Talent Development and Economic Growth in Russia

2007 is an exciting time to be involved in Russian business. The ruble Daniel Macdonald in front of St. Basils has become increasingly more valuable and stable, and the government has emphasized new legislation designed to promote business growth. Russia has projected growth in almost every sector: oil and gas production, telecommunications, IT infrastructure, and business and software outsourcing just to name a few. Because of these factors, multinational corporations have increased their commitment to gain market share in Russia, the largest country in the world.

Moscow, the headquarters for most international businesses operating in Russia, has experienced a spike in competition for economic resources, including competition for the best and brightest of Russia’s talent. This can be contributed to a number of factors. First, the number of businesses that have entered the market have opened so many positions, it is difficult to fill them all. Second, Russia has a shrinking population and the culture and educational systems are still transitioning to prepare students for the new business roles they will fill. Therefore, there is a shortage of talented employees in comparison to the market demand, making the field of Human Resource (HR) Management a particularly interesting one in the Russian market.

The role of HR professionals within multi-national corporations is changing dramatically to meet these rising demands of the market. Today, Russian businesses are looking to HR to be a strategic partner instead of simply an administrative function. In other words, today’s HR policies contribute to the competitive advantage of Russian businesses rather than simply process employee paperwork. Although HR professionals still have administrative duties (i.e. processing salaries, authorizing vacations, and locating health insurance policies), they are beginning to focus on strategic programs such as benefits packages, training and continuing education programs and improving the company’s reputation as an employer. In a highly competitive market it is the role of HR to find ways to recruit highly skilled employees, develop the new-found talent, and train and retain them so that they can become the future leaders that will eventually run the business.

Today, HR specialists in Russia plan in advance for business growth and help to create a constructive, supportive “climate” in the workplace that fosters innovative collaboration across business units. This climate, and the reputation it can foster, are important to modern Russian business not only because they can help the employer “sell” themselves to the labor market, but also because it can help save costs. Local compensation offerings have sharply increased due to the increased competition specifically within the Moscow market. As an example, employees may be more willing to accept a job with a lower monetary compensation if other factors raise the value of working with a particular company. These factors may include: opportunities for personal growth, preferred benefits, the opportunity to work in a pleasant and constructive corporate atmosphere, or the association with a respected brand.

In the current Russian labor market, skilled employees have many choices between a wide range of well-known multinational firms. This contributes to a high rate of employee turnover as employees look to maximize their compensation and grow in their professions. This is a significant problem considering the time and money that are spent on recruiting and developing talented employees. Consequently, corporations are working hard to brand themselves as the “employer of choice,” and are placing more emphasis on long term incentives in an attempt to retain valuable employees.

This subject was recently discussed in an article in the Russian business magazine РБК (“Золотые Кадры-2007” РБК #4/2007). The article discusses growth in salary norms as competition within every Russian business sector drives up demand for skilled workers. Although salary norms remain lower than those in the U.S. market, the number of vacancies opened in the last year has far exceeded numbers opened in America, and rival other high-growth economies such as Brazil, India, and China.

Quoting statistics by the company Manpower, a global HR outsourcing firm, the РБК article measures the increase in vacancies filled in 2006 compared to 2005:

Industry % rise
HR and administration 21.5%
Finance and Banking 22.7%
IT and Telecommunications 12.5%
Sales and Marketing 20.2%
Industrial Sector 16.1%
Agriculture 7%

The rise in employment opportunities within each sector bodes well for specialists abroad looking for entry into the Russian economy, and there are particular examples of increased expatriate placement, particularly in language-centered positions such as editing, writing or even sales focused to English-speaking countries. However, it is difficult to report that the Russian market has embraced this solution.

There are several reasons for this. First, there is the perception that a foreigner would have no experience in the particularities of the Russian market, which operates under its own legislation and cultural norms, and thus a foreigner might not be able to work effectively within it.

Second, costs also discourage hiring Western foreigners. Moscow is now listed as the most expensive city in the world to live in according to Mercer Human Resource Consulting, and “assignments,” meaning that the corporation pays for housing and travel of an employee who moves from abroad to accept a position, are therefore particularly expensive to implement. Corporations also have to calculate the differences in salary expectations, as the local market trends are lower than Western norms, despite the recent rise in local salaries. Furthermore, according to the RBK article sited above, experienced managers in certain industries will make an average of 2000 – 5000 USD per month (the highest being in the financial sector), while an apartment, centrally located and of the standard expected by most Western professionals, can cost between $1500 and $3000/month. Despite these obstacles, it is still possible to attain a position here in Russia, but it will take a lot of time to find the right position and one should expect a lower compensation package.

All managers operating in Russia, whether Russian or foreign, face a common problem. While increased volume and competition allow for more opportunities to improve strategic human resource management, one problem associated with such rapid expansion is that experienced managers need to direct a greater number of employees that have less market “know how;” likewise, able managers are harder to replace should they retire or quit.

Also, employee leadership development, the process of creating managers out of employees, is usually driven in international companies by cultural norms and concepts common in Western business culture. Given that Russia has only had several years of experience with these norms and concepts, the process of employee leadership development can be a challenging one – no mater what market the company is operating in. Alternatively, most Western countries have spent decades developing modern HR structures and centuries developing a “capitalist tradition.” Although Russian workplace culture has changed dramatically over the past 15 years, there are still a lot of Soviet-era norms which have become obstacles to implementing leadership “values” as they are defined in the West.

The most glaring example is the tendency to approach problems by asking who is to blame. This is even known in Russian by the stock-phrase “Кто виноват?” (Kto vinovat? – which translates to: “Who is guilty?”). Alternatively, the Western approach is to avoid assigning blame whenever possible and objectively dissecting the problem. Because there is a cultural emphasis on “who,” and not “why,” people are often averse to address workplace problems. Instead there is a tendency to mask errors and avoid directly confronting the issue for fear that the employee may be personally blamed.

These problems also creep into the cultural understanding of leadership, and how to drive changes within a company. After the collapse of the Soviet Union, there was a wave of educational research studying leadership norms as they apply to organizational behavior in the region, and how Western cultures differ from Eastern European/Asian cultures in the value structures they support in regards to leadership.

Organizational behavior scholar Bernard M. Bass emphasizes two basic types of leaders. “Transformative leaders” possess qualities that inspire vision, stimulate workers, emphasize team work, and more actively accept suggestions and comments from subordinates. “Transactional” leaders maintain status quos, leading through clearly defined reward mechanisms and/or by generally avoiding problems. (Bass 1990) Although there are exceptions, the general argument can be made that Western traditions encourage transformational norms, while Soviet culture strongly encouraged transactional norms.

Evidence of cultural influences on leadership development has been measured and demonstrated by Alexander Ardichvili, a regional specialist in HR Management and the most influential scholar to take Bass’ theories and apply them specifically to practices in the former Soviet Union. (A. Archdivili, Human Resource Development Quarterly; Winter 2001; 12, 4)

Archdivili expounds upon the research of Bass and Geert Hofstede by researching the “cultural value framework” in Russia and how it applies to leadership norms. He defines seven different “cultural values:”

  • Power Distance – the normal degree of acceptance of inequality within a culture.
  • Individualism – the cultural tendency to act as individuals instead of in groups.
  • Masculinity – tendencies toward competitive behavior, emphasizing “success.”
  • Uncertainty Avoidance – a willingness to take risks and show dissent to the norm.
  • Long Term Orientation – consideration for future implications of one’s actions.
  • Paternalism – providing guidance and protection in return for loyalty and deference.
  • Fatalism – the belief that whatever happens must happen, and there is no choice.

Archdivili suggests that there is a relationship between these cultural values and in creating transformational and transactional leaders. In the case of the former Soviet Union, the findings suggest high degrees of power distance, masculinity, uncertainty avoidance, paternalism, and fatalism and low degrees of individualism and long-term orientation. This all contributes to creating transactional leaders over transformational leaders, meaning that the management styles of Western-based, multi-national corporations are particularly difficult to implement given that they are in direct conflict with Russian leadership norms.

The findings of Archdivili are only one of the many different considerations when discussing Russian business practices, and how the region will position itself to be part of a global economy in the near future. From an HR perspective, however, it is particularly interesting to be confronted by the challenges of implementing Western business practices, such as leadership development, in a region where the cultural values actually work against the program goals. It would be unwise to blindly implement programs that do not take into consideration the cultural realities or historical truths.

Russian business is going through a period of dramatic change, fuelled by rapid growth and international investment. HR specialists in Russia must consider the cultural norms as well as the market expectations if they are to be successful. However, opportunity feels like it is around every corner in Moscow, and everything you do as an HR professional has the potential to impact many working lives for the better. It is clear that over the next decade this region will re-define its approach to labor relations, most likely drawing many well-defined “best practices” from the West, and adapting them to fit into their own historical perspectives and cultural norms. It is fascinating to be a part of this transition.



About the Author

Daniel Macdonald

Daniel Macdonald, works as an HR specialist in talent management at IBM's East Europe/Asia headquarters, which is located in Moscow, Russia. He holds an MA from Cornell University's School of Industrial and Labor Relations, where he concentrated in the areas of Conflict Resolution and International & Comparative Labor. His thesis research at Cornell investigated managerial norms and methods of dispute resolution as they apply to post-Soviet labor practices, which he conducted while serving an internship in Bishkek, Kyrgyzstan in 2006.

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