Any
corporation setting up shop in a developing country will need to recruit local
labour. Liz Hall looks at HR’s role in what can be a challenging process
When
the Edinburgh-based marine service company BUE Marine moved into Azerbaijan’s
capital Baku to take advantage of its natural resources, it faced a catalogue
of HR obstacles from nepotism and theft to low skills levels and deceitful CVs.
The
oil industry supplier was forced to make concessions to nepotism by employing
at least one government-recommended worker per boat. On-the-spot anti-theft
searches became a necessary part of working life and a company freebie of a
week’s supply of oranges was hidden away within two minutes by impoverished
staff, recalls Linda Kennedy, group sourcing manager at international mining
company Billiton and former personnel manager at BUE Marine.
"It
was a complete culture shock. Nepotism was even more of a problem than it had
been in Latin America and we saw many dubious qualifications, as you can buy
anything there. We had to work very hard to build trust," says Kennedy.
As
new business opportunities, cheaper labour and alternative sources of
specialist staff lure growing numbers of companies to developing countries,
particularly to Central and Eastern Europe (CEE), Latin America and Asia, HR’s
skills are increasingly being put to the test. Since moving to Billiton, a FTSE
100 company, Kennedy’s experiences in Latin America and China have served to
further underline the HR challenges inherent in sourcing and retaining staff in
developing countries.
Once
a company has its sights on a merger, acquisition or joint venture, one of the
first steps is to examine costs and analyse the local labour force. "When
companies want a foothold in a developing country, they need to research labour
costs, cultural differences, benefits, legal jurisdiction and how to hire
people locally.
"In
China, for example, they would need to sign contracts through one of two
government agencies: the China Interlattec International Corporation (CIIC) or
the Foreign Enterprise Service Corporation (FESCO)," says Alan Tsang,
managing director for Asia for search and selection firm Norman Broadbent.
In-depth
analyses of local labour issues often make for lucky escapes. Already ensconced
in Chile, Peru and Colombia, Billiton tendered for a Venezuelan aluminium
operation in Puerto Ordaz in 1999. "We found recruitment run down, high
levels of theft, gross over-manning, higher production costs than anywhere in
the world," says Kennedy. "The operation was heavily unionised and
all pay amendments had to be agreed with the unions and government, who had not
paid its workers full wages for two years. We would have incurred this debt.
Plus the existing skills levels were not very high."
Billiton
hired Latin American search firm Heindric & Struggles to look at the
viability of hiring a local manager to head up the project – ideally a
repatriate with local knowledge and widened horizons. But the choice was
limited and it also envisaged difficulties recruiting a CFO. HR problems
combined with the country’s unstable economy persuaded Billiton to abandon the
project.
HR
is increasingly involved in the planning stages, but levels of involvement
still vary: "I do a lot of work in the banking field and HR tends to come
in later. But if a company is thinking of setting up a factory, say, HR is
definitely brought into the process much earlier on," says Patrick
Alexander, vice president for executive search and selection firm Korn/Ferry
International.
Tapping
into expert local knowledge is essential when moving into new territory and
many companies choose to work with consultancies like PricewaterhouseCoopers,
Korn/Ferry International or Arthur Andersen.
Kennedy
kicks off any expansion into new territory by identifying which are the best
headhunting firms to get the top people in place. She benchmarks against
competitors and builds up an extensive database of all companies used.
"You cannot expect to be an expert overnight and as a big international
company, the key is to identify a good, well-established partner to support
you. Doing a major fact-finding mission is fine if you have the time, but why
reinvent the wheel?" says Kennedy. Â
Proximity
to the European Union, availability of talent and relatively stable economies
make CEE the fastest-growing market for European and US companies, with Latin
America not far behind, according to Dr Richard Croucher, lecturer in HR at
UK-based Cranfield School of Management. "Companies can draw on a highly
skilled labour force with high standards of numeracy, computational capacity
and linguistic ability," he says.
Jean
Yves Alquier, partner for CEE in French HR consultancy Arthur Hunt, whose
clients include telecommunications firm Alcatel, Deutsche Bank and IT firm
Bull, says: "All the important factors for moving into new territory come
out positive in CEE, including Bulgaria and Romania, which are the
least-developed countries in the area. In all these countries, even small ones
like Slovakia and Slovenia, there are high-quality people in most specialties,
particularly the scientific, technical and engineering sectors."
But
the lack of exposure to capitalism or wealth in developing countries can mean a
lack of commercial awareness. Training and development for locals, combined
with some use of expatriates is advisable. "Although the potential of
general and finance managers is high, they need to be educated in Western
notions of profit, costs, budgets and exports," says Alquier.
International
logistics and distribution firm DHL, telecommunications company Nokia and car
manufacturer Audi are among those who have flocked to Eastern European
countries such as Hungary. Mark Loades, HR director for DHL Hungary, says:
"The skills base is extremely high in Hungary with good marketing, IT,
financial and economics skills, but the commercial acumen is fairly limited.
People are not used to closing sales quickly. We have to train and develop,
which is exciting, as people are very open to this here."
Dr
Croucher warns: "Companies need to get behind the talk, as although people
know the words to say, such as empowerment, they are not particularly
business-minded. They also need to explore connections into local networks of
influence in a region where who you know is still very important and there are
high levels of corruption."
Gathering
information in CEE can be tricky, which Korn/Ferry’s Alexander attributes to
information having represented power under communism in the absence of a price
mechanism. But local government bodies or organisations such as the
Polish-American Chamber of Commerce can provide information.
DHL’s
Loades warns that employment law can be a minefield in Eastern Europe:
"You have to be very careful to follow the labour code, which is very pro-employee.
There are challenges, but you have to be creative." However, he says that
recruitment processes in Eastern Europe are highly sophisticated, with
assessment centres, psychometric centres, recruitment agencies and so on being
very much part of the culture. DHL uses the Budapest office of London-based
search company Antal, consultancy Neuman International and on-line job board
Monster.com.
When
34,000-strong Billiton expanded into Beijing in China, Kennedy used local
recruitment and cross-cultural training firm Nicholson International. As the
company was awarded a high-profile government grant, it was deluged with CVs
from locals. An ex-Shell expatriate helped build local contacts – as networking
is vital in China.
Kennedy
was impressed with the availability of skilled staff in China and turnover has
been low, but says there have been problems juggling Chinese and Western ways
of thinking: "It is easy to go too one way or the other and you need to be
aware of the Chinese’s emphasis on face, honesty and integrity without being
afraid to do things for profit. Also you need to employ more public/employee
relations people than anywhere else in the world."
Alan
Tsang agrees it is essential for employers to take cultural differences into
account, particularly in Asia. "Chinese people think differently and local
staff tend to cluster together whispering rather than say they are unhappy.
This makes it difficult to motivate people and managers have to understand the
culture," he says.
Sales
and marketing people, programmers and other IT people are readily available in
China, even away from the big cities. But Tsang warns that general managers,
finance people, senior managers and CEOs are not so easy to find.
Recruitment
of locals in China tends not to be done directly, but through the CIIC or
FESCO. Labour costs are low – with workers in China earning a tenth of the
monthly average of $1,000 earned in Hong Kong. However, employers should watch
out for hidden costs – in China, staff receive 13 months’ pay and bonuses, for
example.
Elsewhere
in Asia, India is attracting many companies (see case study) because of its
pool of skilled, quality IT people. Companies are basing operations here, such
as software development and outsourced customer services and financial centres.
Cranfield’s
Croucher attributes Latin America’s main attractions as its location – near to
the US – and its cost-effective talent pool: "In Latin America, there are
well-qualified people in the legal and healthcare fields and there are the
benefits of cheap labour and a good location."
Despite
Colombia’s rate of foreign investment being slowed by the current unfavourable
socio-economic situation, it still attracts multinational companies from the
service industry, telecommunications, high-technology and e-business, according
to Patricia Arenas, HR manager at management consultancy Arthur Andersen
Colombia.
Arenas
says that the state of the economy has prompted many Colombians to flee back to
the provinces and many companies are widening their recruitment nets away from
the five main cities of Bogota, Cali, Medellin, Cartagena and Baranquilla to
smaller towns such as Armenia. "The level of education in Colombia is
parallel to that of the US and we have a lot of well-qualified people, many of whom
can be found in the provinces again," says Arenas in Bogota.
Arenas
cites the example of her former employer Nortel Networks, a high-tech
telecommunications firm, which successfully branched out its search for
electronic engineers from Bogota to the fairly remote Popayan, best reached by
plane.
Neither
the Middle East nor Africa holds the same attractions for companies as Europe,
Asia and Latin America. But the number of multinationals making an aggressive
bid for locals in the Middle East is growing. Kraft, Jacob Suchard, PepsiCo,
Coca Cola and Nestle are among the newcomers to the area.
"Multinationals
are realising we have a growing population, with more than 50% aged between 18
and 25. But demand outstrips supply so packages have to be very
competitive," says Korn/Ferry Middle East consultant Raed Sater, former
head of HR at Unilever.
Companies
such as Unilever, Proctor & Gamble and Citibank have been in the area for
many years and invest heavily in the training and development of locals.
"They offer graduates training, as the education system does not prepare
them for business life, for sales, marketing or finance positions, so that is a
real challenge. IT professionals are still brought in from the Indian
subcontinent, while Egyptians and Lebanese are brought in for sales
positions," says Metin Mitchell, managing vice president for the Middle
East at Korn/Ferry International.
For
natural resources companies such as Billiton, which has a strong presence in
Johannesburg, Africa is an important market. South Africa is a good source of
IT specialists, particularly software developers, according to Chris Neale,
director for European development at myOyster, the global technology
recruitment arm of the Barkers Norman Broadbent group.
But
factors such as HIV have taken their toll on the African economy and job
market, with previous projections for numbers of job seekers being reviewed
because of the disastrous impact of the HIV/AIDs epidemic, according to the
International Labour Office’s (ILO) World Employment 2001 report. "Losses
are disproportionately high among skilled, professional and managerial workers.
The epidemic will not only reduce the stock of such workers, but also reduce
the capacity to maintain future flows of trained people," says the ILO’s
report.
Tips
for moving into developing countries
–
Link up with the best local recruitment experts.
–
Build contacts with other firms and the government.
–
Examine the local skill set.
–
Weigh up labour costs.
–
Consider cultural differences.
–
Look at employment law.
–
Create teams with locals and expatriates.
–
Be patient and open-minded.
Emerging
market facts
Most
popular emerging markets:
–
Latin America: Brazil, Mexico and Argentina
–
Asia Pacific: China, Korea and Taiwan
–
Africa and the Middle East: South Africa
–
South Asia: India
–
CEE:Romania, Hungary, Bulgaria
Key
industries for emerging markets:
–
Telecommunications
–
IT
–
Financial services
Case
study: Hewlett-Packard
Venturing
into Asia
When
Hewlett-Packard (H-P) recently assessed India as a possible growth site for
software development, research and business services, its HR professionals
played a prominent role.
"Our
approach when looking at new business ventures such as India is for HR to play
a very critical role in the assessment process," says Mike Nichols, head
of H-P’s global staffing and workforce programmes.
As
well as involving HR at an early stage, H-P usually works with a consulting
firm with local knowledge to help carry out the initial assessment. Arthur
Andersen Consulting was the choice for upfront assessment in India. The
consultancy has also been used throughout Latin America, which continues to be
an important growth area for sales and marketing, along with Eastern Europe and
South East Asia.
"They
look at economic and political stability, the regulatory and legal framework,
the technology and power infrastructure, and last but most significantly, the
availability of the skill set," says Nichols.
The
labour force assessment involves drawing up a skills profile of the country –
in this case India, by looking at local universities, the types of degree
obtained and whether they produce quality graduates – and examining the
availability of experienced professionals. "We then put a map together
showing other similar operations, competitors and those outside the main areas,
and examined the main options in India," he says.
"If
you look at the quality technical skill set, it’s immense. Last year, not long
after establishing in India, we were easily able to recruit 500 software
engineers," claims Nichols.
Recruitment
strategies
Traditional
advertising, agency recruitment and employee referral were the main recruitment
channels in India. Setting up shop in India proved easy, helped by H-P’s
long-standing sales and marketing presence. H-P plans to continue to invest in
the country, attracted by its stability.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
Establishing
in Latin America, one of the fastest-growing regions, was more challenging.
Nichols was formerly the director for HR for Latin America – covering Colombia,
Peru and Chile. Whenever H-P moves into a new area, it sets up a core group of
managers on foreign assignment with the aim of transferring to locals within
three to five years. "We have found it beneficial to have a local HR
person with knowledge of employee relations, benefits, negotiations and legal
requirements. Once the move is on the table, we try to blend HR in with the
knowledge of the consultancy."
But
in Peru, transferring the core team to the locals proved very difficult.
"Putting together a core team of recruiting nationals by advertising
locally was not working because they do things by word of mouth in Peru. So our
strategy had to be to build a physical presence in the high-tech community
first. It took longer than I’d like to admit to set up our core group – six
months as opposed to 60 to 90 days," says Nichols.
