Western HR in eastern Europe

This growing familiarity with, and confidence in, doing business in north America and western Europe is not so apparent when it comes to international assignments in central and eastern Europe. Nevertheless, an increasing number of UK-based HR professionals are having to undertake such assignments, and the numbers will inevitably increase as the European Union broadens its membership to include the Czech Republic, Hungary and Poland.

Expert panel

To provide practitioners with an overview of the main HR challenges in societies that are gradually coming to terms with western-style business cultures and management philosophies, IRS Employment Trends interviewed a panel of managers and consultants who have recent or ongoing involvement in managing human resource assignments in the Czech Republic and Poland. Our panel members are:

Joyce Coppello - managing director of Design for Learning International, a company providing management development training in Hungary, Poland and Ukraine;

Krzysztof Klamut - director of corporate finance services at KPMG Poland, an expert on employee issues in mergers and acquisitions in Poland;

Kevin McIvor - business development director at Anglian Water International, who managed the acquisition of two Czech water companies;

Diane Van Ruitenbeek - an occupational psychologist and change management consultant with experience of working with managers in Poland; and

Norbert Wetzel - HR director for emerging markets at IBM.

Our informants provide vital pointers for managers who may be asked to undertake HR in central and eastern Europe. They warn against anticipating an ideal model of the post-communist firm - represented by companies such as the Czech car manufacturer Skoda, majority-owned by Volkswagen, with its highly skilled, highly motivated and moderately paid workforce. Instead, they advise managers to give their attention to the following:

Language barriers

UK managers are not known for their foreign-language skills, and those who cannot communicate with the companies with which they are in business are at a considerable disadvantage. Most English speakers will have a problem with the languages spoken in eastern European countries, where German and Russian are more widely understood than English.

Kevin McIvor of Anglian Water International spent a year in the Czech Republic, which is generally regarded as the most westernised of the former communist countries. He says that virtually none of the Czech managers with whom he worked spoke English. He acknowledges that not many UK managers going to the Czech Republic have the time to learn Czech, a difficult language, beforehand. Nevertheless, he maintains that the first principle of survival is the ability to communicate.

McIvor says that having a translator present, even all the time, does not solve all communication problems. Meetings with a translator present take twice as long because everything has to be repeated. "Translators often provide only literal interpretation, and you can miss out on nuances. For example, the translator will not say the person being translated is angry at this point or that what they are saying is very confused."

Krzysztof Klamut of KPMG, who has assisted UK companies in purchasing companies in Poland, adds that translators often struggle with business terms. He recommends that UK companies doing business in Poland, particularly outside the main metropolitan areas, hire assistants - for example, young people recently graduated from business school - who together with translators can speed up the communication process.

Managers going to central and eastern Europe should learn at least some of the relevant language beforehand, advises Joyce Coppello of Design for Learning International. She believes it is important at least to attempt to gain sufficient knowledge of a language to be able to tell whether or not the translation is effective.

Cultural awareness

Like many companies in a similar position, when Anglian Water purchased water companies in the Czech Republic it was faced with the decision of whether to work with existing managers or replace them with an entirely new team. It decided on the former, and in so doing discovered that deeply entrenched management values needed to be addressed.

Kevin McIvor found that managers had little or no appreciation that employees might contribute significantly to the business. "Trying to get them to think about how employees can add value by being more involved and participative was a major challenge for us."

He believes that, all too often, UK companies going overseas do not spend enough time thinking through the cultural issues that people will face. He points out, for example, that managers in former communist countries may have an ambivalent view of profit. Making a small profit is considered socially acceptable, he says, but there is a widespread notion that when a capitalist enterprise makes significant profits, someone somewhere is going to be worse off as a consequence.

Our panel members agree that, in many central and eastern European countries, managers trained in the communist era tend to have a traditional, top-down approach to managing people. McIvor says this is reflected in how management decisions are communicated to a workforce. "They would simply tell people what to do. There would be no sense of asking the employees how they could improve the business."

Large transnational companies such as IBM find it easier to establish a people-centred management culture in former communist countries. IBM offers the full range of its products and services in central and eastern Europe, and has wholly owned subsidiaries in Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Russia, Slovakia and Slovenia. Most of these have been established during the past 10 years.

"The IBM culture is very strong," says Norbert Wetzel, the firm's HR director for emerging markets. "All our companies in central and eastern Europe are staffed by local people, and this includes managers." He says that despite "local business cultures", IBM has managed to get its culture accepted.

Diane Van Ruitenbeek says that her experience of working in Poland would suggest that cultural issues are difficult to understand, as they involve both the effects of a national culture and a culture imposed by communism. She says that, in Poland, things are changing, but organisational cultures still tend to be dominated by autocratic and hierarchical managers. She agrees that modern HR methods such as participative management are difficult to introduce.

The HR challenge

Several of our informants who have experience of working in the Czech Republic and Poland say that, under the old political system, the job of personnel manager was often filled by a communist party nominee. The role had overtones of keeping an eye on people on behalf of the state. It is hardly surprising, therefore, that in the post-communist era employees remain suspicious of the personnel function.

A number of our panel members, particularly those who have involvement in training, say that managers and employees are unfamiliar with group discussions and often prefer one-to-one communication. Coppello says that staff training can be difficult, as off-the-shelf modules need to be adapted. She cites her experience of teaching staff and managers how to assess the suitability of job applicants in workplace cultures where promotion has traditionally been based on age and seniority.

In the Czech Republic, companies do have some rules governing the way employees should be treated, but not to the same extent as in most UK firms, says McIvor. In state-owned companies, for example, it would be hard to find any record of an employee being dismissed, and there would seldom be any disciplinary or grievance procedures.

Van Ruitenbeek says that, in Poland, the country's labour code will often influence a decision about introducing a new HR policy or procedure. As an example, she cites the legal obstacles in the way of reducing an employee's pay because of poor performance. She says that the whole area of performance management is problematic, because there has been no history of performance appraisal, and top-down management made it hard for managers to have effective appraisal meetings with staff.

In all the major central and eastern European centres, the level of technical education and training is very high. KPMG's Krzysztof Klamut says that, in Poland, people working in manufacturing are highly skilled, problem-solving individuals. Nevertheless, he warns that weakness in HR can be a threat to successful foreign investment in Polish industry and services.

Foreign investors, including UK companies, argues Klamut, still have a lot to learn about how to communicate effectively with Polish workers. When a UK company acquires a Polish business, he says, it must set up effective channels of communication as a priority and inform the workforce about the plans it has for the company.

Anglian Water's McIvor adds that, for him, the big challenge was to introduce new styles of communication and to get feedback from employees about how they thought the business was doing. He introduced a regular staff bulletin, which invited employees to question the managers and directors. Managers were initially opposed to this idea, he says, "saying quite openly in our management meeting that it had no chance of succeeding". They were proved wrong when the initiative began to produce some results.

For IBM, the ability to attract and retain people with appropriate business skills is a huge challenge in central and eastern Europe. According to Norbert Wetzel, this is not simply a problem of supply and demand. "IBM has no difficulty in recruiting people with the necessary high-level scientific education nor do we have problems in training people, but in all the central and eastern European countries in which we operate there is a dearth of business skills."

Wetzel says IBM's strategy to "win the war for talent" in eastern Europe is based on four principles:

Education and training programmes run by IBM for its employees in central and eastern Europe are showing signs of success. The company offers a distance-learning Open University MBA programme for its staff throughout Europe. Wetzel says that in eastern Europe there is hotter competition for the limited number of MBA places than there is anywhere else in the world.

IBM has found that offering competitive compensation and benefits is more easily done in western Europe than in the east. This is because it is relatively easy to know how to be competitive in the west, because there is so much market intelligence available. In eastern Europe, market intelligence is not as good.

Workforce restructuring

Several panel members mention the difficulties they have experienced in managing workforce restructuring in eastern European businesses, particularly in achieving workforce reductions.

McIvor says that, in the Czech Republic, high levels of unemployment, combined with management commitment to job creation, can be an obstacle to reducing the size of a workforce. He says that the notion of creating better margins by reducing jobs does not sit comfortably with many Czech managers. One reason for this is that the relationship that may apply in the UK - where operating costs can be significantly reduced through downsizing - is nowhere near as marked in low-wage eastern European economies.

In Poland, regulations governing privatisation require a new owner to sign a social agreement guaranteeing employment for staff for a minimum of two years, which clearly reduces the scope for downsizing.

According to our panel members, traditional Czech or Polish enterprises are managed predominantly by men in their fifties. Most of our informants report difficulty in convincing managers that talented younger people should be given the opportunity to rise quickly in the hierarchy.

IBM says that it is in a good position to influence the business culture in the countries in which it operates, and to promote the idea that workforce diversity is actually good for business. "We will not compromise on our values, and diversity is one of our values," says Wetzel. He adds that he feels that IBM has not made sufficient progress in eastern Europe, but that work with customers, business partners and suppliers will eventually influence local business culture for the better.

Lessons learned

Krzysztof Klamut would like UK companies to avoid some of the pitfalls that can occur in acquiring and managing a business and its employees in Poland. He says that, quite often, when an investor acquires a business, the prospect of change creates uncertainty and anxiety in the workforce. Generally, he says, very few employees have any knowledge of the sale process or know anything about their new employer.

Companies should, he suggests, be aware of the following factors:

Based on his experience at Anglian Water, McIvor says that, if he had to manage the Czech project again, he would think very seriously about getting the right support network in place. That would involve local agents and translators with a business focus.

He adds that UK companies tend to take a shorter-term approach to making profits than those in European mainland countries. For this reason, he says that he would recommend an early strategic decision on the value of retaining an existing management team that may impede the level of cultural change necessary to achieve high performance within a relatively short period of time.

By contrast, Van Ruitenbeek advises managers against being discouraged by initial slow progress when people do not accept change immediately. "Be prepared," she says. "Find out as much as you can about the national culture and history. This will help you understand people's attitudes."

The Czech Republic - employment context

After the "velvet revolution" of 1989, a new trade union movement was created by a body of worker representatives from the strike committees that had helped overthrow the communist regime. Because of the straightforward way in which the old unions were overhauled, the new trade union structures are more unified than those in Poland and Hungary, where rivalries between new and old unions served to fragment post-communist trade unionism.

Membership levels have declined drastically from the near 90% membership of the communist era, and the decline shows no sign of abating. Approximately 1.5 million members were affiliated to the largest national confederation in 1998, compared with 2.5 million in 1995.

Three employers' organisations have been formed since the end of the communist era (under communism such associations did not exist):

Tripartism

As in other former Warsaw Pact countries during the early post-communist period, consensus-building tripartite institutions were encouraged by the International Labour Organisation. A national tripartite body, the Council for Economic and Social Agreement, was established. It was made up of members divided equally between the Government, unions and employers.

In 1993 this separated into Czech and Slovak bodies. The Czech body had no legal status, its main purpose being to agree a national statement of intent on economic and social policy. It effectively collapsed in 1995 after failing to establish a general agreement.

A new tripartite institution, established in autumn 1997 - the Council for the Economic and Social Accord - comprises four bodies: the plenary session, which meets every two months, composed of the Government, unions and employers, each with seven representatives; the presidium (the executive); working groups to discuss individual subjects, with nine members at most; and the secretariat, which is responsible for administrative issues.

Collective bargaining

A labour code governs relationships between employers and employees via their trade unions. It sets legal provisions for social dialogue and embraces co-decision making, consultation, information from employers to trade unions, monitoring by trade unions of organisations' adherence to the labour code and unions' rights to stop work where faulty equipment or processes could endanger life or health.

Ultimate enforcement and sanctions for breaches of the social-dialogue legislation is via a lengthy court procedure, which inhibits the challenging of infringements.

High-level industry agreements are binding upon the signatories: employers' associations and unions affiliated to the higher union bodies. Below this level, much bargaining occurs within individual enterprises.

Strictly by law, company-level collective agreements are supposed neither to undercut industry-level agreements nor to improve on them beyond an "allowable maximum". In practice, however, company-level collective agreements may offer significant improvements, especially in terms of pay, above the base levels provided by industry agreements.

Employment law

There are no special courts to deal exclusively with disputes arising from matters relating to collective agreements. Individual labour disputes concerning employee claims arising from collective agreements are covered by the labour code in the same way as other disputes concerning the employment relationship, and are dealt with by common courts.

This is a brief summary of a major feature that appeared in European Industrial Relations Review 296, September 1998, pp.19-25, available from IRS, 18-20 Highbury Place, London N5 1QP, tel: 020 7354 6742, price £315 (annual subscription). (See The Czech Republic: Industrial relations background)

Poland - employment context

There are no reliable statistics regarding trade union membership and levels of unionisation in Poland, although recent research indicates that trade unions currently operate in approximately 45% of enterprises. Union activity is certainly much higher in the public than in the private sector.

Trade unions are widespread in traditional state-owned enterprises and those with high levels of state investment, while they operate in only approximately 9% of enterprises established in the 1990s as private undertakings.

A distinctive feature of Polish trade unions is their political activity and significant role in the political system. Since its establishment in 1980, Solidarity has been a broad social movement that encompasses trade union activity. Currently, the two largest trade union organisations form the basis of the two main political parties in Poland: Solidarity Electoral Alliance and Democratic Left Alliance. Not surprisingly, numerous trade union activists sit in the Polish parliament.

The central employers' organisation, the Confederation of Polish Employers, represents Polish employers in the International Labour Organisation and participates in the tripartite Commission for Socio-Economic Issues. Established in September 1989, it has around 70 affiliated sectoral and regional organisations. It represents employers mainly in the public sector, and its institutional position is frequently contested by various associations of private sector employers.

Tripartism

The Commission for Socio-Economic Issues has succeed in establishing a common position in a number of areas, including:

Collective bargaining

The basis of collective labour law was established in 1991 in three pieces of legislation: the Act on Trade Unions, the Act on Employers' Organisations and the Act on Collective Disputes.

Under the third of these Acts, a trade union wishing to take strike action must notify the employer no sooner than 14 days following the presentation of a claim. If the issue cannot be resolved through negotiation, an independent mediator is called in to assist. If mediation fails, strike action may be taken or the initiating party may take the case to a regional labour and social security court.

The principles governing the conclusion of collective agreements are set out in the country's labour code, which provides for two types of agreement: those covering a single enterprise and those covering several enterprises.

Before they can be registered, collective labour agreements are verified for their conformity with labour law. Company agreements are registered by local labour inspectors, while those involving several enterprises are registered at the Ministry of Labour and Social Policy.

This is a brief summary of a major feature that appeared in European Industrial Relations Review 207, August 1999, pp.22-27, available from IRS, 18-20 Highbury Place, London N5 1QP, tel: 020 7354 6742, price £315 (annual subscription).