,2 23,9 25,1 23,2 27,1 27,1

54,7 58,7

99,1

135,9147,1

69,3 70,4

93

Source: UNCTAD

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FDI in transitional (CEE) economiesFDI stock/capita in CEE 2010

Czech R. Hungary Slovakia Slovenia Bulgaria New EU10 Poland Romania

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FDI in transitional (CEE) economiesEmployment at foreign-owned firms

Employees

No Country Year

of survey

Number of people employed

by foreigners

All employees in the private sector

In percentage of total (%)

1. Austria 2004 232,800 3,266,500 7.1%

2. China 2004 24,000 752,000 3.2%

3. Czech Republic 2004 620,000 3,890,000 15.9%

4. Finland 2001 176,000 2,060,000 8.5%

5. Germany 2004 2,280,000 31,405,000 7.3%

6. Hungary 2009 606,000 2,703,000 22.4%

7. Poland 2000 648,000 10,546,000 6.1%

8. Portugal 2002 150,400 3,756,000 4.0%

9. Slovakia 2009 600,000 1,800.000 35%

10. Slovenia 2004 64,000 798,000 8.0%

11. USA 2004 5,116,000 131,367,000 3.9%

Source: UNCTAD (2008): World Investment Report, 2007: Transnational Corporations and Export Competitiveness. United Nations, Geneva, SARIO (Slovak Agency for Development of Investment and Trade) 2010.

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FDI in transitional (CEE) economiesMarket enterance in CEE region

EVOLUTIONARY

• Buying-selling relationship

• Representative office

• JV’s companies

• Wholly owned companies

(e.g. Shell, IBM, Fiat , Levi

Strauss, etc.)

REVOLUTIONARY

Buying-selling relationship

JV’s or wholly owned

companies (e.g.: GE, Volkswagen,

Reemtsma, Heineken, Suzuki)

Evolutionary approach Revolutionary approach Globally born approach

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FDI in transitional (CEE) economiesCapital inflow into TE countries

1988 2001 2004

Labour-intensive industries

Service centres

Knowledge-intensive industries

Cheap

blue-collar

labour

Cheap

skilled

labour

Cheap

resources

Production performance

Higher

flexibility

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FDI in transitional (CEE) economiesLife-cycle of foreign investments

Through:

•Privatisation

•Set up green-field

FDIs

1988-1999

Today and near future

Through:

•Acquisition of privatised

firms

•Market liberalisation

•Support of mega merging

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FDI in transitional (CEE) economiesThe main development phases and

changing role of company management at EE subsidiaries

Stage I:

Early changes

Stage II:

Near past

Stage III:

Steady state

Privatisation - Firm establisment:

Transform HR infrastructure and competencies

Restructuring&Development

Set up new HR capacities and develop new HR roles

Consolidation &Renewal

Support continous renewal and knowledge generation

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3. Roads to transitional (CEE) economies

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Roads to transitional (CEE) economiesCase One: Fedex in Moscow (1)

Chack Nadal as FedEx manager (“Cast Away” movie) was

able to explain Russian employees American interpretation of

effective working time.

In 2006 and for the 9th consecutive year, FedEx was

recognized as one of the "100 Best Companies to Work For"

by Fortune Magazine and the Great Place to Work Institute.

FedEx is present in Russia since beginning 1990s.

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„The World on Time”

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Culturally correct behaviors Culturally incorrect behaviors

Countries PDI UAI MAS IDV CDI

1 Russia 95 75 40 47 -

2 US 40 46 52 91 29

„The World on Time”

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Roads to transitional (CEE) economiesCase Two - VW (Volkswagen) makes Skoda a Czech success (1)

“Along with very sorry Trabants, Ladas and other relics from the Soviet era, it's enough to make most of us look at cars a new -- and relish the state-of-the-art double upholders and seats that heat themselves. But in the Czech Republic, Skoda is looked at very differently. The company, even though it fell on some very miserable times during the eastern bloc days, is still viewed with something approaching wonderment.” (CNN-Quest)

+

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1918

1938-1945

1993-

1968

1989

Items Czech R Germany US

Population 10,5 82 308

GDP per capita

(USD) 18.288 40.681 45.778

HDI index 0,84 0,885 0,95

Czech RepublicOverview


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Items Czech R Germany US

Population 10,5 82 308

GDP per capita

(USD) 18.288 40.681 45.778

HDI index 0,84 0,885 0,95

1990-

1870-1918

1918-1945

1945-1990

GermanyOverview


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Cultural dimensions of Hofstede

Dimensions No Countries

PDI IDV MAS UAI LTO

1 Czech Republic 57 58 57 74 13

2 Germany 35 60 45 60 28

Cultural comparison -Czech and German people

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Market share

0%

5%

10%

15%

20%

25%

Germany China Global US

Market share

VW - 4.4 million car (No 1 car company of the world)


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1949-1989 (Socialistic car model)


Skoda - Past

http://www.autostat.hu/images/stories/markatortenetek/skoda/s105s_600.jpg

http://www.autostat.hu/images/stories/markatortenetek/skoda/s105s_600.jpg

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Skoda - Present

2009 (Skoda Yeti) 2006 (Skoda Ramster)

March 28,1991 VW and Skoda)

2005

1 million

car/yr

Are skoda cars sold

in U.S.?


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Conclusions of the caseSimple driving rules were laid down

The flow of information has become easier

The vehicles are manufactured with VW parts

The main aim was to maintain and increase quality

Fostering good relations with decision-makers of Czech government

Škoda brand featured in many major sponsorship

Skoda took over the product - marketing know-how from VW


Conclusions of the case

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Roads to transitional (CEE) economiesCase Three – Tungsram (HU) – GE (General Electric (1)

The harsh business environment in Europe and the globalization of business required more rapid changes in the organization, people and the culture than expected at the acquisition. Even though experiencing many conflicts of interest and hard debates people were open to the changes because they had vision, they were involved and received frequent communication on the business goals and results. In this particular case, the initial years of changes have taken since acquisition until 1994 or more than 5 years. Today the company is eminently successful. It has entered an era of business growth and stability. GE meantime has successfully learned from the Tungsram experience. (Dowling et al., 2008) The right people management strongly contributed to the successful transition of the business into a profitable venture.

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Roads to transitional (CEE) economiesCase Three – Tungsram (HU) – GE (General Electric) (2)

0

5000

10000

15000

20000

1990 1993 2004 2011

Employees

Employees

0

500

1000

1500

2000

2500

3000

3500

4000

1990 1993 2004 2011

Revenue (million USD)

Revenue (million USD)

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This organization has control of the entire value chain

Strategy

Controlling

HRM

IT and office infrstructure

R&D In-bound

logistics

Operation&

out-bound

logistics

Sales&

marketing

C

L

I

E

N

T

S

Value chain - mandates

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Young people in middle management positions

Right mix of expatriates and locals

Entry level programs in finance, engineering,

manufacturing, HR and IS areas

Locals in key managerial positions within

Less expatriates

GE-pan-european structure

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The business environment required rapid changes

in the organization, people and culture

People are open to changes, if there are vision,

communication and involvement

The right people management strongly

contributed to the success of the acquisition

Roads to transitional (CEE) economies

Case Three – Tungsram (HU) – GE (General Electric) (5)

Learning from the case

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Recent development

Jeffrey Immelt would like

to close or transfer

to China the traditional

lighting production

Roads to transitional (CEE) economies

Case Three – Tungsram (HU) – GE (General Electric) (6)

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Roads to transitional (CEE) economiesCase Four – Japanese expats in CEE region (1)

It is, in fact, increasingly accepted that success or failure are

determined less by the company and much more by the

family and domestic problems of the expatriates themselves.

After a brief introduction, this case-study reveals – separately

- the adversities and difficulties with which Japanese

expatriates are confronted in both their professional and

private circumstances. This is based upon interviews with

over 100 Japanese expatriates in five countries (Mexico,

France, Poland, the Czech Republic and Hungary).

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109 Japanese expatriates aged between 31 and 39 in five countries (Mexico, France,

Poland, the Czech Republic and Hungary)

Foreign posting duration (annual job rotation system)

Duration (months) Absolute

Frequency

Relative frequency

%

Under 3 44 40.4

4 to 12 37 33.9

13 to 35 22 20.2

Over 36 6 5.5

Total 109 100.0

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Expat family Absolute frequency Relative frequency %

None 79 72.5

Wife Only 12 11.0

Whole Family 18 16.5

Total 109 100.0

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What are the typical problems of Japanese expats in foreign

and particularly in transitional environment?

Explain how you would solve these problems as local HR

Managers of a Japanese subsidiary in a transitional

country (for instances: Czech Republic, Hungary, Poland Russia

etc.)?

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Roads to transitional (CEE) economiesCase Five - MNC Consulting Case in EE region (1)

During the 1990’s the focus within Eastern European companies was on

assisting the organization in making the transitions associated with

privatization. During the subsequent years, the focus has increasingly

shifted toward a continuous improvement approach aimed at helping the

organization develop and on assisting individual employees develop

through coaching. Such providers like Hay Group, Mercer or AON-Hewitt

try to gain a reasonable market share from this growing HR market. How

would they do it? How similar or different are their approaches?

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Company

information

Staffing –

Early stage

Life cycle

at subsidiaries

Changing patterns

of knowledge-transfer

Management –

regionalization

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It goes back to US in 1940s

Key services:

• HR consultancy, labor market studies,

• outsourcing, change management

Step by step involved to the region since 1980s

Newly established start-up subsidiaries

Hungary: 1990

Czech Rep. : 1992

Slovakia: 1996

Poland: 1998

Almost all countries in EE region: 2005

Firm

Revenue

(US$ mil)

Market

Share

PwC $770 13%

Mercer $767 13%

Accenture $571 9%

Watson Wyatt $495 8%

Deloitte $434 7%

Towers Perrin $200 3%

Hay Group $198 3%

Aon Consulting $148 2%

IBM $141 2%

Ernst & Young $132 2%

Hewitt $126 2%

Buck Consultants $64 1%

Other $1,994 33%

Total Market $6,040 98%

Source: Kenndey Institue

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Expats. consultants

Local inpatriate

Joint teams, intranets

1990 1995 2000 today

HQ

Clients

Expats Consultants Local

inpatriate

Joint teams,

intranet


Changing patterns of knowledge transfer

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First stage: Locally driven

Second stage: Division driven

Third stage: Pan-EE mgmt. team

Have a flat organization structure

Have a mix management team

Local country managers become

„ambassador”


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4. Conclusions

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FuturePriorities of key tasks in the future

1. Efficiency improvement

2. Company development

3. Company reorganization

4. Conform to globalization

5. Distribution development

6. EU changes

7. Eastern expansion

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Thank you for your attention!

Întrebări şi răspunsuri

József Poór

Professor of Management

Szent István University, Hungary

the challenge of international management and of ihrm in

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