HRM IN TRANSITION-PRACTICES OF MNC-SUBSIDIARIES IN …€¦ · hrm in transition-practices of...

HRM IN TRANSITION-PRACTICES OF MNC-SUBSIDIARIES

IN CENTRAL AND EASTERN EUROPE, RUSSIA AND KAZAKHSTAN

(2015–2016)

József Poór – Allen D. Engle – Chris Brewster (eds.)

2017

József Poór, Allen D.Engle and Chris Brewster (eds.)

HRM in Transition-Practices of MNC-Subsidiaries in Central and Eastern Europe, Russia and Kazakhstan (2015-2016)

Research monograph

Editors

Dr. József Poór

Professor of Management

Allen D. Engle, PhD


Chris Brewster, PhD


Authors

Names Institutions Positions Chapters

Ainur AbdrazakovaKazakh Ablai Khan University of International

Relations and World LangaugesAssociate Professor 9

Barnabás, Ambrus J. Selye University, Komárno, Slovakia PHdr student 14

Berber, NemanjaFaculty of Economics

University of Novi Sad, Subotica, SerbiaAssistant Professor 13

Borisov, Igor The National Open Institute in St. Petersburg Phd student 12

Brewster, Chris Henley College, United Kingdom Professor of IHRM Preface

Buzády, ZoltánCentral European University Business School,

Budapest, Hungary

Associate Professor of

Management9

Csapó, Ildikó Szent István University, Gödöllő, Hungary Phd student 3

Dobrai Katalin University of Pécs, HungaryAssociate Professor of

Management8

Dvorakova, Zuzana University of Economics, Prague, Czech RepublicProfessor of Business

Administration,7

Engle, D. Allen Eastern Kentucky University, Richmond (KY-US) Professor of

Management1,2,3,4,5

Juhász Tímea SAP consultant Manager 5, 8

Karoliny Zsuzsa

Mártonné University of Pécs, Hungary

Associate Professor of

Management2, 8

Kerekes Kinga Babeş-Bolyai University, Cluj-Napoca, Romania Assistant Professor 11

Kovács, Ildikó Éva Szent István University, Hungary Assistant Professor 8

Legnerova, Katerina University of Economics, Prague, Czech RepublicAssociate professor,

researcher7

Linge, Dimitry MSU Lomonosova, Moscow, Russia Associate Professor 12

Machova Renáta J. Selye University, Komárno, Slovakia Assistant Professor 14

Nikolic, MilanUniversity of Novi Sad

Technical Faculty “Mihajlo Pupin”, Zrenjanin, SerbiaAssistant Professor 13

Poór József J. Selye University, Komárno, Slovakia,Professor of

Management

1, 2, 3, 4, 5, 6, 7,

8, 9, 10, 11, 12

Šeben, Zoltán J. Selye University, Komárno, SlovakiaHead of Department

of Management14

Slavić AgnešFaculty of Economics

University of Novi Sad, Subotica, SerbiaAssociated Professor 5,13

Suchodolski, Adam Wroclaw University of Economics, Poland Associate Professor 10

Szabó, Katalin Szent István University, Hungary Assistant Professor 5,8

Szobi, Ádám J. Selye University, Komárno, Slovakia PhD Student 5, 12, 14

Vinogradov, Szergej Szent István University, Hungary Associate Professor 12

Volosin, Martin International School of Management ISM , Presov,

Slovakia

Professor of

Management14

Zaharie, Monica Babeş-Bolyai University, Cluj-Napoca, Romania Assistant Professor 11

Zarkin, Tsvetelina

Simeonova University of Forestry (Sofia, Bulgaria) Assistent Professor 6

Senior outside reviewers

Ladislaw Mura, PhD

Associate Professor

János Fehér, PhD

Associate Professor

Contributors to the preparation of the research monograph

Dr.Tamás Kolbe and Gábor Varga

Publishing by

J. Selye University, Komárno (Slovakia)

Publication year: 2017

ISBN: 978 – 80 – 8122 – 218 – 4

EAN: 9788081222184

HRM IN TRANSITION-PRACTICES OF MNC-SUBSIDIARIES IN CENTRAL AND EASTERN EUROPE, RUSSIA AND KAZAKHSTAN (2015–2016)

4

In memory of the late Prof. Dr. Ferenc Farkasfrom University Pécs (Hungary)


5

CONTENTS

PREFACE (CHRIS BREWSTER) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

PART ONE: RESEARCH MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1 INTRODUCTION (ALLEN ENGLE AND JÓZSEF POÓR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2 ABOUT THE CEEIRT RESEARCH MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.1 GLOBAL VS. LOCAL FORCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.2 CEEIRT RESEARCH MODEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

3 THEORETICAL BACKGROUND (ALLEN ENGLE, JÓZSEF POÓR AND ILDIKÓ CSAPÓ) . . . . . . . . . . . . . . . . . 21

3.1 FDI AND EMPLOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3.1.1 Global and regional trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

3.1.2 FDI and employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3.2 STRATEGIC ISSUES OF LOCAL SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.2.1 Objectives of the Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.2.2 Development of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.2.3 Origin of the firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.2.4 Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3.2.5 Nature and time of market entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3.2.6 Relationship between HQ and subsidiary HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.3 HR IN CEE REGION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.3.1 Past . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

3.3.2 HR in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3.3.3 IHRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3.4 SOCIO-ECONOMIC AND CULTURAL CHARACTERISTICS OF COUNTRIES SURVEYED . . . . . . . . . . . . . . . 31

3.4.1 Socio-economic situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

3.4.2 Cultural characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

4 EMPIRICAL RESEARCH (JÓZSEF POÓR-ALLEN ENGLE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4.1 RESEARCH AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

4.2 RESPONDING COUNTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

4.3 REPORTING FORMATS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

PART TWO: RESEARCH SUMMARY AND COUNTRY REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

5 RESEARCH SUMMARY (ALLEN ENGLE – JÓZSEF POÓR –

TÍMEA JUHÁSZ – KATALIN SZABÓ – SLAVIĆ AGNEŠ – ÁDÁM SZOBI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40


6

5.1 RESEARCH PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

5.2 MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED . . . . . . . . . . . . . 45

5.3 KEY INDICATORS OF HR ACTIVITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

5.4 CHARACTERISTICS OF THE RESPONDING INDIVIDUALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

6 BULGARIA (TSVETELINA SIMEONOVA ZARKIN AND JÓZSEF POÓR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

6.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

6.2 FDI AND EMPLOYMENT IN BULGARIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

6.2.1 Countries of origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

6.2.2 Sectoral distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

6.2.3 The number of foreign enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

6.2.4 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

6.3 CHARACTERISTICS OF THE COMPANIES PARTICIPATING IN THE SURVEY . . . . . . . . . . . . . . . . . . . . . . . . 62

6.4 MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED . . . . . . . . . . . . . 65

6.5 CHARACTERISTICS OF THE KEY INDICATORS OF THE HR FUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

6.6 THE MAIN INDICATORS REPRESENTING THE IMPORTANCE AND RESULTS OF THE HR ACTIVITY . . . . . . 67

6.7 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

6.8 THE OPERATION OF THE HR DEPARTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

6.9 KNOWLEDGE MANAGEMENT IN HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

6.10 THE FUTURE TASKS OF HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75


7 CZECH REPUBLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

7.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

7.2 FDI AND EMPLOYMENT IN CZECH REPUBLIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

7.2.1 Trends and evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78



7.2.4 The number of foreign enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.2.5 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

7.3 CHARACTERISTICS OF THE COMPANIES PARTICIPATING IN THE SURVEY . . . . . . . . . . . . . . . . . . . . . . . . 81

7.4 MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED . . . . . . . . . . . . .84

7.5 CHARACTERISTICS OF THE KEY INDICATORS OF THE HR FUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

7.6 THE MAIN INDICATORS REPRESENTING THE IMPORTANCE AND RESULTS OF THE HR ACTIVITY . . . . . . 86

7.7 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

7.8 THE OPERATION OF THE HR DEPARTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88


7.10 THE FUTURE TASKS OF HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93



7

8 HUNGARY (JÓZSEF POÓR, TÍMEA JUHÁSZ, KATALIN SZABÓ,

ILDIKÓ ÉVA KOVÁCS AND MÁRTONNÉ KAROLINY) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

8.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

8.2 FDI AND EMPLOYMENT IN HUNGARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96



8.2.3 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

8.3 CHARACTERISTICS OF THE COMPANIES PARTICIPATING IN THE SURVEY . . . . . . . . . . . . . . . . . . . . . . . 101

8.3.1 Company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

8.3.2 Total number of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

8.3.3 Mandate of the organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101

8.3.4 Origin of the parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

8.3.5 Year and form of establishment of the subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

8.3.6 Field of operation: sector-industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

8.4 MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED . . . . . . . . . . . . 104

8.4.1 Main strategic issues-orientations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104

8.4.2 Main competitive factors in the period examined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

8.5 CHARACTERISTICS OF THE KEY INDICATORS OF THE HR FUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . 105

8.5.1 Number of HR staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

8.6 THE MAIN INDICATORS REPRESENTING THE IMPORTANCE AND RESULTS OF THE HR ACTIVITY . . . . . 107

8.6.1 Labor cost – operating cost ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

8.6.2 Relative size of the training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

8.7 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

8.7.1 Foreign expatriates and their roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

8.7.2 Hungarian expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

8.8 THE OPERATION OF THE HR DEPARTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

8.8.1 The relationship between headquarters and local HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

8.8.2 Changes in the importance of HR functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

8.8.3 Typical HR competencies for success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

8.8.4 Primary responsibility of decision making in the main functions of HR . . . . . . . . . . . . . . . . . . . . 113

8.8.5 The role of external HR service providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

8.9 KNOWLEDGE MANAGEMENT IN HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

8.9.1 Personal competency development in HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

8.9.2 HR knowledge transfer between the parent company and the subsidiary . . . . . . . . . . . . . . . . . . 116

8.10 THE FUTURE TASKS OF HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

8.10.1 The key business issues, trends for HR to face . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

8.11 CHARACTERISTICS OF THE RESPONDING INDIVIDUALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

8.11.1 Demographic characteristics and qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117


8

9 KAZAKHSTAN (AINUR ABDRAZAKOVA, ZOLTÁN BUZÁDY AND JÓZSEF POÓR) . . . . . . . . . . . . . . . . . . 119

9.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

9.2 FDI AND EMPLOYMENT IN KAZAKHSTAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

9.2.1 Countries of origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

9.2.2 Distribution by sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

9.2.3 The number of foreign enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

9.2.4 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

9.2.5 The number of enterprises with foreign interest by the number of staff

(based upon statistical number of staff) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126





9.7 EXPATRIATES – INPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134




10 POLAND (MARZENA STOR – ADAM SUCHODOLSKI – JÓZSEF POÓR) . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

10.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

10.2 FDI AND EMPLOYMENT AT THE MULTINATIONAL COMPANIES IN POLAND . . . . . . . . . . . . . . . . . . . . . 145

10.2.1 The development of FDI inflow to Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

10.2.2 FDI by country of origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

10.2.3 Sectoral distribution of FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

10.2.4 The number of MNCs, their size and legal forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148

10.2.5 Employment generated by MNCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149


10.3.1 Company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151


10.3.3 The number of the subsidiaries of the Multinational Companies, participating in the survey (n=57). . 152





10.4.1 Main strategic issues-orientations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

10.4.2 Main competitive factors in the period examined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

10.4.3 Key performance evaluation of the subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157




9


10.5.3 Relative size of the training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159



10.6.2 Primary responsibility of decision making in main functions of HR . . . . . . . . . . . . . . . . . . . . . . . . 161

10.6.3 Implemented transformation in HR department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162

10.6.4 The role of external HR Service providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

10.6.5 Lack of HR manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

10.7 CRITICAL HR ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

10.7.1 Changes in importance of main HR issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

10.7.2 Conditions and results of the subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

10.8 DELEGATES AND ROLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

10.9 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

10.9.1 Foreign expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

10.9.2 Polish expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166



10.10.1 Personal competency development in HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

10.10.2 HR knowledge transfer between the parent company and the subsidiary . . . . . . . . . . . . . . . . 168




11 ROMANIA (KINGA KEREKES – MONICA ZAHARIE – JÓZSEF POÓR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

11.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171

11.2 FDI AND EMPLOYMENT IN ROMANIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172


11.2.2 Sectoral distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173

11.2.3 The number of foreign owned companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

11.2.4 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175


11.3.1 Company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176









10




11.5.3 Relative size of the training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

11.6 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

11.6.1 Foreign expatriates and their roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

11.6.2 Romanian expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184





11.7.4 Primary responsibility of decision making in the main functions of HR . . . . . . . . . . . . . . . . . . . . . 187



11.8.1 Personal competency development in HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190





12 RUSSIA (JÓZSEF POÓR, SZERGEJ VINOGRADOV, IGOR BORISOV,

DMITRY LINGE AND ÁDÁM SZOBI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

12.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

12.2 FDI AND EMPLOYMENT IN RUSSIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194

12.2.1 THE DEVELOPMENT AND STRUCTURE OF FDI INFLOW TO RUSSIA . . . . . . . . . . . . . . . . . . . . . . . 194

12.2.2 Sectoral distribution of FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197

12.2.3 THE NUMBER OF FOREIGN ENTERPRISES registered in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

12.2.4 EMPLOYMENT IN FOREIGN-OWNED FIRMS in Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199








12.4.1 Main Strategic issues-orientations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203





11



12.6.2 Training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206

12.7 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206



12.8.2 Changes in the importance of major HR issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209

12.8.3 Typical HR competences for success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

12.8.4 Primary responsibility of decision making in main functions of HR . . . . . . . . . . . . . . . . . . . . . . . 211








13 SERBIA (SLAVIĆ AGNEŠ – NEMANJA BERBER – MILAN NIKOLIC) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

13.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216

13.2 FDI IN SERBIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217


13.2.2 Sectoral distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219

13.2.3 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220


13.3.1 Company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

13.3.2 – Mandate - The main activities of the organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221


13.3.4 Establishment year and form of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223





13.4.3 Key performance evaluation of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225




13.5.3 Training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228

13.6 EXPATRIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

13.6.1 Foreign expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229


12

13.6.2 Serbian expatriates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 230





13.7.4 Primary responsibility of decision making in the main functions of HR . . . . . . . . . . . . . . . . . . . . 234









14 SLOVAKIA (RENATA MACHOVA – ZOLTAN ŠEBEN – MARTIN VOLOŠIN –

ÁDÁM SZOBI – BARNABÁS AMBRUS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

14.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

14.2 FDI AND EMPLOYMENT OF MULTINATIONAL CORPORATIONS IN SLOVAKIA . . . . . . . . . . . . . . . . . . . . . 240

14.2.1 FDI Volume and its distribution according to the sectors and countries . . . . . . . . . . . . . . . . . . . . 240


14.2.3 Sectoral distribution of FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243

14.2.4 The number of foreign enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

14.2.5 Employment in foreign-owned firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245


14.3.1 Company size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247



14.3.4 The number of the subsidiaries of the Multinational Companies, participating in the survey (n=17) . . 248




14.4 THE MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED. . . . . . . . . 251

14.4.1 Main Strategic issues-orientations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251


14.4.3 Evaluation of Main competitive drivers of the subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252





13

14.5.3 Training budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254



14.6.2 Primary responsibility of decision making in main functions of HR . . . . . . . . . . . . . . . . . . . . . . . 256

14.6.3 Implemented transformations in the HR department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257


14.6.5 Lack of HR Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

14.7 CRITICAL HR ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259

14.7.1 Changes in the importance of major HR issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 259


14.8 INTERNATIONAL ASSIGNEES AND ROLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

14.8.1 Foreign Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

14.8.2 Slovak delegates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

14.8.3 Typical HR competences for success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262








15 APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

15.1 APPENDIX – COMPANIES PARTICIPATING IN SURVEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

15.1.1 Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 268

15.1.2 Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

15.1.3 Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270

15.1.4 Kazakhstan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

15.1.5 Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272

15.1.6 Romania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

15.1.7 Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

15.1.8 Serbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

15.1.9 Slovakia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

16 LITERATURE SOURCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276


14

PREFACE (CHRIS BREWSTER)

It is perhaps a characteristic of all learning that the more we know the more we are aware of the things we do not know.

The academic community knows much more about human resource management (HRM), much more about international

differences in HRM and how internationally operating organizations manage them, and much more about HRM in particular

regions, such as amongst the ex-communist countries of central and eastern Europe, than we did thirty or so years ago when

the first text-books devoted to HRM were published (Beer et al, 1984; Fombrun, Tichy and Devanna, 1984).

This book recognizes what we have learnt, but focuses on filling in some of the ‘what we do not know’ spaces. In the first

place it focuses on the meaning and value of HRM, exploring the way it operates in territories where institutions are more

or less settled but are not necessarily firmly rooted. It addresses the role and influence of multinational enterprises in such

settings and in particular whether they bring in new and better ideas (adding value) to the way HRM has traditionally been

conducted or whether they exploit the less established institutions, putting pressure on local governments to apply laws in

their favor and taking advantage of lower labor costs (extracting value) to their own benefit but the detriment of the local

environment. The contributors to this volume provide detailed empirical evidence on these contentious points and add

knowledgeable insight from an insider’s perspective.

Second, the book’s two editors offer typically thoughtful analyses of what we know about HRM in multinational’s local

subsidiaries and are able to provide a succinct but valuable introduction to the region. With colleagues, they summarize the

key findings across the region. Tables are presented in a clear and straightforward format allowing the reader to draw their

own conclusions and also providing excellent teaching material.

This simple, clear presentation of findings is continued in each of the subsequent chapters. This is the third strength of the

text. The book provides careful and detailed data about each of the countries in which it is examining the HRM policies and

practices of multinational enterprises. We have known for a long time that within such organizations HRM is the most local

of management functions (Rosenzweig & Nohria, 1994) but what we do not know is how these different contexts affect the

way that the subsidiaries in each country behave. The generic evidence we have about the influence of local context and the

relationship between multinational enterprises and local business over time and the competing demands of relating HRM

to local institutions and cultures and standardizing ‘best practice’ across the globe (Farndale et al 2008; Brewster, Wood

& Brookes, 2008; Farndale et al 2017 forthcoming), indicates a nuanced picture, with some aspects of HRM converging

and some remaining embedded in their local environments. However, that evidence is drawn almost entirely from western

countries with unchallenged borders, well-established institutions and stable systems. It needs to be supplemented with

detailed fine-grained data from on the ground in countries with different histories and institutions: precisely what this book

offers.

Overall, we need better information about the HRM practices of multinational subsidiaries and we need to locate that

firmly in the context of the nation states within which those subsidiaries operate. If such information can be presented in a

straightforward, unvarnished way allowing teachers and scholars to use the material for their own purposes, so much the

better. When the data refers to some of the ex-communist countries of central and eastern Europe, about which we know

much less, then this opens up the possibility of rich learning indeed.

Professor Chris Brewster

Professor of International Human Resource Management

Henley Business School, University of Reading, UK

Radboud University, Nijmegen, the Netherlands

Vaasa University, Finland

ISCTE-Instituto Universitário de Lisboa, Portugal

http://www.henley.ac.uk/people/person/professor-chris-brewster/


15

Part One:

Research Model

This part outlines our research model and describes scientific background of our research model.


16

1. INTRODUCTION (ALLEN ENGLE AND JÓZSEF POÓR)

Innovation is of crucial importance to the market success of our business, as Schumpeter, the father of today’s innovative

movement wrote in the middle of the last century (1950). In addition to the well-known types of conceptual models (product,

technology, and development of markets) the importance of mental- and business models which promote the successful

operation and growth of organizations is increasing (Tidd-Bessant, 2013). As a result of the constant changes in forms

and subtypes of trade human resources and the management of people has become a key element of organizational

competitiveness (Gomez-Mejia et al. 2014 and Torrington et al. 2014). Both empirical literature and the observation of

business practice it has been posited that the majority of subsidiaries of foreign companies are more developed than local

firms (Hiltrop, 1991 and Hoos, 2000) and they perform a more complex human resource management work (Dowling et al.

2017). In some opinions this difference is conspicuous in the case of countries in transition (Lewis, 2005).

The Central and Eastern European International Research Team (hereafter CEEIRT1) – composed of researchers from different

universities from the Central and Eastern European (CEE) Region, Russia and Kazakhstan - has begun a long-term research

project investigating the transition of HR practices and roles in Multinational Company (MNC) subsidiaries, as these challenges

occur within the region. We conducted our first region-wide survey round successfully in 2008 - 2009. Our second survey

occurred in 2011-2013.

The aim of our current survey (2015-2016) is to understand both the recent and future challenges inherent in human resource

management given this new, complex and dynamic landscape.

The majority of companies in the competitive sector of the Central and Eastern European (CEE) Russia and Kazakhstan

region have largely completed those major legal, strategic and structural modifications that followed privatization. They have

essentially completed the reorientation of firm functions and set up competitive business models and HR systems to support

these various models.

With the intensification of competition continuous renewal is now being emphasized. In this situation, the role of human

resources becomes particularly important in both the private and public sector of these countries.

There is a deficit in the HRM (Human Resource Management) literature when it comes to identifying new patterns of

Multinational Company (hereafter MNC) involvement and its impact on the HR/HRM activities of these firms. In this ongoing

regional research project we examine the HR functions and strategic practices of Multinational Company (MNC) subsidiaries

in Central and Eastern Europe. The current research is part of long-term research cooperation – the Central and Eastern

European International Research Team (CEEIRT) that is composed of researchers from universities across the Central and

Eastern European (CEE) region and aimed at examining the changing HR practices and roles in MNC subsidiaries. Some 406

foreign owned, legally independent subsidiaries participated in the questionnaire survey from ten countries (Bulgaria, Czech

Republic, Croatia, Hungary, Kazakhstan, Poland, Romania, Russia, Serbia and Slovakia).

Our model is built on three components. First, we relied on the widespread perception of international management, in

regards to the external factors influencing the HR activities of a subsidiary, that is factors related to firm size, maturity,

country of origin and strategic orientation. Given the context provided by these dimensions we secondarily examined how

different HR variables (e.g. presence and number of HR professionals employed, the importance of HR functions, HR skills

and the employment of external service providers), vary systematically across nations in our regional sample. The third

component of our study consisted of a comparison of the similarities and differences of the HR practices of foreign owned

companies in the countries surveyed.

1 Website of CEEIRT Research Team: www.ceeirt-hrm.eu

http://szotar.sztaki.hu/dict_search.php?M=1&O=HUN&E=1&C=1&A=0&S=H&T=1&D=0&G=0&P=0&F=0&MR=100&orig_lang=HUN%3AENG%3AEngHunDict&orig_mode=1&orig_word=sikeresen&flash=&sid=352694767d13ddac719231c0c7ac7312&vk=&L=ENG%3AHUN%3AEngHunDict&W=successfully


17

The book consists of 14 parts and an appendix. The Second section gives a brief overview of the basic features of our

research. The Third section describes the theory of the four most important elements of our model (FDI and Employment,

Strategic issues of the local subsidiaries, HR in CEE region and Socio-economic and cultural dimensions of Countries Survey).

The Fourth chapter summarizes the main results of our research and provides a series of conclusions. The last nine chapters

consist of detailed individual country analyses (Bulgaria, Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia,

Serbia and Slovakia).

The Appendix includes company names of those firms that provided data for our research. The book concludes with a

bibliography.

Such a broad and complex research monograph is not to be prepared without the support of a wide variety of hard

working professional colleagues. Special thanks go out to all of the members of the CEEIRT (Central and Eastern European

International Research Team) Team. The names of the academic contributors to the book may be found on the introductory

page. On one level the creation and development of this impressive regional research group may be the most important and

long lasting contribution related to this initial report of our collective scholarship. Our growing sense of global and regional

solidarity and coordinated scientific curiosity is very appropriate to the type of research we have entered into over the last

ten or so years.

It is important to list the names of universities that have, by providing appropriate conditions supportive to our research,

thereby contributed to the completion of this work. We should particularly mention as follows:

1. Babeş-Bolyai University, (Cluj-Napoca, Romania)

2. Central European University Business School (Budapest, Hungary)

3. Faculty of Economics University of Novi Sad (Subotica, Serbia)

4. International School of Management ISM (Presov, Slovakia)

5. J.Selye University (Komárno, Slovakia)

6. Kazakh Ablai khan University of International Relations and World Languages (Almaty, Kazakhstan)

7. MSU Lomonosova (Moscow, Russia)

8. Szent István University (Gödöllő, Hungary)

9. University of Economics, (Prague, Czech Republic)

10. University of Forestry (Sofia, Bulgaria)

11. University of Novi Sad Technical Faculty “Mihajlo Pupin”, (Zrenjanin, Serbia)

12. University of Pécs (Pécs, Hungary)

13. Wroclaw University of Economics (Wroclaw, Poland)


18

2. ABOUT THE CEEIRT RESEARCH MODEL (JÓZSEF POÓR , ALLEN ENGLE AND MÁRTONNÉ KAROLINY)

The current research is part of a long-term cooperative research consortium – the Central and Eastern European International

Research Team (known hereafter as CEEIRT) – that is composed of researchers from different universities from the Central

and Eastern European (CEE) Region and aimed at examining the changing Human Resource (HR) practices and roles in MNC

subsidiaries. This research team is now completed with Russian and Kazakh researchers. We seek to understand what trends

have emerged in the professional practice of HR and the key roles of HRM in our geographic area in response to the socio-

economic changes in the region.

2.1. GLOBAL VS. LOCAL FORCES

MNCs enter foreign markets for conventional reasons such as market acquisition, assuring resources and diversification. By

moving processes and activities to lower cost countries, they are also seeking greater economies of scale and a more rational

allocation of the expenditures (Dowling et al. 2017).

Farndale and Paawe (2007) found that the most common universal human resource management practices of MNCs to

emerge at global level were: talent management for senior managers, open job posting, expatriate management systems

and succession planning tools. Variations in global policies are, however, characteristics of a number of HR fields such as

reward policy, diversity policy, and performance management system for non-senior staff, employee relations and training.

At global level, similarities are largely driven by external competitive factors resulting in the adoption of universal “best

practice” and the availability of ICT systems and tools.

Similarities in approach to HRM at national level appear to stem largely from external institutional sources, such as legislation,

national tradition and expectations. Differences in approach among MNCs, at both global and national level, are largely led

by internal competitive processes, such as sources of competitive advantage (Bartlett and Beamish, 2014) corporate strategy,

structure and culture (Dowling et al., 2017).

A number of researchers are engaged not only in the study of management and/or HR practices in international companies,

but also in the international comparative study of HR. Hofstede 1991, Rosenzweig and Nohria 1994, Jackson and Artola

1997 and Yan 2003) found that the different national cultures, as external contextual components, have a significant

impact on the (HR) management structures and practices of companies. Others (Pauly and Reich 1997), however, claim

that the development of technology and the globalisation of competition will do away with the differences stemming from

national cultures. Several of those researchers who question the growing international uniformity of HR practices – among

others Gooderham et al. (2004) – insist that the differences in the institutional structures of the individual countries are the

determinant factors.


19

2.2. CEEIRT RESEARCH MODEL

Many authors believe that multinational companies design and implement their management functions - including HRM -

better than local companies do (Harzing and Ruysseveldt, 2005). Furthermore, these multinationals apply highly efficient

methods in the majority of the HR functions, namely performance management, communication, training of new entrants

and career management, whilst local companies tend to focus more on staffing concerns or administrative issues.

In undertaking a study of HR practices in the subsidiaries of MNCs in Central Europe, we begin by adopting a broad

framework encompassing the major external and internal factors that affect the operations of such firms (Figure 1) (Poór

et al., 2010). While a discussion concerning each element in this model is beyond the scope of this publication, this model

provides a context for the discussion, consistent with recent presentations highlighting the criticality of HR variables in the

context of situational, historical and institutional variables (Brewster et al., 2006; Venaik et al., 2005).

Although the research items were originally descriptive in nature, an analysis revealed objective results in all cases. In order

to facilitate statistical analysis, we used the same questionnaire during the personal interviews at the companies and during

the online survey coding and analyzed the coded answers. Our examination was carried out based on the model shown in

Figure 1.

Figure 1: Research model

Company objectives

• Gaining market• Assure assets• Diversification• Innovation

Company characteristics

• Strategy• Size• Company culture• Origin

• Export-import• Franchise• Local agency• JV• Owerall

ownership

EEntrance assets

Earlyentrant

Lateentrant

Mandate

• Strategy&controlling• Marketing• IT& communication• HRM

R&D

M1, M2, M3, M4, M5

R&D Oper.Log. Sales

• Expatriates and local staff• Staff number and HR• Relations between HQ and

subsidiary HR• External HR providers• Knowledge transfer in HR

1. Privatization.

2. The entrance of MNC.

3. The transition and learning.

4. Economical fallback.

5. Staying.

6. Crisis.

7. Recovery.

The phases of company development

HR characteristics

Source: Primary research by the authors


20

In developing the research model shown in the figure above we applied international results and information gained from

several of our own previous surveys. During the analysis we collated the observed picture with the findings of other research

projects conducted by various academic members of CEEIRT and therefore, inter alia, we built on:

» Models developed in the field of human resource management (Brewster et al, 2004) and international

management (Hill, 2002; Wild et al., 2003). Our own analyses carried out in 2004 involving 42 foreign

owned Hungarian subsidiaries based on the integration of these models (Poór, 2009).

» Our domestic and international experience gained during the Cranet2 HR researches being carried out at our

department. (Karoliny-Farkas-Poór, 2009; Karoliny-Poór, 2010).

» The results of our collected and published recent theoretical and empirical examinations in the field of

knowledge management such as Dobrai-Farkas 2010 and 2008, Dobrai 2008, Dobrai-Farkas 2007, Farkas et

al. 2005., Poór et al., 2014 and 2015),

» Also the research experience we gained over recent years during our analyses in the field of change

management (Farkas, 2015), management consulting (Poór, 2016) and organizational and national culture

(Jarjabka, 2009).

» In addition, the most recent HR researches we conducted in relation to the global economic crisis that

occurred in 2008 (Fodor-Kiss-Poór, 2010).

2 CRANET is a non-profit HR research network involving 42 countries and our department is a member since 2004.


21

3. THEORETICAL BACKGROUND (ALLEN ENGLE, JÓZSEF POÓR AND ILDIKÓ CSAPÓ)

3.1. FDI AND EMPLOYMENT

3.1.1 GLOBAL AND REGIONAL TRENDS

We have already briefly touched upon the two main categories of foreign investments:

» Foreign Direct Investment (FDI) means “gaining ownership and control over a company in another country”

(Krugman & Obstfeld, 2003: 190). In exchange for ownership, the investor company delivers financial,

production and management expertise and other resources to the target country. The direct involvement

by management in the ongoing operations of foreign firm is also a significant characteristic of FDI (Peng,

2009). The investor can choose between several alternative forms of investment. For example, he or she can

purchase a company, which had been operating for a long time, or he or she might opt for a completely

new, so-called “green-field” investment. As previously stated, the essence of foreign direct investment is

to acquire and secure control over the assets and operation of a company in another country, but, when

we talk of FDI, we should not fail to mention that the characteristics of the product and the size, nature

and culture of the local market or other conditions might demand the adaptation of corporate strategy and

management practices to fit local circumstances. In car manufacture, for example, there is no such thing as

a world car. Toyota is a good illustration of this, since, although it is the number one brand in the United

States, it was unable to get into the top three in Japan. The story of Coca-Cola is very similar. Although it is

advertised as a global world drink, country-specific advertisements proved to be more successful than would

have been the case with the same polar-bear campaign running in every country (e.g. Dubai).

» In contrast to the from described above, portfolio investment means that investors purchase different

financial assets and shares, and follows an investment approach characterized by a more indirect influence

over the company involved. A relatively strong correlation can be detected between the economic

development of a given country or region and foreign direct investment, and it can also be noted that large

investor countries are themselves among the recipients of significant inward FDI-flows.

Following WWII the character and forms of international business changed dramatically. This was the dawn of Foreign

Direct Investment (FDI), with mainly American and English firms active in every corner of the world. Traditional international

trade carried on expanding, but its role and importance waned in comparison with the more direct forms of cross-border

economic activity.

According to UNCTAD’s 2003 Report, the volume of FDI has fallen globally since the ‘90s. A record value of US$ 1,492 bn

was recorded in 2000, whilst the total global FDI volume reached only US$ 735 bn in 2002. The report identifies the declining

number of cross-border acquisitions among the most important factors behind this shrinking level of FDI.

According to UNCTAD 2008 Report, the volume of FDI has continuously increased between 2004 and 2008. Another

record value of US$ 1.401 bn was reached in 2006. As the result of the global financial crisis of 2008 this volume has been

drastically reduced.


22

This decline is in contrast to trends reflected in other macroeconomic indicators such as GDP, foreign trade balance or

employment rates, which once again started to rise globally (UNCTAD, 2014). According to the UNCTAD forecast, FDI in

2014 will remain at close to the 2012 level. Issues such as the structural weaknesses of the financial system, political instability

or an increasingly unfavorable macroeconomic environment could result a further decline in investor confidence and as a

consequence may trigger further declines in FDI. Whereas previously the most developed countries had a large share of the

regional FDI, recently the trend has changed and the emerging and developing economies have a 50% share of the total FDI

(UNCTAD 2010). (Table 1).

Table 1: The volume of global FDI (1990-2014)

YearsActual values

1990 1996 1999 2000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FDI 208 1,400 00 1,490 735 800 1,000 1,411 2,100 1,771 1,114 1,200 1,550 1,500 1,400 1,300 1,760

Source: World Investment Report, (2016). Geneva: United Nations.

FDI inflow into the CEE region between 1990 and 2012 amounts to 1,040 bn. $ (830 bn. €) (UNCTAD 2014). In this region,

it will be seen that for most of the 2000s, FDI increased, but fell back after the 2008 crisis. A recent study published by

UNCTAD (2014) showed that FDI in Central and Eastern Europe amounted to approximately $750 bn (Figure 4).

Figure 2: FDI inflow Eastern-Europe (1990-2012)

Source: UNCTAD (2014): World Investment Report, 2013. United Nations, Geneva.


23

In the early days of the transition there were roughly 1,000 companies with foreign investment in the CEE region, operating

with approximately US$ 400m of foreign capital (Simai 1989). At that time, the authorization for foreign investment could

be obtained subject to strikingly different conditions of economic control in the various countries of the region

Table 2: FDI in CEE countries (2009)

No. CountriesFDI volume

(billion USD)% to GDP

Population

(million people)

FDI per capita

(USD)

1. Bulgaria 50 92.2 7,585 6,592

2. Cyprus 26.8 83.4 0,797 33,626

3. Czech Republic 115.8 52.7 10,4 11,042

4. Estonia .2 68.8 1,34 12,090

5. Poland 182.8 30.7 38,151 4,791

6. Latvia 11.4 33.9 2,254 5,058

7. Lithuania 13.8 27.2 3,339 4,133

8. Hungary 85.9 41.4 10,021 8,572

9. Malta 9.4 108.4 0,413 22,760

10. Romania 73.9 36.7 21,48 3,440

11. Slovakia 50.2 48.4 5,418 9,265

12. Slovenia 15.2 29 2,039 7,455

13. EU-12 (new members) 651.4 47.1 103,324 6,304

14. EU-15 5,146.00 34.6 323,679 15,898

15. EU-27 7,447.00 35.1 500,379 14,883

Source: KSH (2010a). Foreign Direct Investment. (In Hungarian) Statistical Mirror (Statisztikai Tükör) IV. : 2. and http://stats.unctad.org/FDI/

TableViewer/tableView.aspx?ReportId=4031

3.1.2 FDI AND EMPLOYMENT

Previous research about the region has suggested that the inflow of FDI could lead to increasing differences in employment

and wage levels (Golejewska, 2002; Jenkins, 2009 and Falusné, 2000), and this could exacerbate social and economic

polarization. Foreign direct investment was very important for economic development, employment and economic growth

of Central European countries on their way to the market economy. Especially Slovakia, which is the smallest economy

among the four Visegrad countries (Czech Republic, Hungary, Poland and Slovakia), which recorded in the past years rapid

economic growth thanks to its economic reform and relatively high level of FDI inflow. This growth had a positive impact

on reducing the rate of unemployment, but it must be admitted that in Slovakia the unemployment rate for certain socially

weak groups of the population is still high, investment is not evenly spread in the country and economic recovery after the

crisis remains rather slow.


24

From a global point of view, international companies employ more than 80 million people in their subsidiaries all over the

world (UNCTAD data 2010). The proportion of people employed at subsidiaries of international companies varies significantly

across countries. According to the representative data of the UNCTAD World Investment Report, 50.6 % of the employees in

the private sector work for multinational companies in Ireland. The same indicator in Hungary was 22.4 % at the beginning

of the millennium, according to the aforementioned report (see Table 5 for a selected review of employment differences).

Table 3: Table: FDI and employment

No. Countries Year

Employees

Employees in MNCs Employees in private sectorin % 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 2000 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. Slovenia 2004 64,000 798,000 8.0%

10. USA 2004 5,1,000 131,367,000 3.9%

Source: UNCTAD (2008): World Investment Report, 2007: Transnational Corporations and Export Competitiveness. United Nations, Geneva: 10

3.2. STRATEGIC ISSUES OF LOCAL SUBSIDIARIES

3.2.1 OBJECTIVES OF THE FIRM

MNCs enter to foreign markets for traditional reasons (market acquisition, securing resources, and diversification), but lately

they are also seeking better economies of scale and a more rational allocation of expenditures, via shifting processes and

activities to lower cost nations (Dowling et al.,, 2017). These realignment activities necessitate coordinating and refining HR

practices, such as altering methods for expatriate compensation, reviewing training policies, and realigning the transfer of

managers across borders. These realignment activities necessitate coordinating and refining HR practices, such as altering

methods for expatriate compensation, reviewing training policies, and realigning the transfer of managers across borders

(Fisher et al., 1993; Francesco and Gold, 1997; Venaik et al., 2005 and Brewster, 2006). Earlier research suggests that formal

labor regulation does not have a significant relationship to FDI level (see Wood et al., 2014).This means that although firms

may enter countries because of cheaper labor, they feel either that they can circumnavigate rules or that they can compensate

for variations in regulation through a pattern of HR policies.

http://www.sciencedirect.com/


25

3.2.2 DEVELOPMENT OF SUBSIDIARIES

Major stages of company development and HR implications in Central and Eastern Europe during 1988-2016 can be classified

into the following six categories:

» Stage One and Two – Privatization/ firm establishment: This period is characterized by the transition from

centralized state control and state socialism to private ownership of the means of production in a wide

range of industries. Legal and institutional infrastructures (formation of private capital markets, etc.) are

altered to allow for numerous forms of private ownership and resource allocation. Simultaneously it is

occurred the entrance of global multinational corporations (MNC’s) into the Central and Eastern European

economies via partnerships with state sponsored firms or increasingly through direct purchase from the

state, or indirectly through purchase or creation via local or regional venture ownership transactions. After

the Cold War, one of the first foreign joint venture was established by Siemens AG (Germany) in CEE region

in Hungary in 1973. Overwhelmingly the majority of foreign subsidiaries in our region were established only

after these regime changes.

» Stage Three and Four – Restructuring and development: Later the new owners shift interest more toward

economic rationalization and the divestiture of unprofitable units and functions. The key role of HR was

to contribute to institutional changes and transformation. Overall economic development in the region

combined with the stronger foreign capital inflow it contributed to the strengthening the newly privatized

or established enterprises. HR helped to acquire new competencies and capabilities of people. According

to Claessens and Djankov (2002,313) „there is [a] large difference in post-privatization performance across

ownership-type with the best owner (strategic foreign investor) being associated eight times higher

productivity growth the worth owner (diffuse individual owner)”.

» Stage Five – Consolidation and renewal: The majority of companies in the competitive sector of CEE

economies has finished the structure changing after privatization. They have left the reconstruction of the

different company functions behind themselves for a longer or a shorter period. With the intensification of

competition continuous renewal is being emphasized. In this situation the role of human resources becomes

particularly important. With the appearance of new economy the knowledge and steady renewal become

the motive power of the HR.

» Stage Six and Seven - Crisis and Recovery: This period encompasses the global economic crisis that erupted

in 2008 and the slow recovery since, of particular interest is (Kotler and Caslione, 2011) the impact of this

stage on new or modified HR practices (Balázs and Veress, 2009) and executive expectations for the future

(Fodor et al, 2011).

In several previous surveys, we have analyzed the specific HR issues of all six phases. The present contribution is dealing only

with the main characteristics of phase 6.

3.2.3 ORIGIN OF THE FIRMS

Companies of different origins choose various paths to internationalization, and it should also be stressed that companies of

American, Japanese or European origin have built up their present organization structure and hierarchy in a variety of ways

(Dowling, et al,, 2017, Chapter 3.).

Americans went through their development phases rather quickly, Europeans used the international division structure less

frequently, whilst Japanese companies also underwent all development phases, even if somewhat slowly. In this last case,

however, the special role of salesmen affected their organizational development significantly.


26

Companies of different origins, national traditions and different local market backgrounds led to different approaches of

managing foreign subsidiaries. American companies coming from a large, homogenous market often still find foreign markets

less important than their local one. On the other hand, domestic consumption is of marginal importance for Nestlé, which

comes from Switzerland, a nation of only 6.5 million inhabitants. The culture followed by the parent company’s management

is also a significant explanatory variable and may also be worth repeating; specifically, the ethno-, poly-, region- or geocentric

cultural typology (Perlmutter, 1969).

However, these authors emphasize too, that national cultures and institutional environment can limit the transfer of HRM

practices. Besides that, the subsidiary level HRM practice may follow the practice of the country that sets the HRM standards

for what is perceived as a global best practice, too (the so-called dominance effect).

3.2.4 MANDATE

During the analysis, as per Delany (1998) and White-Poynter (1984), we classified the participants into five groups based on

how much of the value chain is covered by the range of activities of the local subsidiary.

1) “Mandate 1”: This is a business, which markets products manufactured centrally into the local trading area. The

business is a small-scale replica of the parent.

2) “Mandate 2”: This is a business producing a designated set of component parts for a multi-country or the

global market. Operational activities are limited to packaging, bulk breaking, some final processing and warehousing,

distributing.

3) “Mandate 3”: This is a business that does not have control over the entire value chain of a business unit but has

activities in a number of stages of the value chain. This might be the preparation of manufacturing activities or a

regional logistics brief (responsibility).

4) “Mandate 4”: This is a business that develops and markets a certain product chain for global markets. Products,

markets and basic technologies are similar to the parent company, but the exchange of information between the

subsidiary and the parent are rare.

5) “Mandate 5”: This is a business that has the freedom and resources to develop lines of business for either local,

multi-country or the global market. The subsidiary is allowed unconstrained access to global markets and freedom to

pursue new business opportunities.

3.2.5 NATURE AND TIME OF MARKET ENTRY

Data relevant for international comparison show that the majority of international companies chose to solve the problem of

gaining majority control by acquisitions or implementing a green-field development in the region (UNCTAD 2012). The great

migration of MNCs into Hungary took place in the 1990s – in contrast with for example the neighboring Slovakia where this

process largely occurred between 2002 and 2007. Many of the large multinational companies now present in Hungary have

been operating here continuously for nearly two decades. However, the actors of some industries (e.g. automotive suppliers)

have been known to move operations in and out of nations within the CEE region and outside of the region very quickly. If

the situation is not favorable, these companies walk away promptly. However, the decision that the primary actors in these

companies make to stay or leave also depends largely on whether their main buyers stay in-country or depart. In support

of the role of “cheap manufacturing and service provider” the number of Hungarian subsidiaries capable of operating with

shorter delivery times increased during the recent financial crisis.


27

3.2.6 RELATIONSHIP BETWEEN HQ AND SUBSIDIARY HR

Taylor et al. (1966) describe the relationship between the subsidiaries and the parent company with the following three basic

systems of relations:

» In the exportive system of relations, HR systems developed in the parent company are adopted without

changes.

» In the adaptive system of relations, local subsidiaries adapt the HR systems adopted from the parent

company according to their local needs.

» In the integrative system of relations, all good and applicable solutions are attempted to be spread and

implemented in all units of the company regardless of the origin of the HR system.

Lawler (2006) concluded from his research conducted among American subsidiaries operating in Asia and Europe that the

most dominant deciding factor in the adoption and adaptation of HR systems is the size of local companies. The question

is reasonable: which solution should be applied in a certain case? These authors say that the system to be implemented

depends on the sum of the impacts of internal and external factors that form and influence the organization. In certain cases

the national culture of the host country and the legal, regulatory environment are considered influencing factors.

3.3. HR IN CEE REGION

3.3.1 PAST

Differences may be observed between the levels of development in the HRM practices of different Eastern European countries.

These may be attributed to differences in traditions, the level of economic development and the level of centralization in the

previous economic and political systems of various countries (Tung and Havlovic, 1996; Erutku and Valtee, 1997). In these

countries; the characteristics of modern HRM within the framework of their previous systems were largely absent. Typically;

approaches similar to the school of scientific management – mentioned earlier – were predominant. Brewster et al., 2010

and Kazlauskaite et al., 2013).Let us give just a few examples of these.

Generally speaking, HRM activity in most East European countries, prior to the changes that took place at the end of the

1980s, was very tightly controlled by the state. Personnel- (meaning management-) related issues were under the close

control of the communist party and the heads of state (Koubek-Brewster, 1995).

The key positions in companies were closely monitored by the communist party and by state bureaucracy. Management was

not considered as a profession and decisions regarding promotion were not based on performance assessment. In several

cases (Pearce, 1991); the selection of specialists and personnel-related decisions were greatly influenced by party- and

government politics and objectives (Pundziene and Buciuniene, 2009), and the party instructed company directors to blend

together the aspects of individual and collective leadership.

The traditional personnel department consisted of two separate sections. One dealt with office staff and management and

the other with blue-collar workers. The group dealing with office staff reported to the Personnel Manager; whilst the one

dealing with blue-collar staff reported to the Finance Director. Under the previous regime personnel departments were

under the direct control of the managing director, and their scope of responsibilities usually included conventional personnel

functions such as selection, career management, etc. (Bangert and Poór, 1995).


28

3.3.2 HR IN PROGRESS

One of the first big challenges the HR departments of transition countries had to face was to cope with the massive

layoffs after privatization (Redman-Keithley, 1998). According to research conducted in the Czech Republic and Poland,

local managers and HR professionals followed more humane dismissal practices than those coming from the Western

world (Koubek-Brewster, 1995, Redman-Keithley, 1998; Mroczkowski et al., 2005). One of the case studies presenting the

Hungarian practice reported similar experience (Elbert-Karoliny, 2006).

In his book about the role of international companies in Eastern Europe Lewis (2005) states that multinational companies

have redrawn the labor market map of the former socialist countries in many respects. Among other things, they have

finished egalitarianism and introduced a basic salary system based on the importance of the type of job. Excessively high

performance was rewarded with excessively high salaries. Besides technical knowledge, the importance of speaking foreign

languages was emphasized. However, no progress could be made in a particular question for a long time: “local may

manage local, Western may manage local but may local be managed by someone coming from another Eastern European

country”? This issue seems to be solved now. Increasingly more Eastern European people obtain positions in other countries

of the region where they become subordinates of local people working there. Multinational companies made Hungarian

companies non-political. HR has become of key importance. In most cases these companies show better performance results

than the local ones. International companies were able to make a use of their so-called resource-based advantage against the

relatively weak and unformed or transforming local institutional system. Therefore, in the case of most local subsidiaries that

were created through acquisition or Greenfield investment, global convergence has won over national identity (Quintanilla-

Ferner, 2003). Researchers have defined significant differences between the HRM practices of privatized – in particular –

foreign-owned companies and local state-owned companies (Björkman-Pavlovskaya, 2000). In a number of instances, by

sophisticated means international companies could prevent trade unions from being created for their local subsidiaries.

The Cranet research (Karoliny et al., 2003, Bokor et al., 2005) had unequivocally confirmed that the HR function is a lot

more than keeping a record of the data of the employees. By now, in most countries of the region HR has become a top

management function (Karoliny et al, 2008) at large companies, as well as at subsidiaries of international companies and at

large local organizations.

Based on the analysis of the Cranet sample it can be stated that the head of the personnel department is a member of

the Board of Directors or the top management team at more than half of the respondents from all countries. This ratio is

somewhat lower in the Hungarian sample, only 47%. This is mainly due to the fact that in smaller Hungarian companies HR

performs only an administrative role.

As we mentioned earlier, there are several names of roles in the literature in connection with the practice of the Hungarian

and Eastern European HR.

Figure 3: The specific roles of HR

- 27 -

The specific roles of HR


The Eastern European transition has created a rather special situation in the development of the HR function, while local SMEs or traditionally managed local large companies have substantially neglected (Church, 2003, Poór et al., 2007) this activity vital to development. A gradual change in approach can be observed in the case of the last-mentioned companies. On the contrary, foreign-owned multinational companies consider deliberate personnel activity highly important. It is also important to point out that many managers still do not concur with our opinion as described above (Gurkov, 2002).

At the beginning of the change, the labor markets of the Eastern European countries were not able to satisfy the special needs (e.g. market-oriented management skills, new kind of marketing, financial and controlling knowledge, etc.) expected by international companies coming to different countries of the region. This situation described above had changed a lot by the end of the 90s. Shekshena (1998: 460) wrote that “by this time the Russian labor market had significantly transformed, the business knowledge of local people had highly increased their concept of business ethics improved and applicants developed a more practical attitude”. At the same time researchers of this field recognized that “Eastern-European – including Russian – tended to underestimate the new challenges and the complexity of tasks arising from the free market environment” (May et al., 1998:450).

The labor markets of Eastern European countries have significantly changed by now. The shortage in the case of managerial, legal, economic and administrative positions has notably decreased. However, there continues to be a severe shortage of technicians, IT engineers, medical doctors and skilled workers.

Large numbers of workers have migrated from many Eastern European countries into some Western EU countries. This has created an interesting situation in Romania: what had once been a very cheap labor force has suddenly become expensive, making life difficult for local employers seeking to fill positions in the labor force as well as HR specialists (Kerekes-Poór, 2010).

After the EU expansion in 2004, a new wave of emigrants set off from East towards the West. It is important to note that no sooner than the significant wave of emigrants reached the Western countries, mainly Ireland, England, Italy and Spain, an opposite trend has started to take shape. As a result of the Irish economic recession, many Polish guest workers are now returning home.

Administrative

Collective interest reconciliation

Strategy

Advisorcoach

Traditionalrole

Newrole



29

The Eastern European transition has created a rather special situation in the development of the HR function, while local

SMEs or traditionally managed local large companies have substantially neglected (Church, 2003, Poór et al., 2007) this

activity vital to development. A gradual change in approach can be observed in the case of the last-mentioned companies.

On the contrary, foreign-owned multinational companies consider deliberate personnel activity highly important. It is also

important to point out that many managers still do not concur with our opinion as described above (Gurkov, 2002).

At the beginning of the change, the labor markets of the Eastern European countries were not able to satisfy the special

needs (e.g. market-oriented management skills, new kind of marketing, financial and controlling knowledge, etc.) expected by

international companies coming to different countries of the region. This situation described above had changed a lot by the

end of the 90s. Shekshena (1998: 460) wrote that “by this time the Russian labor market had significantly transformed, the

business knowledge of local people had highly increased their concept of business ethics improved and applicants developed

a more practical attitude”. At the same time researchers of this field recognized that “Eastern-European – including Russian

– tended to underestimate the new challenges and the complexity of tasks arising from the free market environment” (May

et al., 1998:450).

The labor markets of Eastern European countries have significantly changed by now. The shortage in the case of managerial,

legal, economic and administrative positions has notably decreased. However, there continues to be a severe shortage of

technicians, IT engineers, medical doctors and skilled workers.

Large numbers of workers have migrated from many Eastern European countries into some Western EU countries. This has

created an interesting situation in Romania: what had once been a very cheap labor force has suddenly become expensive,

making life difficult for local employers seeking to fill positions in the labor force as well as HR specialists (Kerekes-Poór,

2010).

After the EU expansion in 2004, a new wave of emigrants set off from East towards the West. It is important to note that

no sooner than the significant wave of emigrants reached the Western countries, mainly Ireland, England, Italy and Spain,

an opposite trend has started to take shape. As a result of the Irish economic recession, many Polish guest workers are now

returning home.

In former socialist countries (excluding Slovenia) the number of organized employees in the public sector has dramatically

decreased (Cranet, 2006). Besides changing economic life, governing powers in transition countries sooner or later have

started to transform the public sector (central and local administration). Among the indicated reform initiatives, priority was

given to the modernization of human resource management in the public sector/administration (Karoliny-Poór, 2007 and

Poór 2008). The PHARE program provided by the EU and the financial and professional support from the World Bank and

some foundations well-known also in Hungary played an essential role in this process.

As the new globalization challenges are before us (at the same time the global, the energy, the food and the environmental

crises) and this will presumably have a significant influence on the concept of traditional competition and efficiency of both

the Hungarian and the foreign companies. One of the special local challenges of Hungarian HR is the group of new tasks

arising from the low obtained level of education of Hungarian employees (especially within the significant Roma population),

the oft commented upon masculinity of Hungarian employees and the specific European way of thinking of Hungarian

people (Borgulya, 2007 and Jarjabka, 2008). Hungarian HR should also recognize the new requirements that at the same

time present new opportunities for professionals working in this field while developing practical solutions.

Due to their complexity, the new globalization and local challenges cannot be delegated into the exclusive competence of

a certain field of management. Here is a new opportunity. In connection with it HR can play an integrative role, especially

for the reason that, besides applying new technologies, today’s challenges require a new set of competencies (knowledge,

experience, behavior, values, etc.) on the part of employees.

By now, the results of several valuable research projects are available in connection with this topic by Kazlauskaite et al.,

(2013), ,Vatchkova (2001), Vatchkova et al. (2011); Morley et al. (2008), Koubek (1995, 2004); Susnjar, Zimanji (2005);

Szlávicz (2006 and 2011); Manolescu (2003), Chisu (2005); Sisca et al. (2006 and 2009), Kerekes-Szlávicz (2009), Kerekes-

Poór (2010); Alas-Svetlik (2004) and Svetlik et al. (2011).


30

3.3.3 IHRM

As the result of internationalization and globalization, International Human Resource Management has been established

since the 1980s as a separate discipline. According to Brewster the development of HR is discussed related to relevant

management cultures (American, Asian, Germanic, Latino, etc.). (Brewster et al., 2004)

As conceptualized by Perlmutter (1969), multinational companies following four personnel strategies are often found to have

different priorities in their selection and recruitment policies. A company can follow an ethnocentric, polycentric, region-

centric or geocentric selection mechanism. In the ethnocentric orientation, key positions of the local company are held by

professionals from the parent company. In polycentric companies, local key positions are held by locals but their promotion to

higher positions is very limited. In companies following the region-centric selection mechanism, locals can hold key positions

not only in the subsidiary but also in the center coordinating the management of the region. In companies following the

geocentric selection mechanism, locals can obtain position even in the top management of the company (Poór, 2009).

Table 4: Typical comparative indices used in the report

No Item Explanation

1. Number of HR staff

It is widely held in management theory and practical experience that

it is not reasonable to maintain a separate HR apparatus under a

certain number of employees (80-100 persons) within an organization.

However, the actual ratio also depends on the industry and the

composition of the workforce.

2. Labor cost ratio

In the case of the respondents participating in the already referred

(Farkas-Poór-Karoliny-2007) 2005 Cranet surveys – that involved not

only MNCs – the average organizational labor cost ratio was between

19-38% band calculated in the six Central Eastern European countries

examined. The country with the highest average ratio (64%) within the

entire sample was found in the Netherlands.

3.

Annual training budget in

% of the entire annual labor

cost

The global average of this indicator calculated using the formerly

mentioned Cranet international comparative HR database was 3.36%,

the Eastern European index was 3.15% (Karoliny-Poór, 2010).

4. Turnover

An important characteristic of HR subsystems are the different turnover

indices. These indices are calculated by means of dividing the number

of people who leave during the year by the average number of staff.

According to the conservative approach, the cost of an average

employee leaving amounts to 1.5 times their annual wage cost

(Boudreau, 2010). However, it is important to see that different people’s

leaving have different consequences. If a key employee leaves the

company, it has a much larger impact compared to a simple employee

leaving.

Sources: Boudreau, J.W. (2010). Retooling HR. Boston: Harvard Business Press, Farkas F. – Poór J. – Karoliny Zs. (2007): Human Resource Management

in Hungary in Light of Eastern European and Global Comparison. Working Paper Series Volume 1, Issue 1. Pécs: PTE KTK, Karoliny, M-né., and Poór, J.

(2010). Human Resource Management. (In Hungarian) Budapest: Complex Kiadó


31

3.4. SOCIO-ECONOMIC AND CULTURAL CHARACTERISTICS OF COUNTRIES SURVEYED

3.4.1 SOCIO-ECONOMIC SITUATION

Eastern European countries surveyed have been thought to have profited more than many other nations and regions from

globalization. These nations were previously capitalism’s rising stars. Their GDP growth was significantly greater than that of

Western developed countries around the turn of the last century.

The global economic and financial crisis has drastically impacted all countries in the region. GDP has decreased and high

unemployment became the typical trend in the region.

Table 5: Table : Socio-economic figures (2011-2016)

Countries ItemsYears

2011 2012 2013 2014 2015 2016

1 Bulgaria

GDP (%) 2.6 0.6 1.4 1.9 4.0 4.1

Unemployment (%) 11.3 12.3 13.0 11.4 9.2 7.6

Inflation (%) 3.4 2.4 0.4 –1.6 –1.1 –1.3

GDP per capita in

PPS EU–28=100%47.0 47.0 49.0 51.0 53.0 53.0

2 Croatia

GDP (%) –0.1 –1.8 –0.8 –0.1 3.2 3.7

Unemployment (%) 13.7 15.8 17.4 17.2 16.1 13.3

Inflation (%) 2.3 3.4 2.2 –0.2 –0.5 –1.1

GDP per capita in

PPS EU–28=100%60.0 60.0 59.0 58.0 58.0 59.0

3Czech

Republic

GDP (%) 2.0 –0.9 –0.5 2.6 5.1 2.4

Unemployment (%) 6.7 7.0 7.0 6.1 5.1 4.0

Inflation (%) 2.1 3.5 1.4 0.4 0.3 0.6

GDP per capita in

PPS EU–28=100%81.0 81.0 76.0 78.0 78.0 78.0

4 Hungary

GDP (%) 2.0 –1.1 2.4 4.3 3.4 2.2

Unemployment (%) 11.0 11.0 10.2 7.7 6.8 5.1

Inflation (%) 3.9 5.7 1.7 0.02 0.06 0.45

GDP per capita in

PPS EU–28=100%67.0 67.0 62.0 62.0 63.0 63.0

5 Kazakhstan

GDP (%) 7.5 5.0 6.0 4.3 1.2 1.0

Unemployment (%) 5.4 5.3 5.2 5.0 5.0 4.6

Inflation (%) 8.3 5.1 5.8 6.7 6.7 14.6

GDP per capita in

PPP $*21 128$* 22 275$* 23 639$* 24 727$* 24 920$* 25145$*


32

Countries ItemsYears

2011 2012 2013 2014 2015 2016

6 Poland

GDP (%) 5.0 1.6 1.5 3.3 3.9 2.8

Unemployment (%)9.6 10.1 10.3 9.0 7.5 6.2

Inflation (%) 3.9 3.6 0.8 0.08 –0.69 –0.19

GDP per capita in

PPS EU–28=100%65.0 67.0 74.0 74.0 74.0 75.0

7 Romania

GDP (%) 1.6 1.1 3.9 3.5 4.4 5.1

Unemployment (%) 7.2 6.8 7.1 6.8 6.8 5.9

Inflation (%) 5.8 3.3 4.0 1.1 –0.6 –1.6

GDP per capita in

PPS EU–28=100%52.0 54.0 54.0 56.0 60.0 63.0

8 Russia

GDP (%) 4.0 3.5 1.3 0.7 –3.7 –0.6

Unemployment (%) 6.5 5.5 5.5 5.2 5.6 5.6

Inflation (%) 8.5 5.0 6.8 7.8 15.6 7.1

GDP per capita in

PPP $*24 032$* 25 323$* 26 046$* 26 691$* 26 208$* 26 490$*

9 Serbia

GDP (%) 1.4 –1.0 2.6 –1.8 0.8 2.8

Unemployment (%) 23.6 24.6 23.0 19.9 15.9 16.0

Inflation (%) 11.1 7.3 7.7 2.1 1.4 1.1

GDP per capita in

PPS EU–28=100%37.0 37.0 47.0 46.0 46.0 45.0

10 Slovakia

GDP (%) 3.4 1.5 1.4 2.5 3.8 3.1

Unemployment (%) 13.6 13.9 14.2 13.2 11.5 9.7

Inflation (%) 3.9 3.7 1.5 –0.1 –0.3 –0.5

GDP per capita in

PPS EU–28=100%73.0 73.0 75.0 76.0 77.0 77.0

Sources: European Commission Eurostat (2016), CIA. The World Factbook (2016)


33

All the countries surveyed appear to be in various stages of economic recovery, largely due to their various associations with

the powerful German economy. Economies of all the ten CEE EU Member Countries have been significantly impacted by the

global crisis, on average far more than the “old” market economies. However, the degree to which particular CEE economies

have been hit by the crisis turns out to vary within the region. In this section, we will present the most important differences

in the macro scale on GDP, unemployment, inflation and GDP per capita in Purchasing Power Standards (PPS).

The most evident result of the economic crisis had been a decrease in GDP growth rate followed by absolute decrease in its

volume. After the economic crisis observable, slow increase in GDP. The most evident result of economic crisis had been a

decrease in GDP growth rate, in 2009 compared with 2008, 2.2% dipped to a negative -3.9% and in 2010 it rebounded,

increasing by 2.1%. After the economic crisis observable, slow increase in GDP in Bulgaria, Croatia, Czech Republic, Poland,

Romania. Significant degrease have been observed in Russia (ranging significantly between 0.7% and -3.7%), Hungary

(4.3% in 2014 and 2.2% in 2016) and Kazakhstan (6.0% in 2014 and 1.0 in 2016). In 2008 all comparison countries besides

Estonia continued to show growth in GDP (ranging significantly between 0.8% and 7.3%). From 2013 all countries rates went down and the most significant decrease has observed in Serbia 7.3% in 2012 and 1.1% in 2016. While in Bulgaria, Croatia, Poland and Romania growth remains negative.

In the three-year period preceding the world crisis most of the countries experienced considerable increase in unemployment.

The EU-27 unemployment rate was 9.7% in 2010 compared with 7.1% in 2008, before the crisis. Eurostat estimates that

19.156 million men and women in the EU-27, of which 13.486 million were in the euro area, were unemployed in 2009.

The unemployment rate was 9.0% in 2008. This trend has turned around after the economy crisis. The unemployment rate

decreased significantly in Bulgaria (12.3% in 2012 and 7.6% in 2016) and in Hungary it has cut in half in the last four years

(11.0% in 2012 and 5.1% in 2016). In during the crisis, the unemployment rate had been too high in Serbia, but it has slow

decreased in the last 5 years (24.6% in 2012 and now 16.0% in 2016).

The inflation rate in Hungary was highest in the 27 EU Member State in 2012. Inflation rate refers to a general rise in prices

measured against a standard level of purchasing power. While in 2016 the inflation rate already stood only at 0.45%, this

can be attributed to the resumption of more normal economic activity. In the meantime, in Kazakhstan the level of inflation

rate has significantly increased in 2015 from 2016 (6.7% to 14.6%).

The 2007-2009 global financial and economic crises erased many of the gains attributed to conservative fiscal policies and

tax reforms. After 10 years of steady growth, Bulgaria’s economy fell into recession in the fourth quarter of 2008, causing

an increase in both unemployment and household debt. After years of relatively low inflation, in 2008 12.0% increases in

domestic prices, particularly of food and energy, were experienced in 2010. The government was slow implementing some

of its planned anti-crisis measures, and resorted to tapping into the fiscal reserve to tackle short-term spending problems.

The government also committed itself to strengthening control over EU funds and fighting organized crime and corruption.

Inflation decreased to 2.5% in 2009 and was 3.0% in 2010 and further decrease can be observed in the next five years.

The level of inflation rate has gone negative since 2014 (-1.6% in 2014, -1.1% in 2015 and -1.0% in 2016). Moreover, the

unemployment rate shows significantly decrease too in last three years.

Towards 2008, Slovakia lowered its inflation rate and was able to keep its level in line with the average of Euro Area

countries. The inflation level was also one of the Maastricht criteria, which Slovakia had to fulfill for its entry to the Euro

Area: inflation could not be higher than 1.5% of the average of three lowest inflation member states of the EU and Slovakia

also had to have sustainable low inflation outlook. Inflation levels in 2009 decreased to 0.9%, compared to 3.9% in 2008.

In 2009 Slovakia had the second lowest inflation level among Czech Republic, Poland, Hungary, Bulgaria and Romania. Level

was also one of the Maastricht criteria, which is the level of inflation could not be higher than 1.5% of the average of three

lowest inflation member states of the EU. In last three years, the level of inflation is low in Slovakia that means inflation rate

was -0.1 in 2014, -0.3 in 2015 and -0.5 in 2016. Keeping inflation low is also one of the important tasks of the Euro Area

member states. In 2011, the inflation level in the Czech Republic had the lowest 2.1%.

In Serbia, inflation was 10.8% in 2008, in 2012 the situation became better at 7.3% and in 2015 it put down to 1.4%. The

unemployment rate shows similar change and the GDP increased 2% in 2016 compared to the previous year.


34

After becoming members of the European Union in May 2004, the Baltic countries experienced a sharp increase in consumer

prices that was caused by a number of mutually overlapping factors: the harmonization of the tax systems, an increase in

global oil prices, and to some extent, increasingly widespread inflationary expectations. Additionally, a one-off effect of an

increase in customs tariffs against countries outside the European Union added to overall inflation. EU membership increased

business and consumer confidence, which fueled domestic demand and further increased inflationary expectations.

GDP per capita in PPS (Purchasing Power Standard) shows countries comparative price levels to the right, with the EU-27

average at 100. The Czech Republic is the most expensive from the countries survived. At the lower end of the table, we

find several countries clustered between 44 and 56 percent below the average price level: Serbia, Poland, Romania and the

lowest, Bulgaria but the data shows this tendency has increased in last five years.

After the economy crisis, the unemployment rate has slight decreased in Russia for five years. The level of inflation rate has

decreased too but it has doubled in 2015 compared to previous years. Moreover, the rate of GDP also dropped significantly

in 2015 this can be attributed to the gradual and sustained reduction of the oil world market. Therefore, the Russian’s export

revenues were decreased and the economic sanctions applied by Western powers have strong influenced on the country’s

economic situation. Which was caused a gradual slowdown in the growth of the Russian economy? This was badly affected

by the Russian economy which is depending on the revenue from row material export. This situation has launched negative

financial and capital market process both locally and globally.

3.4.2 CULTURAL CHARACTERISTICS

Before the social, political and economic reforms of 1989 the entire CEE region was perceived by politicians and policy

makers in the West as a largely homogeneous region (Svetlik, 2010). By now it is clear that this was a simplistic perception.

Table 6 gives an insight into CEE countries and it reveals how culturally diversified this region is. In light of these findings and

analysis countries of the CEE region should not be considered as a culturally homogenous region. Much more can be gained

from considering it a heterogeneous region, where in some cases cultural convergence, as well as divergent tendencies may

be clearly observed (Jarjabka, 2010).

This analysis strengthens the Globe research results of cultural diversity in Central and Eastern Europe.

Table 6: Cultural dimensions of the countries surveyed

No. CountriesDimensions

PDI IDV MAS UAI LTO IND

1 Bulgaria 70 30 40 85 69 16

2 Czech Republic 57 58 57 74 70 29

3 Hungary 46 80 88 82 58 31

4 Kazakhstan n.a.

5 Poland 68 60 64 93 38 29

6 Romania 90 30 42 90 52 30

7 Russia 93 39 36 95 81 20

8 Serbia 86 25 43 92 52 28

9 Slovakia 100 52 100 51 77 28

Sources: www.geert-hofstede.com and www.itim.org and *Hüttinger, M. 2007. National Cultural Values of the Baltic States,

Communication in the Baltic Region: Cultural Challenges, 7. December, Visby, Sweden. www.v4ce.net and https://geert-hofstede.com/

(culture.comparison) (downloaded: January 27,2017)

Comments: PDI: Power Distance; IDV: Individualism; MAS: Masculinity; UAI: Uncertainty Avoidance; LTO: Long-term Orientation; IND: Indulgence

http://www.itim.org

http://www.v4ce.net

https://geert-hofstede.com/(culture.comparison



35

These findings provide a good example of Bulgarian-Romanian-Russian cultural similarities. Similarities based on cultural ties

of these countries, geographic proximity and Greek Orthodox religious roots.

For instance, the Czech and Slovak cultural differences are very evident and overcome decades of living together in a

common state and speaking an almost similar language. Hofstedes` data (2001) clearly show that Czech culture is linked

more the Germans or the Austrians as opposed to the Slovaks.

This cultural configuration demonstrates that the constituent nations of Yugoslavia were not an imposed and artificial state,

but the result of a relative cultural melting-pot. Nor should it be forgotten that this cultural similarity did not prevent the

people of the former Yugoslavia from becoming involved in the bitter regional civil wars in the 1990s.


36

4. EMPIRICAL RESEARCH (JÓZSEF POÓR-ALLEN ENGLE)

4.1. RESEARCH AREAS

In the research we covered the following areas:

» Characteristics of the subsidiaries surveyed: the most important organizational and economic characteristics

(origin of the parent company, year of establishment of the subsidiary, main area of operation of the

company – sector –, size of the organization – based on revenue and the number of employees – and

the evolution of its productivity index, its mandate in the value chain and the main steps, directions of its

development).

» Key indicators of the HR function: the number and workload of the staff employed in HR departments, the

main indicators representing the importance, results, efficiency characteristics of the HR activity (labor cost

– total cost ratio, age distribution of the employees, relative weight of the training budget, level and rate of

fluctuation and absenteeism).

» Most important HR characteristics of the period examined: the importance of the HR function, foreign

and local expats, distribution of roles between central and local HR, the role of local HR in developing and

operating the different HRM subsystems, most important key competencies and fundamental sources of

professional development of the person interviewed.

» Knowledge management in the field of HR: main directions, methods and characteristics of knowledge

flows.

» The future of HR: most significant changes from a HR point of view occurring in the next 12 to 24 months.

» Data of the respondents: data on the current HR department and its employees.

The statements included in the report were based on the use of descriptive statistical models (frequency, distribution,

average). We also present graphically the data obtained from processing the answers given to several important questions.

Several case examples collected during the personal interviews – while ensuring anonymity – were also added to our analysis

to provide more nuanced information from the national or subsidiary perspectives.

A small part of the web-survey (www.CEEIRT-hrm.eu) was supplied via a Web interface and typical initial pages of the form

are provided in Figure 4 and Figure 5.

http://www.ceeirt-hrm.eu/


37

Figure 4: Initial web-page of the CEEIRT research

Figure 5: An extract from the CEEIRT questionnaire



38

4.2. RESPONDING COUNTRIES

Originally 12 countries indicated their interest to be involved in this project. Ultimately we received valuable information

from all 10 countries. These 10 countries have contributed to the regional data set while to date the results from 9 countries

(Bulgaria, Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia Serbia and Slovakia) has been prepared for this

detailed report.

Table 7: Number of valid responses by participating countries in the two CEEIRT research phases

(2008-2009, 2011-2013 and 2015-2016)

No Countries 2015-2016 2011-2012 2008-2008 2004

1 Bulgaria 14

2 Czech Republic 97

3 Croatia* 6 11

4 Estonia 0 45

5 Hungary 90 118 75 42

6 Kazakhstan 39

7 Poland 57 53 88

8 Romania 37 34 17

9 Russia 13

10 Serbia 31 19 20

11 Slovenia 0

12 Slovakia 17 30 23

Total 401 254 279 42


Comments: As the number of collected data in Croatia, it was less than 10 in this country case, a research analysis hasn’t been prepared.

4.3. REPORTING FORMATS

The report’s findings are based on the results of methods of descriptive statistics (frequency, distribution, average) derived

from the data sets. Answers to a number of priority issues by the processing of data are visualized graphically. In several

cases the personal interviews that were used to collect case-examples - while ensuring the anonymity – have been added

to the analysis.


39

Part Two:

Research summary and country reports

The following nine chapters will provide a regional overview followed by a detailed analysis of results at the national level

for, Bulgaria, Czech Republic, Hungary, Kazakhstan, Poland, Romania, Russia, Serbia and Slovakia. This level of detail will add

to our understanding of both the macro contextual factors and individualized micro perceptions of HR executives operating

in MNCs in any given nation.


40

5. RESEARCH SUMMARY (ALLEN ENGLE – JÓZSEF POÓR – TÍMEA JUHÁSZ – KATALIN SZABÓ – SLAVIĆ AGNEŠ – ÁDÁM SZOBI)

In the broader research project we covered the following areas:

» Characteristics of the subsidiaries surveyed: the most important organizational and economic characteristics

(origin of the parent company, year of establishment of the subsidiary, main area of operation of the

company – sector –, size of the organization – based on revenue and the number of employees – and

the evolution of its productivity index, its mandate in the value chain and the main steps, directions of its

development.

» Key indicators of the HR function: the number and workload of the staff employed in HR departments, the

main indicators representing the importance, results, efficiency characteristics of the HR activity (labor cost

– total cost ratio, age distribution of the employees, relative weight of the training budget, level and rate of

fluctuation and absenteeism.)

» Most important HR characteristics of the period examined: the importance of the HR function, foreign and

local expats, distribution of roles between central and local HR.

» Data of the respondents: background data on the current HR department and its employees.


41

5.1. RESEARCH PARTICIPANTS

We analyzed the data of 10 countries, a total of 401 foreign owned subsidiaries took part in the research (Table 8), employing 427,134 people. Some 48,8% of the respondent firms had more than 250 employees (Table 9).

Table 8: Number of valid responses by participating countries (n=401)

No Participating countries FrequencyPercentage

distribution %

1 Bulgaria 14 3,49%

2 Croatia 6 1,50%

3 Czech R. 97 24,19%

4 Hungary 90 22,44%

5 Kazakhstan 39 9,73%

6 Poland 57 14,21%

7 Romania 37 9,23%

8 Russia 13 3,24%

9 Slovakia 17 4,24%

10 Serbia 31 7,73%

Total 401 100,00%

Comments: As the number of collected data in Croatia, it was less than 10 in this country case, a research analysis hasn’t been prepared.

Table 9: Number of staff (n=373)

Total number of employees of the company FrequencyPercentage

distribution (%)

Below 250 192 51,5%

251-1000 102 27,3%

1001-2000 30 8%

2001-5000 32 8,6%

Over 5000 17 4,6%

Total 383 100,0%

We also asked respondents to describe how encompassing a portion of the value chain they have under local subsidiary

control or discretion. In subsidiary management terms, what is the „mandate” of the local organization (Delany 1998 and

White-Poynter (1984). Some 16,9% of the respondents have a more complete, higher level subsidiary role, than responsible

only for purchasing, production/operation and sales/distribution. Most respondents reported a more “downrange” set of

value chain responsibilities, i.e. production and sales and marketing. (Table 10)

Table 10: Mandates of the companies participating in the survey (%) (n=397)

M1

(Other)

M2

(S&M)

M3

(Prod.)

M4

(Purch.&Log)

M5

(R&D)

n % n % n % n % n %

Mandates 56 16,7% 143 36% 213 58,2% 46 11,6% 59 16,9%


42

The 397 subsidiaries originated in 42 countries, 60,7% of them have their “Parent” company in Germany (24,44%), USA

(13,85%), France (9.06%), Austria (6.55%) or the UK 6,80%). Among the respondents 16% are headquartered in emerging

or transitional countries. (Table 11)

Table 11: Origin of the parent companies of the participating companies (n=397)

No Origin of the parent company Frequency % distribution

1 Germany 101 24,44%

2 USA 55 13,85%

3 France 36 9,06%

4 Austria 26 6,55%

5 UK 27 6,80%

6 Netherland 18 4,53%

7 Switzerland 18 4,53%

8 Kazakhstan 13 3,27%

9 Other 13 3,16%

10 Italy 10 2,51%

11 Hungary 8 2,01%

12 Czech Republic 6 1,51%

13 Spain 6 1,51%

14 Belgium 5 1,26%

15 Canada 4 1,01%

16 Denmark 5 1,26%

18 Russia 4 1,01%

19 South-Korea 5 1,26%

20 Greece 4 1,01%

21 Ireland 4 1,01%

22 Turkey 4 1,01%

24 Poland 3 0,75%

25 Slovenia 3 0,75%

26 Finland 2 0,50%

27 India 2 0,50%

28 Israel 2 0,50%

29 Norway 2 0,50%

30 China 1 0,25%

31 Croatia 1 0,25%

32 Cyprus 1 0,25%

33 Iceland 1 0,25%

34 Japan 1 0,25%

35 Liechtenstein 1 0,25%

36 Lithuania 1 0,25%

37 Luxembourg 1 0,25%

38 Mexico 1 0,25%

39 Serbia 1 0,25%

41 Slovakia 1 0,25%

42 Sweden 1 0,25%

Total 397 100,00%


43

The management culture in the majority of the participating firms is German (41,56%) and Anglo-Saxon (15,87%). In

12,09% of the sample the culture was described as Latin / South European, 2,77% identified as Nordic, 8,1% identified as

Central-Eastern European, and 2.51% were described as Asian. (Table 12)

Table 12: Management cultures of mother companies (n=397)

Ranking

order

Management cultures

of responding companiesFrequency % distribution

1 German 165 41,56%

2 Anglo-Saxon 63 15,87%

3 South European and Latin 48 12,09%

4 Central and Eastern European 32 8,1%

5 Other 68 17,13%

6 Nordic 11 2,77%

7 Asian 10 2,51%

Total 397 100%

Explanations:

» Nordic: Finland, Denmark, Iceland, Sweden, Norway,

» German: Austria, Germany, Holland/Netherland, Switzerland, Israel

» Southern Europe and Latin: Cyprus, France, Greece, Italy, Latin-American countries, Mexico, Spain, Portugal

» Anglo-Saxon: Australia, Canada, Ireland, New-Zeeland, Northern-Ireland, South-Africa, UK, USA

» Eastern-Europe: All Eastern-European countries, Russia, Ukrainian

» Asian: China, Indonesia, Japan, Philippine, Singapore, South-Korea

» Other: Arabic countries, Turkey and former Soviet Republics in Far-East

Table 13: Number of subsidiaries (n=256)

Number of subsidiaries FrequencyPercentage

distribution (%)

only 1 (one), subsidiary operates in the surveyed country 129 50,4%

beside the respondent subsidiary there are more legally

independent subsidiaries in the surveyed country127 49,6%

Total 256 100,0%


44

Fully 28,6% of the regional respondents carry out traditional production activities, 20,5% are in trading and 42.2% of

responding firms provide services. Interestingly, other than the post 2010 period, there does not appear to be compelling

evidence of a strong historical shift from one form of ownership to another (merger vs. Greenfield) over the last 25 years.

(Table 14)

Table 14: Sectoral distribution of the participants (n=391)

Main sector of the subsidiary’s activity Frequency % distribution

Industry 112 28,6%

Trade 80 20,5%

Financial service 67 17,1%

Other service 82 21%

Business service 16 4,1%

Others 34 8,7%

Total 391 100,0

Some 54.9% of the respondents were established via a green-field project and 45.1% were added through acquisition.

(Table 15)

Table 15: Year and mode of entry of the participants (n=368)

Year of establishment of

the subsidiary

Merger,

acquisition

Greenfield

investmentTotal

Before 1995 Frequency 52 48 100

% of Total 14,1% 13% 27,1%

1996-2000Frequency 35 37 72

% of Total 9,5% 10,1% 19,6%

2001-2005Frequency 32 52 84

% of Total 8,7% 14,1% 22,8%

2005-2010Frequency 36 37 73

% of Total 9,8% 10,1% 19,8%

After 2010Frequency 11 28 39

% of Total 3% 7,6% 10,6%

Total Frequency 166 202 368

% distribution % of Total 45,1% 54,9% 100,0%


45

5.2. MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED

The self-proclaimed strategic orientation is growth / market expansion for the majority of the respondents (62,8%),

while the priority for 27.5% of respondents is to maintain stability. Only 9,7% of the respondents indicated reduction of

capacities or other strategy orientation, which reflects a more optimistic decision strategy compared to the 2008-2009

survey, when 23.2% considered reduction in force and rationalization of capacity (Poór, 2013). Other strategic approaches

account for 1.7% of the answers.(Table 16)

Table 16: Main strategic issues and orientations (n=393)

Main strategic issues, orientations Frequency of “yes”

answers% distribution

Growth, market expansion, portfolio expansion 247 62,8%

Stability, efficiency improvement, revenue

retention, adapting to the market situation108 27,5%

Cut-back, outsourcing 31 7,9%

Other 7 1,8%

Total 393 100,0%

High quality in the workforce (50,1%) and in management (42,8%) were chosen most frequently by the respondents as the

most important competitive factors for their firm (more than one answer could be marked in this question). For this sample a

large number of the respondents emphasized the criticality of having optimal plant size (35,3%) and production technology

(28,2%) as additional sources of competitive advantage. The respondents also deemed financial resources (26,2%) and low

workforce costs (20,7%) to be very important competitive factors (Table 17).

Table 17: The importance of competitive factors (n=397)

Ranking

orderCompetitive factors

Frequency of

“yes” answers% distribution

1 Workforce 199 50,1%

2 Management 170 42,8%

3 Optimal plant/organization size 140 35,3%

4 Production technology 112 28,2%

5 Financial resources 104 26,2%

6 Low workforce costs 82 20,7%

7 Other 16 4%


46

5.3. KEY INDICATORS OF HR ACTIVITY

Size of HR departments: The average headcount serviced by 1 HR employee averaged 78 employees across the responding

397 companies in the 2015/16 response set. We have empirical results from earlier surveys to suggest that the average

headcount/HR staff ratio is declining over time. Some sources explain this with the increasing importance of the HR function

(Balázs–Veress, 2009 and Pudlowski 2009).

The average size of the HR department is 24 people. However, this statistic may be misleading, as 2% of respondents

having only 1- 4 people working in HR, 2,8% have 5-10 HR staff, and 3,6% have 10-20 HR people, while 85,6% of

respondents operate an HR department larger than 20 people. Small HR units remain a reality in the region. (Table 18)

Table 18: Number of HR staff (n=397)

Total number of HR staff2015-2016

Frequency % distribution

None 24 6%

1-4 persons 8 2%

5-10 persons 11 2,8%

11-15 persons 7 1,8%

15-20 persons 7 1,8%

Over 20 persons 340 85,6%

Total 373 100,0%

As stated at the opening of this section, 401 foreign owned subsidiaries took part in the research employing total 427.134

thousand people and 7.740 HR people. Total headcount per HR employee is 55.1 person.(Table 19)

Table 19: Number of employees and HR people of the participating companies (n=383)

YearNumber of

employees

Number of HR

people

Total headcount

per HR employee

2015-2016 427.134 7.740 55.1

In some cases there is no dedicated HR leader in the organization. In these cases the management or HR issues are

performed by the head of the organization or the Head of Marketing and Administrative Manager. (Table 20)

Table 20: The greatest decision-making power of HR issues of firms working without HR manager (n=389)

Ranking PositionsFrequency of

“yes” answers

distribution

%

1 Chief Executive 72 18,5%

2 Head of Marketing/Sale 9 2,3%

3 Administrative Manager 23 5,9%

4 Production Manager 3 0,8%

5 Head of the Finance department 10 2,6%


47

Role and use of external service providers: Today human resources are managed in many organizations with the

involvement of external service providers. Besides traditional HR consultants, an increasing number of service providers appear

who enter the market offering new services (e.g. labor leasing, outsourcing, interim managers, etc.) (Poór-Németh, 2010)

External service providers were most often used in the area of recruitment and selection, as reported by the respondents.

They were also often involved in the area of training and development, compensation and benefits, and HRIS. Almost none

of the companies used the help of external service providers in human resource planning or in performance evaluation. The

practice of companies in this respect either did not change or where it did, companies reported an increase in the use of

external partners (Table 21).

Table 21: Role and use of external service providers in the different key functions of HR

HR Areas Increased Decreased SameNo external

providers used

Human Resource Planning 10,2 2,9 22,5 64,3

Recruitment 24,8 7,3 36,9 31

Selection 18,1 6,5 29,5 45,8

Performance Evaluation 11,4 2,2 21,4 65,1

Training and Development 29 8,4 33,9 28,7

Talent Management 12 4,9 28,3 54,9

Compensation and Benefits 14,9 3 29,5 52,7

Employee Relations 8,7 2,7 30,3 58,2

Communication 12,5 3 25,1 59,4

HRIS 14,9 3,5 36,7 44,8

Health &Safety 15,7 3,8 47,3 33,2

The labor cost to operating cost ratio is one of the frequently analyzed indicators of the importance of the HR function

in a company (Boudreau, 2010). According to this logic, the effects of HRM have a stronger and more direct influence on the

company’s performance if this ratio is higher. About one third of the subsidiaries (35,7%) participating in the survey fell into

this category (where the labor cost ratio is higher than 30%). But the vast majority (64,3%) of the companies operated with

a relatively low (under 30%) labor cost ratio. (Table 22).

Table 22: Labor cost in % of the operating cost (n=238)

Labor cost in % of the operating cost2015


Under 5 % 46 19,3%

5-10 % 25 10,5%

10-20 % 49 20,6%

20-30 % 33 13,9%

30-40 % 34 14,3%

40-50 % 16 6,7%

Over 50 % 35 14,7%

Total 238 100,0%


48

Training and Development spending: The average annual training and development expenditure as the percentage of

the annual labor costs is less than 1% for 19.6% of the respondents, between 1 and 3% at 44.5% of the surveyed firms and

35.9% of respondents spend more than 3% of the labor costs on training and development programs. (Table 23)

Table 23: Annual training budget in % of the entire annual labor cost (n=337)

Annual training budget in % of the

entire annual labor cost

2015-2016


Under 1 % 66 19,6%

1-3 % 150 44,5%

3-5 % 73 21,7%

over 5 % 48 14,2%

Total 337 100,0%

Relationship of the local and central HR organization: There are several models to describe how roles and accountability

are shared between the corporate center and the local HR unit. A majority of the respondents (45.3%) indicated that the

central HR function issues general guidelines and frameworks and subsidiary HR staff implement their practices within these

frameworks. 25.3% of respondents reported that the center gives them full authority and performs some audit and expects

regular reports. Some 29.3% of the respondents have detailed HR model and policies issued by the center. This descriptive

distribution of HR activity discretion apparently centers on guidelines and frameworks (45,3%) and then moves toward

centralized HR policies (3 and 4 combine for 29,3% or, alternately, decentralized policies (25,3%). (Table 24)

Table 24: Typical functions of the HQ HR (n=371)

Ranking Functions

Frequency

of “yes”

answers

% distribution

1Provide general guidelines and framework for

actions168 45,3%

2 Hands-off, provide complete freedom 94 25,3%

3Provide detailed HR model, policies, procedures

and rules84 22,6%

4 Source of all remotely significant HR decisions 25 6,7%

Total 371 100,0


49

This survey reiterates the findings in previously reported research regarding the share of HR accountabilities locally

between line management and HR. According to Cranet, 2006, 2011 and Karoliny et al. 2009 and 2010 some HR decisions

are typically line management accountability and other are more influenced by the local HR staff. As the responses in Table

17 reflect, the majority of the respondents regard most of the interventions in the key functions of HR as the result of a

joint decision in which the final decision is made by the local line management based usually on consultation with the HR

department. Less seldom do we see that the responsibility attached to HR decisions is shared in a way that the final decision

maker is the representative of the local HR department. HR remains a secondary source of authority. (Table 25)

Table 25: Responsibility of decision making in key functions of HR (n=362)

Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but in

consultation with

the HR department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

departmentTotal

Human Resource

Planning28,1% 35% 25,4% 12,5% 100,0%

Recruitment 17,6% 17,6% 33% 31,8% 100,0%

Selection 20,7% 23,1% 37,5% 18,7% 100,0%

Performance Evaluation 40,8% 25,7% 21,5% 12,0% 100,0%

Training and

Development22,5% 22,2% 37,9% 17,4% 100,0%

Talent management 23,6% 20,5% 37,9% 17,9% 100,0%

Compensation and

Benefits25,8% 28% 30% 16,2% 100,0%

Industrial-Labor

Relations22,9% 19,6% 28,5% 29% 100,0%

Employee

Communication26,5% 19,6% 30,4% 23,5% 100,0%

HRMS/IT 21,8% 12,5% 25,2% 40,5% 100,0%

Health & Safety 24,9% 11% 22,7% 41,4% 100,0%


50

Some 38,2% of the respondents also indicated the increasing role of HR as a recognized business partner. The Implementation

of the HR activity in the role of business partner has been indicated by 28,4% of the respondents. The Self-service HR for

employees is reported by 24.7% of respondents, while the Whole HR SSC (Shared Service Center) and HR SSC in corporate

and regional area have been indicated 13,5% and 18,2%. According to 24.1% of the respondents, management reclaimed

HR tasks during this period of time. (Table 26)

Table 26: Implemented transformation in HR department (n=360)

Implemented transformations in HR

department

Completed

Frequency of

“yes”

answers

distribution

%

Increasing HR as a role of business partner 136 38,2%

Implementation of HR as a role of business

partner97 28,4%

Self-service HR for employees 89 24,7%

Self-service HR for the management 88 24,9%

Management gets back the HR tasks 84 24,1%

Outsourcing of the tasks in HR department 82 22,9%

HR SSC * in corporate and regional areas 65 18,2%

Whole HR SSC* 48 13,5%

* SSC=Shared Service Center


51

In our survey we tried to find the answers to the following questions, in accordance with the HR issues, which can be seen

in this table.

Easy to find manual workers in labor market: 35,5% of the respondents said that it is of only minor concern

Easy to find well-trained technical workers (in the labor market): 31,7% of respondents said that it was a minor issue. Foreign

language skills are seen to be a problem in most of the jobs: 57,7% of respondents answered that it is a significant issue

or concern. We can keep talent easily: 45,9% of the respondents said that it was a significant issue now. We can offer

competitive wages for our employees in every job: is considered only by 8,2% of them to be a critical issue. Issues with trade

unions are not significant for a majority 55% of the respondents.

Table 27: HR issues (n=368)

HR issues in 2015

No feature

at all

%

Minor feature

%

Large feature

%

Major

feature %

Total

%

Easy to find manual workers

in labor market35,5 24,6 29,3 10,6 100,0

Easy to find well-trained

technical workers31,7 36,7 24,6 7 100,0

Foreign language skills are not

problem in most of the jobs9,8 32,5 35,6 22,1 100,0

We can keep the talents easily 13,2 40,9 36,8 9,1 100,0

We can offer competitive

wages for our employees in

every job

8,2 34 43,5 14,4 100,0

Significant influence of the

trade unions55 26,8 12,6 5,6 100,0

Others 31,3 28,1 25 15,6 100,0


52

Changes in the importance of the HR activities: The most critical HR areas are deemed to be in the areas of recruitment

and selection. HR Planning, talent management and compensation and benefits are also considered important areas. (Table 28)

Table 28: Critical areas of HR (on a 1⇒5 scale, on average) (n=347)

(Explanation: 1= critical ⇒ 5 = not at all critical)

RankingThe areas of HRM critical

in …

The average of the

answers

Standard

Deviation

1 Recruitment 3,20 1,310

2 Selection 3,05 1,288

3 HR Planning 2,84 1,404

4 Talent Management 2,83 1,363

5 Compensation and Benefits 2,82 1,297

6 Training and development 2,73 1,289

7 Performance Evaluation 2,66 1,362

8 Communication 2,63 1,262

9 Employee Relations 2,53 1,236

10 Health and Safety 2,26 1,211


53

International assignees: Among the total 3056 expat employees working for the 401 respondents. Among expatriates

984 foreign assignees are employed as manager and 2072 as non-manager, comprising 0.8% of the total sample workforce.

The number of local employees on international assignment is 1,291. Only 432 of these assignees worked in a managerial

position. (see Table 29 and 30)

Table 29: Number of foreign expats (n=401)

Number of expatsIn managerial position In non-managerial position

Frequency Percent Frequency % distribution

None 240 59,85% 309 77,06%

1 person 41 10,22% 15 3,74%

2-3 persons 43 10,72% 23 5,74%

4-5 persons 29 7,23% 8 2,00%

6-10 persons 32 7,98% 21 5,24%

11-15 persons 7 1,75% 1 0,25%

16-20 persons 2 0,50% 6 1,50%

Over 20 persons 7 1,75% 18 4,49%

Total 401 100,00% 401 100,00%

Table 30: Number and positions of local expatriates (inpatriates) from CEE regions, Russia and Kazakhstan (n=401)

Number of local

expatriates

In managerial position In non-managerial position

Frequencydistribution

%Frequency

distribution

%

None 240 59,85% 309 77,06%

1 person 41 10,22% 15 3,74%

2-3 persons 43 10,72% 23 5,74%

4-5 persons 29 7,23% 8 2,00%

6-10 persons 32 7,98% 21 5,24%

11-15 persons 7 1,75% 1 0,25%

16-20 persons 2 0,50% 6 1,50%

Over 20 persons 7 1,75% 18 4,49%

Total 401 100,00% 401 100,00%


54

Most important HR competencies: The most important HR competencies are reported to be the following: personal

credibility (15.82%), foreign language skills (14.93%), expertise in HR processes, such as recruitment, development,

performance management, etc. (14.97%), strategic contribution (14.55%). Among the less important competencies we

found business knowledge (13.8%) and usage of HRIS (12.45%). (Table 31)

Table 31: Ranking of the key competencies of HR managers (n=377)

Ranking

orderKey competencies

Very important


%

1Personal credibility (achieving results,

effective relationships, communication skills)3,39 15,82%

2 Foreign languages skill 3,2 14,93%

3HR services (recruitment, selection, training and development,

performance management, etc.)3,17 14,79%

4Strategic contribution (managing culture,

championing changes, strategic decisions)3 14,55%

5 Business knowledge (value chain, value creation) 2,98 13,80%

6 Others 3 13,66%

7 Usage of HRIS 2,65 12,45%

Total --- 100,00%

Knowledge Management in HR: In terms of developing the personal and relevant professional competencies of the

HR staff, the most important channels or methods of competency development are reported to be local training and

development, and learning at the parent company’s headquarters. The extent or degree of knowledge transfer is described

to be similar for inside the subsidiary HR department, between local HR and other local business units, and between the

subsidiary and the headquarter HR. (Table 32)

Table 32: The importance of the methods of personal competency development in HR (on a 1-5 scale, on average) (n=353)

(Explanation: 1= unimportant ⇒ 5 = very important)

Ranking

orderMethods of gaining competencies

The average of

the answers

Standard

Deviation

1 Informal learning at the HR department of your subsidiary 3,22 1,179

2 Local HR-training and development 3 1,058

3 Informal learning at the parent company 2,69 1,240

4 HR training and development at the parent company 2,65 1,237

5 HR training and development at other subsidiaries 2,35 1,232

6 Informal learning at the HR department of another subsidiary 2,23 1,228


55

The respondents ranked development via the method of informal learning at the HR department of your subsidiary development

as being most important means. Local HR-training and development is seen to be of only secondary importance. Much

lower, but still of considerable importance was deemed to be informal learning at the parent company and HR training and

development at the parent company. Very few respondents indicated that HR experiences generated by other subsidiaries and

proposals coming from other subsidiaries find a responsive audience at the respondent’s subsidiary. (Table 33)

Table 33: HR knowledge flows (on a 1-5 scale, on average) (n=364)


Ranking

orderKnowledge flows in HR

The average

of

the answers

Standard

Deviation

1Knowledge flows from the parent company to the

subsidiary3,46 1,188

2HR related knowledge flows within the HR

department at your subsidiary3,45 1,195

3

HR related knowledge flows at your subsidiary

between the HR department and other

organizational units

3,19 1,191

4 Knowledge flows between subsidiaries 3,05 1,209

5Knowledge flows from the subsidiary to the parent

company2,88 1,166

5.4. CHARACTERISTICS OF THE RESPONDING INDIVIDUALS

Almost all the interviewees participating in the survey have university, college or equivalent qualifications, some of them also

had PhD degrees as well. (Table 34)

Table 34: Level of qualification (n=387)

Level of qualification Frequencydistribution

%

University PhD 7 1,8%

University (MSc) 253 65,4%

College (BSc) 90 23,3%

Other 37 9,6%

Total 387 100,0%


56

The majority of the respondents obtained qualifications in social sciences (60.3%) or engineering (16,9%) but we also found

professionals with qualifications in natural sciences (Table 35).

Table 35: Field of professional qualification (n=378)

Field of professional

qualificationFrequency

distribution

%

Natural sciences 26 6,9%

Engineering 64 16,9%

Social sciences 228 60,3%

Other 60 15,9%

Total 378 100,0%

Nearly 40,6% of the respondents have worked in their current positions for less than three years. However, the majority

(46.8%) have spent longer time, typically 3-10 years in their positions. More than 12.6%% have worked 10 or over 10 years

in their positions (Table 36).

Table 36: Service years in the present position (years) (n=389)

Service years Frequencydistribution

%

(0-3 years) 158 40,6%

(3-5 years) 82 21,1%

(5-10 years) 100 25,7%

(10-15 years ) 41 10,5%

Over 15 years 8 2,1%

Total 389 100,0%

Nearly 40,6% of the respondents have worked in their current positions for less than three years. However, the majority

(46.8%) have spent longer time, typically 3-10 years in their positions. More than 12.6%% have worked 10 or over 10 years

in their positions (Table 37).


Service years Frequencydistribution

%

(0-3 years) 158 40,6%

(3-5 years) 82 21,1%

(5-10 years) 100 25,7%

(10-15 years ) 41 10,5%


Total 389 100,0%


57

6. BULGARIA (TSVETELINA SIMEONOVA ZARKIN AND JÓZSEF POÓR)

6.1. INTRODUCTION

Population: 7.3 Million people

Territory: 110.879 km2

Items/years 2013 2014 2015GDP (%) 1,4 1,9 4Unemployment (%) 12,9 11,6 9,1Inflation (%) 0,92 -1,41 -0,1GDP per capita in PPS EU-27=100% 46 46 47


58

6.2. FDI AND EMPLOYMENT IN BULGARIA

According to the records of the Bulgarian National Bank (BNB) in the last six years the net flow of foreign investments is

between 1.2 and 1.6 million Euro annually.

Accumulated data from UNCTAD show that Bulgaria is the biggest receiver of FDI in the region of Central and Eastern Europe

for the period 1999 – 2014. The FDI for this period reach 83% of the average GDP for the same period.

According to preliminary data, foreign direct investment in Bulgaria amounted to EUR 1,575.1 million (3.5% of GDP) in

January – December 2015, growing by EUR 394 million from January – December 2014 (Table 38).

Table 38: FDI in Bulgaria (2013-2015)

Foreign Direct Investment 2013 2014 2015

FDI Inward Flow (million EUR) 1,229.4 1,181.6 1,575,1

FDI Stock (million EUR) 36,474.5 38,792.8 39,412.0

Equity Capital Inward Flow (million EUR) 953.4 498.4 ,133.6

FDI Inward Flow in % of GDP 3.0 2.8 3.5

Source: Bulgarian National Bank

6.2.1 COUNTRIES OF ORIGIN

The largest net direct investment inflow in Bulgaria for 2015 was from the Netherlands (EUR 696.9 million). The

Netherlands have the biggest share in FDI in Bulgaria for third year in sequence.

Figure 6: FDI in Bulgaria by country of origin

Source: Bulgarian National Bank, 2016

The second country in importance for the FDI is Germany. It is moving forward in comparison of 2014 and 2013. The

following countries are Switzerland and Norway, which were not playing essential parts in the previous two years. UK, which

had an important share in 2014 and 2013 is no longer a big source of FDI for 2015.


59

6.2.2 SECTORAL DISTRIBUTION

The figures show that in the years before the economic crises only around 1/3 of the FDI in Bulgaria were in the industry.

Another 1/3 were in real estates, construction and tourism. An essential part - 20% of all FDI were considered not beneficial

for the Bulgarian economy.

The detailed data from BNB for 2015 shows that the structure of the FDI in Bulgaria today is different. Although the structure

is still not optimal it is much more productive. The real estate sector shows less investment and the majority of FDI was

connected to the economic sector labelled industry (Figure 7).

Figure 7: Typical areas of FDI in Bulgaria (2014-2015)

Agriculture, forestry and fishing

B, C, D, E- Mining, Processing and other Industries, Water Supply; Sewerage, Waste Management and

Remediation Activities.

F- Construction

G, H, I – Wholesale and retail trade, repair of motor vehicles and motorcycles

J- Information, Communication and Telecommunication

L- Real estate transactions

M, N – Professional and Research activities; Administrative and Support Service Activities

P, Q, R, S - Other activities

Source: Bulgarian National Statistical office


60

Table 39: FDI in non-financial enterprises (at 31 December 2015)

Order Sectors % Thousands Euro

1. Manufacturing 22% 5 101 223.4

2.Wholesale and retail trade, repair of motor vehicles and

motorcycles19.4% 4 496 406.0

3. Real Estate Activities 13.9% 3 216 787.5

4. Electricity, Heat, Gas, Steam and Air Conditioning Supply 12.4% 2 865 402.5

5. Information, Communication and Telecommunication 7.3% 1 681 410.4

6.Accounting, Professional, Jurisdictional,

Technical and Consulting activities3.5% 818 677.4

7. Construction 3.3% 755 016.2

8. Mining 3.2 743 715.7

9 Accommodation and Food Service Activities 2.8% 655 997.3

10. Transportation, Storage and Post service 1.9% 443 920.4

11. Administrative and Support Service Activities 1% 226 868.2

12.Water Supply; Sewerage, Waste Management and

Remediation Activities 0.8% 195 463.8

13. Agriculture, forestry and fishing 0.5% 113 253.0

14. Arts, Entertainment and Recreation 0.5% 119 493.1

15.Publishing, audio and video productions, radio and TV

activities0.3% 79 346.8

16. Education 0.07% 16 862.3

17. Human Health and Social Work Activities 0.05% 10 697.3

18. Other activities 7% 1 622 731.4

Total 100 23 163 272.7


As it could be seen from Table 39, in 2015 22% of all FDI stock in the non-financial sector goes to the manufacturing.

Wholesale and retail trade attracts another 19.4%. Real estate activities account 13.9%. The energy sector is also important

for the country and accumulates 12.4% of the non-financial FDI. An essential share from the FDI (7.3%) is in the fast

developing information, communication and telecommunication sector. The other non-financial economic sectors have

relatively small share in the FDI.


61

6.2.3 THE NUMBER OF FOREIGN ENTERPRISES

According to a statistical information of Bulgarian National Statistical office, the number of companies with foreign interest

is growing in the last years reaching 27 195 enterprises in 2015. For the studied period (2013-2015) there is a tendency of

steady growth of 1000 new companies with foreign interests per year.

6.2.4 EMPLOYMENT

Apparently foreign-owned companies play a very important role in global and national employment. According to the

previously quoted UNCTAD (2007) report, international companies employ more than 80 million people in their subsidiaries

globally.

Foreign owned companies in Bulgaria employed around 340 000 people in 2015. In the last three years we could see a

tendency of steady growth in the employment generated by foreign owned companies. (Table 40).

Table 40: The number of enterprises with foreign interest by the number of staff for 2013-2015

Year

Foreign owned firms in Bulgaria

CountNumber of staff

(persons)

2013 25 222 322 762

2014 26 322 335 422

2015 27 195 340 019


The statistics shows that nearly 10% of all employed people in Bulgaria work for a foreign owned company.


62

6.3. CHARACTERISTICS OF THE COMPANIES PARTICIPATING IN THE SURVEY

A total of 14 foreign owned, legally independent subsidiaries participated in the survey. Not all company representatives did

answer all the questions, thus for some reported items the number of respondents will vary.

The subsidiaries examined employed over 8 thousand persons in 2015. Based on the number of their total employees one

third of the participated companies qualify as SME. The biggest part of the respondents (41.7 %) employ between 251 and

1000 people.


Total number of employees of the company Frequency Percentage distribution (%)

Below 250 4 33,3

251-1000 5 41,7

1001-2000 2 16,7

2001-5000 1 8,3

Total 12 100%

» We also examined how much control the respondent subsidiaries have over the entire value chain.

» Most of the subsidiaries participating in the survey (60%) have typical local subsidiary roles of sales & marketing.

Production/Operation and Logistics represent 17 % each of all companies. (Table 42).

Table 42: Mandates of the companies participating in the survey (n=14)

Roles and mandates of your subsidiary Frequency Percentage distribution (%)

Mandate 1 (Sales&Marketing) 11 60%

Mandate 2 (Production/Operation) 3 17%

Mandate 3 (Logistics) 3 17%

Mandate 4 (R&D) 1 6%

Mandate 5 (Other) 0 0

Total 18 100%

In the research sample almost all of the companies have only one subsidiary in the country.



distribution (%)

only 1 (one), subsidiary operates in the surveyed country 13 92,3%

beside the respondent subsidiary there is more legally

independent subsidiaries in the surveyed country1 7,7%

Total 12 100%


63

The subsidiaries participating in the survey came to Bulgaria from eleven different countries (Table 44).

Table 44: Origin of the parent companies of the participating companies (n=.14.)

Origin of the parent company Frequency % distribution

Germany 2 14,3

Netherland 2 14,3

USA 2 14,3

Austria 1 7,1

Canada 1 7,1

Greece 1 7,1

Ireland 1 7,1

South Korea 1 7,1

Switzerland 1 7,1

United Kingdom 1 7,1

Other 1 7,1

Total 14 100

The above country structure of companies results in their management culture. The Germanic management culture makes

43% of respondents which is the highest percentage in this range. The Anglo-Saxon culture with nearly 36% is well

represented as well. The respective data are depicted in table 45.


Management cultures of

mother companies Frequency % distribution

Nordic

German 6 43,00

Southern Europe and Latin 1 7,10

Anglo-Saxon 5 35,70

Eastern Europe

Asian 1 7,10

Other 1 7,10

Total 14 100,0%


64

As it could be seen in Table 46 below none of the subsidiaries examined were established by 1990. Around one third of the

examined companies settled in Bulgaria between 1990 and 2000. The majority (53.8%) appeared between 2001 and 2005.

A little more than 60% of the companies participating in the survey made Greenfield investments and nearly 39% of them

obtained majority control of existing Bulgarian companies through merger or acquisition.

Table 46: Year and mode of entry of the participants

Year of establishment of

the subsidiary

Merger,

acquisition

Greenfield

investmentTotal % distribution

Before 1990 0 0 0 0%

1990-1995 0 3 3 23,1%

1996-2000 1 0 1 7,7%

2001-2005 3 4 7 53,8%

After 2005 1 1 2 15,4%

Total 5 8 13 100.0%

% distribution 38,5% 61,5% 100%

The sectoral structure of the companies under study is placed in table 47. It shows that most of the companies (64.3%)

represent the Industry sector. The rest come from the trade sector with one exception which is in the financial services.


Main sector of the subsidiary’s activity Frequency%

distribution

Industry 9 64,3%

Trade (wholesale, retail and warehousing retail) 4 28,6%

Financial services 1 7,1%

Business services 0 0%

Others 0 0%

Total 14 100,0%


65


In relation to the topic indicated in the subtitle, we examined how important the following three strategic orientations were

for the respondents:

» growth, market expansion, portfolio expansion,

» stability, efficiency improvement, revenue retention, adapting to the market situation,

» redundancies, rationalization.

The majority (64.3%) of the respondents indicated that growth and portfolio expansion were their main strategic

orientations during the period examined. Around 29% of the companies surveyed were characterized by seeking stability

and improving efficiency. Only one of the respondents chose redundancies and rationalization (Table 48)


Main strategic issues, orientations Frequency of

“yes” answers

%

distribution

Growth, market expansion, portfolio

expansion9 64,3%



Redundancies, rationalization 1 7,1%

Total 14 100.0%

The research examines how companies rate their competitive factors and how they value these factors. The data are depicted

in Table 49 below. It needs to be explained that multiple answers were possible.

The data leads to the conclusion that the most valued competitive factors are the optimal organization size and workforce

(64.3% both). Financial resources, management and production technology are equally rated and represent 28.6% each.

Low labor cost are selected only from 14,3% of the participating companies.


Competitive factors Frequency of “yes”

answers

% distribution

Optimal plant/organization size 9 64,3%

Workforce 9 64,3%

Financial resources 4 28,6%

Management 4 28,6%

Production technology 4 28,6%

Low workforce costs 2 14,3%

Other 0 0%


66

Around 43% of the respondents declared that the profitability of their companies is at an average level. The rest of the

companies believe that they do better than the average and even superior.

As regards service quality only around 23 % consider themselves as average. The remaining 77% are split between companies

which provide better than the average and superior service.

Innovation proved to be strong competitive factor of the examined companies with nearly 70 % participants who rate

themselves better than the average and superior.

Almost half of the respondents (46.2%) treat environmental matters better than the average and 15.4% in a superior way,

while 30.8% perform at average level and only 7.7% declare performance below average.


Competitive

factors Poor

Below

average

Average or

equal to the

competitors

Better,

than the

average

SuperiorTotal

%

Profitability 42,9% 21,4% 28,6% 100%

Service quality 23,1% 38,5% 38,5% 100%

Rate of innovation 15,4% 15,4% 46,2% 23,1% 100%

Environmental

matters 7,7% 30,8% 46,2% 15,4% 100%

6.5. CHARACTERISTICS OF THE KEY INDICATORS OF THE HR FUNCTION

In this section we give an overview of the following HR characteristics:

» Number and workload of the HR staff,

» The main indicators representing the importance, results, and efficiency characteristics of the HR activity

(labor cost – total cost ratio, and relative size of the training budget).

Half of the examined companies (50%) have HR departments with 1-4 employees (Table 51). Another 21.4% employ HR staff

of 11-15. Two companies (14.3%) reported to have over 20 HR professionals.


Total number of HR staff2015


None 0 0%

1-4 persons 7 50,0%

5-10 persons 1 7,1%

11-15 persons 3 21,4%

15-20 persons 1 7,1%


Total 14 100,0%


67

6.6. THE MAIN INDICATORS REPRESENTING THE IMPORTANCE AND RESULTS OF THE HR ACTIVITY

Just around 21% of the examined companies give data referring to the labor cost – operating cost ratio as the rest consider this

type of information as confidential. The received responses are equally distributed between 20-30%, 30-40% and 40-50%.




Under 5 % 0 0%

5-10 % 0 0%

10-20 % 0 0%

20-30 % 1 33,3%

30-40 % 1 33,3%

40-50 % 1 33,3%

Over 50 % 0 0%

Total 3 100.0%

A little less than 50% of the respondent companies have training budget under 3% of the entire annual labor cost. At the

same time 36.4% of the companies spent more than 5% of the annual labor budget on training employees (Table 53).


Annual training budget in % of the entire

annual labor cost

2015


Under 1 % 2 18,2%

1-3 % 3 27,3%

3-5 % 2 18,2%

over 5 % 4 36,4%

Total 11 100,0%


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6.7. EXPATRIATES

Nearly two thirds of the examined companies have expatriates employed in managerial positions. The number of these

expatriates varies between 1 and fifteen people while the most frequent cases are 1 person and 6-10 persons. The foreign

expatriates in non-managerial positions are present in around 57% of the participating organizations. Their number varies

between 1 and 5 persons and over 20 persons (Table 54).



Frequency % distribution Frequency % distribution

None

1 person 3 33,3 2 25,0

2-3 persons 1 11,1 2 25,0

4-5 persons 1 11,1 2 25,0

6-10 persons 3 33,3

11-15 persons 1 11,1

16-20 persons 0 0

Over 20 persons 0 0 2 25,0

Total 9 100,0 8 100,0

Table 55 shows how typically and to what positions Bulgarian expatriates were sent to foreign companies of MNCs.

Table 55: Number and positions of Bulgarian expatriates (inpatriates)*(n=5)

Number of Bulgarian

expatriates



%Frequency

distribution

%

None

1 person 1 50,0 3 60,0

2-3 persons 1 20,0

4-5 persons

6-10 persons

11-15 persons 1 50,0

16-20 persons

Over 20 persons 1 20,0

Total 2 100,0% 5 100,0

Only around 14% of the participating companies have reported to have sent expatriates in managerial positions. At the same

time nearly 36% of the examined organizations have sent Bulgarian expatriates in non-managerial positions.


69

6.8. THE OPERATION OF THE HR DEPARTMENT

Several different function-sharing practices describing the relationship between the local HR unit and the corporate HQ HR

unit were determined among the companies surveyed (Table 56).

» Nearly in the half of the HR departments (46.2%) of the responding subsidiaries reported a hands-off

approach from HQ, enjoying almost complete freedom from the headquarters, resulting in a locally

decentralized HR activity.

» The solution implemented by 38.5% of the respondents, was that the HR department of the company’s

headquarters lays down general guidelines and provides a standard framework for the work of HR

departments of the subsidiaries.

» In 15.4% of the companies the headquarters was also responsible for developing the detailed HR model and

not only personnel guidelines but also the rules, procedures, and HR processes were developed centrally.


FunctionsFrequency of “yes”

answers

Multiple answers

possible, response

Hands-off, provide complete freedom 6 46,2%

Provide general guidelines and framework for actions 5 38,5%

Provide detailed HR model, policies, procedures and rules 2 15,4%

Source of all remotely significant HR decisions 0 0%

Total 13 100.0%

Compensation and Benefits was first in the ranking of HR areas considered most critical in the period examined, following by HR

planning, being a little ahead of Recruitment, selection. The responding subsidiaries deemed talent management, performance

evaluation, training and development, employee relations and communication while health & safety is ranked less critical.

Table 57: Critical areas of HR (on a 1⇒5 scale, on average)

(Explanation: 1= not critical ⇒ 5 = l critical at all)

Ranking HRM critical areas The average of the answers

Compensation and Benefits 3,6

HR planning 2,5

Recruitment, selection 2,3

Talent Management 2,0

Performance Evaluation 1,8

Training and development 1,8

Employee Relations 1,6

Communication 1,5

Health&Safety 1,2


70

From the list of HRM competency areas, the respondents considered the following three to be the most important:

» foreign language skills

» personal credibility (effectiveness, efficient connections, communication skills)

» HR services and usage of HRIS

Business knowledge is followed. According to the opinion of the respondents, the Strategic contribution is ranked last

among very important HR competencies in their companies in the period examined.

Table 58: Averages of the key competencies of HR managers (n=13)

((Explanation: 1,= not critical ⇒,2,3,4 very critical)

Ranking order

of averagesKey competencies Averages

1 Foreign languages skills 3,75

2Personal credibility (achieving results, effective

relationships, communication skills)3,5

3HR services (recruitment, selection, training and

development, performance management, etc.)3,5

4 Usage of HRIS 3,5

5 Business knowledge (value chain, value creation) 3,2

6Strategic contribution (managing culture, championing

changes, strategic decisions)2,5


71

Our current survey confirms the finding also established in other studies (Karoliny et al. 2009; 2010 and Kerekes et al. 2011)

that members of the management hierarchy have larger responsibility or control for some HR decisions and local employees

of the HR department have more responsibilities in other functions.


Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but in

consultation with

the HR department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

departmentTotal

Human Resource

Planning46,2% 38,5% 7,7% 7,7% 100%

Recruitment 15,4% 7,7% 38,5% 38,5% 100%

Selection 15,4% 23,1% 46,2% 15,4% 100%

Performance

Evaluation76,9% 15,4% 0 7,7% 100%

Training and

Development38,5% 38,5% 23,1% 0% 100%

Talent management 16,7% 50,0% 33,3% 0% 100%

Compensation and

Benefits16,7% 25,0% 33,3% 25% 100%

Industrial-Labor

Relations33,3% 33,3% 0 33,3% 100%

Employee

Communication30,8% 15,4% 15,4% 38,5% 100%

HRMS/IT 40,0% 10,0% 0% 50,0% 100%

Health & Safety 30,0% 10,0% 0% 60,0% 100%

As the responses in Table 59 reflect, local line managers take the final decision regarding most of the interventions in the

key functions of HR, based usually on consultation with the HR department. Only seldom the final decision maker is the

representative of the local HR department. Health & safety and recruitment & selection are those areas where the role of

HR departments is more important.


72

As it could be seen in Table 60 the implemented transformation in HR department are equally found among the examined

companies with the exception of the HR SSC.


Implemented transformations in HR department

Completed

Frequency of

“yes” answers

distribution

%



Implementation of HR as a role of business partner 5 16,1%






Total 31 100,0%

External service providers were most often used in the area of training and development, as reported by the respondents.

They were also often involved in recruitment, compensation and benefits and health & safety. There is an increasing use of

external help in HRMS/IT. Naturally few companies used the help of external service providers in HR planning, evaluation,

relations and communications. (Table 61).

Table 61: Role and use of external service providers in the different key functions of HR (n=12)

Key functions of HR Increased Decreased Same

External

providers not

used

Total

Human Resource Planning 8,3% 8,3% 8,3% 83,3% 100%

Recruitment 25,0% 8,3% 41,7% 25,0% 100%

Selection 18,2% 9,1% 18,2% 54,5% 100%



Training and Development 18,2% 27,3% 45,5% 9,1% 100,0%

Compensation and Benefits 16,7% 0,0% 50,0% 33,3% 100,0%

Industrial-Labor Relations 18,2% 0,0% 9,1% 72,7% 100,0%

Employee Communication 9,1% 0,0% 18,2% 72,7% 100,0%

HRMS/IT 30,0% 0,0% 30,0% 40,0% 100,0%

Health &Safety 9,1% 9,1% 45,5% 36,4% 100,0%


73

In most of the studied subsidiaries (92.86%) there is a HR head, which has the greatest decision power regarding the HR

issues.

In only one of the respondent companies there is no HR department and in this case the HR issues are dealt by the CEO


Position

Frequency of

“yes”

answers

distribution

%

Chief Executive 1 7,1%

Administrative manager 0 0,0%

Head of the Finance department 0 0,0%

Production manager 0 0,0%

Head of Marketing/Sale 0 0,0%

There is HR Head 13 92,9%

Total 14 100,0%

As it could be seen from the table below foreign language skills is not a big problem in most of the jobs for the examined

subsidiaries. The main HR issues the respondents report are in finding trained technical workers (100% find that for not easy)

and in finding manual workers (92,9% find that for not easy). Another 62.5% find not easy to keep the talents, which makes

it an important issue as well. At the same time 63.7% agree completely or to a big degree that they can offer competitive

wages for their employees in every job.

66.7% report a significant influence of the trade unions, while for 33.3% that is not a feature at all.

Table 63: HR issues

HR issues in 2015

No feature

at all

%

Minor feature

%

Large feature

%

Full feature

%

Total

%

Easy to find manual

workers in labor market92,9% 0% 0% 7,1% 100%


technical workers100% 0% 0% 0% 100%

Foreign language skills

are not problem in most

of the jobs

14,3% 14,3% 28,6% 42,9% 100%

We can keep the talents

easily62,5% 0% 25% 12,5% 100%

We can offer

competitive wages for

our employees in every

job

27,3% 9,1% 45,5% 18,2% 100%

Significant influence of

the trade unions33,3% 0% 41,7% 25% 100%


74

6.9. KNOWLEDGE MANAGEMENT IN HR

Knowledge management refers to the management and sharing of the collective, strategically linked, firm-specific knowledge

(know-how, skills and intellectual skills) of an organization’s employees in an integrated way. Related to knowledge of critical

HR capabilities we examined the following three areas:

» methods of personal competency development in HR,

» enablers of HR knowledge flows,

» directions of HR knowledge flows.

The respondents found informal learning at the HR department of subsidiary to be the most important method of personal

competency development in the field of HR.

Regarding their importance the following methods are rated very closely to each other and stay more than a grade behind

the first one.

The informal learning at the HR department of another subsidiary is considered by the participating companies to be the less

effective method of personal competency development.



Methods of gaining competenciesThe average of

the answers

Informal learning at the HR department of your subsidiary 3,92

Informal learning at the HR department of another subsidiary 2,22

Informal learning at the parent company 2,75

Local HR-training and development 2,77

HR training and development at the parent company 2,75

HR training and development at other subsidiaries 0

The results show that all HR knowledge flows are seen to be important by the studied subsidiaries. Moreover the scores they

received in the ranking differ by little.


75

The respondents ranked knowledge flows within the HR department of their own subsidiaries as being most important

(4.40). Flows from the parent company were only secondary (4.22). The knowledge flows at the subsidiary between the HR

department and other organizational units is considered to be nearly as important (4.00). Less important but still significantly

valued (3.71) are the knowledge flows from the subsidiary to the parent company.



Knowledge flows in HRThe average of

the answers

Knowledge flows from the parent company to the subsidiary 4,22

Knowledge flows from the subsidiary to the parent company 3,71

Knowledge flows between subsidiaries 3,80

HR related knowledge flows within the HR department at your subsidiary 4,40

HR related knowledge flows at your subsidiary between the HR department and

other organizational units4,00

6.10. THE FUTURE TASKS OF HR

With regard to the key issues of the next 12 to 24 months, the interviewed HR managers considered talent motivation and

retention one of the most important tasks before them. Almost all respondents thought that a key business challenge will

remain the effective planning, recruitment and selection of HR along with people development and training. Many of the

respondents thought they need to work in the future on more effective employee communications.

Table 66: Key business challenges in the next 1-2 years

Key business challenges

Retention and motivation of employees

Talent management and talent retention

To find well-trained technical workers

Employee communication

Change management

People development and training

HR planning, recruitment and selection


76


From the personal characteristics of the interviewed professionals we examined demographic characteristics, their professional

qualifications and the characteristics of their positions held.



%

University PhD



Other

Total 14 100.0%

All the interviewees participating in the survey have university, college or equivalent qualifications. The vast majority (92.9%)

have a master degree while 7.1 work with a bachelor degree.


Field of professional qualification Frequencydistribution

%

Natural sciences

Engineering 2 15,4

Social sciences 6 46,2

Other 5 38,5

Total 13 100,0

The majority of the respondents obtained qualifications in social sciences (46.2%) or engineering (15.4) but we also found

that more than one third of the professionals are with other qualifications.


77

7. CZECH REPUBLIC (KATERINA LEGNEROVA, ZUZANA DVORAKOVA AND JÓZSEF POÓR)

7.1. INTRODUCTION

Population: 10.644.842 people


Items/years 2013 2014 2015GDP (%) -0,5 2,0 4,3Unemployment (%) 8,2 7,5 6,2Inflation (%) 1,4 0,1 0,1GDP per capita in PPS EU-27=100% 83 84 85


78

7.2. FDI AND EMPLOYMENT IN CZECH REPUBLIC

Foreign direct investment in the Czech Republic may have a triple form. Either it is an investment in the share capital, or it can

be reinvested, or may act on other investment. The first 20 years of the separated Czech Republic from the inflow of foreign

investment structure can be divided into three stages in principle.

7.2.1 TRENDS AND EVOLUTION

1993 to 20023

During this period, the total inflow of FDI (foreign direct investment) is in the form of share capital. Reinvested earnings, in

the pattern of FDI, started to increasingly be seen since 1998. In the years 2001 and 2002 this form grew to a share of double

digits. The whole first stage characterizes the fact that the average annual inflow of FDI amounted to almost 9% of GDP.

2003 to 2007

In the second stage, the annual inflow of foreign investment in the Czech Republic slowed to an average 5% of GDP. For this

period it is then a typical rapid increase in the share of reinvested profit. In 2003, reinvested earnings on FDI were at 90%.

In the subsequent years, except 2005, the majority of the total direct investment was direct FDI.

2008 to 2013

The third stage is marked by the onset of the global financial crisis, which then spilled over into the Czech economy. Average

annual FDI inflow during this period was reduced to 2.5% of GDP, half of that during the previous stage. As regards the

structure of FDI, the trend of the years 2003 to 2007 continues, the majority of external investments, therefore, continue

to be comprised of reinvested profits.

The sectoral structure of FDI

By the end of 2013, the Czech economy foreign investment totaled 2.67 billion crowns, or $ 134.1 billion, or 97.3 billion

euros. About the Czech GDP, this represented 65.5%.

The largest share of foreign capital holds the sector of financial intermediation, except insurance and pension funding

(27.9%), followed by the production of motor vehicles (except motorcycles, trailers, and semi-trailers) (10.1%) and real estate

(6.8%). The services sector accounts for 56.2% of total invested capital in contrast manufacturing industry achieves a 32.2%

share.

The territorial structure of FDI

Geographically, the capital invested in the country involved in the largest extent, the Netherlands with 28.6%, Austria, 14.0%

and 11.3% share with Germany. Between the countries, whose total amount of invested capital exceeds 100 billion CZK

includes Luxembourg, France, Switzerland, and Belgium. The share of foreign investments from countries of the European

Union has fallen to 87.0% and Europe overall, 92.8% of the almost foreign investment. From non-European States comes

only 7.2% of foreign capital and the most important investors are the United States and the Republic of Korea.

3 Source: Analýza: odkud k nám hlavně přicházejí zahraniční investice, 13.10.2015, http://ekonomicky-denik.cz/analyza-odkud-k-nam-hlavne-prichazeji-zahranicni-investice/


79


The typically weighted configuration of national firms operating in the Czech Republic at the beginning of 2014 is as follows:

1. Netherlands

2. Austria

3. Germany

4. Luxembourg

5. France

6. Switzerland

7. Cyprus

8. Slovakia

9. Other

According to data from Czech National Bank (2014), the main investor in the Czech Republic is the Netherlands, following

by Austria, Germany, and Luxemburg (Table 69).

Table 69: FDI by country of origin (2014)

Order Country %

1. Netherlands 24,0

2. Austria 13,2

3. Germany 12,6

4. Luxembourg 12,1

5. France 6,1

6. Switzerland 4,7

7. Cyprus 3,9

8. Slovakia 3,8

9. Other 19,6

Total 100

Source: CNB: FOREIGN DIRECT INVESTMENT IN 2014 (2015).

Prague: Statistics and Data Support Department.

Balance of Payments and Economics Statistics Division


80


At the beginning of the millennium, the majority of FDI was connected to the economic sector labeled trade and repairs,

followed by financial services (Figure 8). These days, this has changed significantly (Table 70).

Figure 8: Typical areas of FDI in the Czech Republic (1999)

Source: CNB: FOREIGN DIRECT INVESTMENT IN 2014

Statistics and Data Support Department

Balance of Payments and Economics Statistics Division

At the end of 2014, manufacturing is the prevailing sector, followed by financial services) (Table 70).

Table 70: FDI by sector (2014)

Order Sectors %

1. Manufacturing 33,4

2. Financial and insurance activities 25,4

3. Wholesale, retail trade; repair of motor vehicles and motorcycles 10,7

4. Real estate activities 7,1

5. Professional, scientific and technical activities 5,6

6. Information and communication 5,0

7. Electricity, gas steam and air conditioning supply 3,1

8. Private purchase and ales of real estates 2,5

9. Other 7,1

Total 100

Source: Czech National Statistical office

(Explanation: Companies with 100% or majority foreign interest and also companies with Czech and foreign interest

with at least 10% foreign ownership are included in this list.)


81


According to a publication of Czech National Statistical Office, the participation of foreign owned companies has grown

from 7.3 % in production in 1995 to 42,5 % in 2010.

7.2.5 EMPLOYMENT

Apparently, foreign-owned companies play a very important role in global and national employment. According to the


globally and it is worth examining this number more closely in two ways:

What is the proportion of people employed at subsidiaries of international companies? The proportion this value represents

of the employed in business varies significantly between countries, According to the representative data of the UNCTAD

report, 50.6% of the employees in the private sector work for multinational companies in Ireland. The same value in the

Czech Republic was 17% at the beginning of the year 2007, according to the report above.

Foreign owned companies employed nearly 600 000 employees.


A total of 97 foreign owned, legally independent subsidiaries participated in the questionnaire survey.

Foreign owned companies employed nearly 600 000 employees in the Czech Republic, it represents 16 % of CZ employees

(2016). We can state that the majority of the parent companies are large enterprises, based on the total number of their

employees. It is important to highlight that although a minority of the subsidiaries is SMEs based on their size (number of

staff); all the Czech companies analyzed in the survey are parts of larger international companies and thus were regarded as

large enterprises from an operational and management point of view.

The majority of the surveyed subsidiaries employ the number of staff to 1 000 (Table 71).


Total number of employees of

the companyFrequency

Percentage

distribution

(%)

Below 250 54 63,5

251-1000 24 28,2

1001-2000 3 3,5

2001-5000 2 2,4

Over 5000 2 2,4

Total 85 100%

Source: Primary survey by the authors


82

We also examined how much control these organizations have over the entire value chain. More than a half (59.1%) of the

subsidiaries participating in the survey is in Production (“Mandate 3”), followed by Purchasing and Logistics (“Mandate 4”).

The lowest portion is in the sector Sales and Marketing (“Mandate 2”) as shown in Table 72.


Roles and mandates of your

subsidiaryFrequency

Percentage

distribution (%)

Mandate 1 14 15,1

Mandate 2 11 11,8

Mandate 3 55 59,1

Mandate 4 38 40,9

Mandate 5 12 12,9


The subsidiaries participating in the survey came to the Czech Republic from 15 different countries. The majority of them

come from Germany, USA, and France (60 %). German owned companies represent 29 % (Table 73).



Germany 27 29

USA 17 18

France 12 13

Austria 7 8

Netherlands 5 5

UK 5 5

Switzerland 4 4

Italy 3 3

Poland 3 3

Belgium 2 2

Ireland 2 2

Cyprus 1 1

Island 1 1

Russia 1 1

South Koreas 1 1

Total 91 100



83

If we take a look at the management culture of the companies (Table 74), the highest proportions of companies in the

sample analyzed belong to the so-called Germanic (41 %) and the Anglo-Saxon (26 %) management cultures. It corresponds

with the countries of origin of the parent companies mainly represented in the sample.




Nordic 7 7,6

German 38 41,3


Anglo-Saxon 24 26,1

Eastern Europe 4 4,3

Other 4 4,3

Total 92 100,0


The foreign owners of more than 40% of the subsidiaries were settled in the Czech Republic before 1995, 60 % than among

1995 – 2010. After 2010 only one foreign company from the sample was established.

The proportion of Greenfield investment and merger and acquisition is 45.6 to 54.4. More subsidiaries were started by

merger and acquisition (Table 75).


Year of

establishment of the

subsidiary

Merger,

acquisition

Greenfield

investmentTotal

%

distribution

Before 1995 20 17 37 41,1

1995-2000 11 8 19 21,1

2001-2005 4 9 13 14,4

2006-2010 13 7 20 22,2

after 2010 1 0 1 1,1

Total 49 41 90 100.0

distribution 54,4 45,6 100



84

According to the sectoral distribution, the majority (27 %) of the organizations examined is engaged in trade, followed by

industry (16.9 %) and financial service (10.1 %), while the others (31 %) were classified in different services (Table 76).


Main sector of the subsidiary’s activity Frequency %

distribution

Industry 15 16,9

Trade 24 27,0

Financial service 9 10,1

Other service 27 30,3

Business service 1 1,1

Others 13 14,6

Total 89 100



Nearly a half (48.9 %) of the respondents indicated that the growth and portfolio expansion during the period examined.

28.3 % of the companies surveyed were characterized by seeking stability. A lower proportion (18.5%) of the respondents

chose the redundancies and rationalization option.

It can indicate the recovery from the financial crisis in the Czech Republic (Table 77).


Main strategic issues, orientations Frequency %

distribution

Growth, market expansion, portfolio

expansion45 48,9


retention, adapting to the market situation26 28,3

Redundancies, rationalization 17 18,5

Other 4 4,3

Total 92 100.0



85

The question of the importance of competitive factors was answered by only 12 respondents. Five of them mentioned all of

the suggested factors, seven other factors as a strong brand, quality of products and innovation (Table 78).



answers

distribution

Optimal plant/organization size 5 41.6

Workforce 5 41.6

Financial resources 5 41.6

Management 5 41.6

Production technology 5 41.6

Low workforce costs 5 41.6

Other 7 58.3



The HR departments of the companies examined are relatively small as the number of HR staff. 60.5% of respondents

indicated 1 – 4 people in HR. Only three of the organizations participating in the survey did not employ a single HR

professional (Table 79). The number of HR staff corresponds with the number of employees in the subsidiaries.


Total number of HR staff

2015

Frequency%

distribution

None 3 3,7

1-4 persons 49 60,5

5-10 persons 14 17,3

11-15 persons 4 4,9

16-20 persons 3 3,7


Total 81 100,0



86


The labor cost to operating cost ratio is one of the frequently analyzed indicators of the importance of the HR function in a

company (Boudreau, 2010). The effects of HRM have a stronger and more direct influence on the company’s performance

if this ratio is higher. About a half of the subsidiaries participating in the survey fell into this category (where the labor cost

ratio is higher than 30%). It can be seen as a signal for evaluating the HR function as important and strategic (Table 80).

Table 80: Labor cost in of the operating cost (n=35)

Labor cost in of the operating cost

2015

Frequency %

distribution

Under 5 1 2,9

5-10 6 17,1

10-20 7 20,0

20-30 4 11,4

30-40 4 11,4

40-50 4 11,4

Over 50 9 25,7

Total 35 100.0


In more than 57 % of the companies examined, the relative size of the training budget was under 3% of labor costs, and

only about 10 % of the companies examined spent 5% of the annual labor budget on training employees (Table 81).

Table 81: Annual training budget in of the entire annual labor cost (n=61)

Annual training budget in of the


2015

Frequency %

distribution

1-3% 35 57,4

3-5% 20 32,8

over 5% 6 9,8

Total 61 100



87

7.7. EXPATRIATES

Most of the subsidiaries participating in the survey employ foreign expatriates in managerial and non-managerial positions.

Only two companies from the sample of 30 respondents did not employ any expat in a non-managerial position. Most of

the companies employ one expat in managerial position, but two companies employ more than 20 people. Nearly one half

of the respondents employ six to ten non-management expatriates (Table 82).


Number of expats


Frequency %

distributionFrequency

%

distribution

None 0 0,0 2 8,7

1 person 10 33,3 3 13,0

2-3 persons 5 16,7 4 17,4

4-5 persons 7 23,3 3 13,0

6-10 persons 5 16,7 7 30,4

11-15 persons 1 3,3 0 0,0

16-20 persons 0 0,0 1 4,3

Over 20 persons 2 6,7 3 13,0

Total 30 100,0 23 100,0


From the survey, the number of the Czech expats is most often five persons in managerial positions and up to 10 people in

non-managerial position. This result reflects the trend of Czech expatriates (Table 83).

Table 83: Number and positions of CZ expatriates (n=20)

Number of Hungarian

expatriates


Frequency%

distributionFrequency

%

distribution

1 person 5 25,0 4 23,5

2-3 persons 8 40,0 5 29,4

4-5 persons 5 25,0 1 5,9

6-10 persons 0 0,0 5 29,4

11-15 persons 2 10,0 1 5,9

16-20 persons 0 0,0 0 0,0

Over 20 persons 0 0,0 1 5,9

Total 20 100,0 17 100,0



88


More than 50 % of HQ HR staff provides general guidelines and sets up the framework. More than 20 % of the HR

departments of the responding subsidiaries reported a hands-off approach from HQ, enjoying almost complete freedom

from the headquarters, resulting in a locally decentralized HR activity. The same percentage (20.7 %) of the respondents

answered that HQ HR provides detailed HR policies, procedures and rules (Table 84).

Table 84: Typical functions of the HQ HR


answers

Multiple answers

possible, response

Hands-off, provide complete

freedom19 20,7

Provide general guidelines and

framework for actions49 53,3

Provide detailed HR model,

policies, procedures and rules19 20,7

Source of all remotely significant

HR decisions5 5,4


Health and safety were marked by the respondents as the most critical area. It is closely connected with the production

sector, where most of the respondents are active. It was followed by training and development and performance evaluation

and compensation and benefits. Recruitment was mentioned at least critical in 2015 (Table 85).



The ranking of the areas of HRM critical in …The average of the

answers

HR planning 2,43

Recruitment 3,06

Selection 2,75






Communication 2,47

HRIS 2,28

Health & Safety 1,59



89

Table 86 shows the key competencies of HR managers. Personal credibility was chosen as very important by more than 28%

of respondents, followed by foreign languages skills and business knowledge. Foreign languages skills are very important

in international companies, so it is one of the key competencies of HR manager. Business knowledge shows the possible

implementation of Ulrich´s HR model.

Table 86: Ranking of the key competencies of HR managers

Ranking of key competencies

Very important

Frequency%

distribution

Business knowledge (value chain, value creation) 28 32,2

Strategic contribution (managing culture, championing

changes, strategic decisions)22 25,0

Personal credibility (achieving results, effective relationships,

communication skills)34 38,6

HR services (recruitment, selection, training and development,

performance management, etc.)25 28,4

Usage of HRIS 9 10,2

Foreign languages skills 32 36,4


Local line management is responsible for performance evaluation in more than 56%. On the other hand the talent

management is provided in cooperation with HR department. Recruitment and selection are tasks for HR department as

health and safety and HRMS/ IT (Table 87).

Table 87: Responsibility of decision making in key functions of HR (%)

Key functions of HR

Local line

management

(mgt.)

Primarily local line mgt.

but in consultation with

the HR department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

department


Recruitment 17,4 0,0 40,6 42,0

Selection 26,2 0,0 49,2 24,6


Training and Development 21,0 0,0 41,9 37,1

Talent management 23,4 0,0 51,6 25,0

Compensation and Benefits 32,8 0,0 42,2 25,0

Industrial-Labor Relations 32,4 0,0 33,8 33,8

Employee Communication 36,2 0,0 33,3 30,4

HRMS/IT 18,2 0,0 24,7 57,1

Health & Safety 28,8 0,0 21,3 50,0



90

Transformation in HR departments is going to a more strategic role by increasing HR role as business partner. Stronger

involvement or giving over the HR tasks to management was indicated by 27% of participating subsidiaries. Outsourcing is

also an important part of HR transformation (Table 88).

Table 88: Implemented transformation in HR department


Completed

Frequency of

“yes”

answers

%

distribution

Outsourcing of the tasks in HR department 19 22,6

Management gets back the HR tasks 23 27,1

Implementation of HR as a role of business partner 17 20,0

Increasing HR as a role of business partner 18 21,7

Whole HR SSC* 6 7,0

HR SSC * in corporate and regional areas 12 14,0

Self-service HR for employees 11 12,8

Self-service HR for the management 11 12,8


The usage of external HR service providers increased mostly in training and development, which can also signalize the

increasing inflow of cost into training and development of employees (Table 89).

Table 89: Role and use of external service providers in the different key functions of HR (%)


External

providers not

used


Recruitment 21,3 11,2 47,2 20,2

Selection 15,7 10,1 38,2 36,0







HRMS/IT 14,9 4,6 50,6 29,9

Health &Safety 18,2 3,4 55,7 22,7



91

In the companies without an HR manager, the main decision maker is mostly the Chief Executive (Table 90).

Table 90: The greatest decision-making power of HR issues of firms working without HR manager

Position

Frequency of

“yes”

answers

%

distribution

Chief Executive 17 17,5

Administrative manager 1 1,0

Head of the Finance department 3 3,1

Production manager 1 1,0

Head of Marketing/Sale 0 0,0


The main HR issues in 2015 were for respondents: finding manual workers and well trained technical workers. Keeping

talents was also marked as a challenge for HR (Table 91).

Table 91: HR issues (%)

HR issues in 2015No feature

at all

Minor

feature

Large

feature

Full

feature


in labor market41,2 25,9 20,0 12,9


technical workers40,0 31,8 21,2 7,1

Foreign language skills are

not problem in most of the

jobs

10,2 34,1 35,2 20,5


easily18,4 51,7 23,0 6,9



every job

11,2 51,7 24,7 12,4


trade unions58,1 27,9 10,5 3,5



92


Local HR-training was rated as the most important, followed by informal learning at the HR department in the subsidiary.

The informal learning at the HR department of another subsidiary was marked as the least important method of competency

development (Table 92).

Table 92: The importance of the methods of personal competency development in HR (on a 1-5 scale, on average)



the answers






HR training and development at other subsidiaries 2,41


Knowledge flowing between subsidiaries was market by the respondents as the most important issue, which does

not correspond with the real praxis as the results in Table 25. The flow of knowledge from the parent company to the

subsidiary was also marked as significantly important (Table 93).

Table 93: HR knowledge flows (on a 1-5 scale, on average)



the answers









93


About the key issues of the next 12 to 24 months, the interviewed HR managers considered the lack of workforce and higher

fluctuation are the most important tasks before them. Lots of them see retaining talents as a big issue.


Lack of workforce

Fluctuation

Development of employees, training

Keeping talents

Centralization of parent company

The grow of staff numbers

Implementation of shared service center

Organization changes



Almost all the respondents in the survey have a university, college or equivalent qualifications, three of them had the Ph.D.

degrees as well (Table 94).


Level of qualification Frequency%

distribution

University PhD 3 3,3

University (MSc) 56 61,5

College (BSc) 17 18,7

Other 15 16,5

Total 91 100.0



94

More than 50 % of respondents obtained the qualification in social sciences or another field of qualification. Only four of

them held an engineering qualification (Table 95).


Field of professional qualification Frequency%

distribution

Natural sciences 7 7,9

Engineering 4 4,5


Other 29 32,6

Total 89 100.0


Nearly a half of the participants have worked on the current position for less than three years; 60 % than less than five years.

Over 15 years are on the current position only 3 % of participants in the survey (Table 96).

Table 96: Time spent in current position

Time spent in current position Frequency distribution

0-3 years 41 44,6

3-5 years 18 19,6

5-10 years 22 23,9

10-15 years 8 8,7

Over 15 years 3 3,3

Total 92 100,0



95

8. HUNGARY (JÓZSEF POÓR, TÍMEA JUHÁSZ, KATALIN SZABÓ, ILDIKÓ ÉVA KOVÁCS AND MÁRTONNÉ KAROLINY)

8.1. INTRODUCTION

Population: 9 956 108 people

Territory: 93 030 km2

Items/years 2013 2014 2015

GDP (%) 3,9 3,7 3,4

Unemployment (%) 9,1 7,1 6,2

Inflation (%) 1,7 -0,2 -0,1GDP per capita in PPS EU-27=100%

67 67,8 68,3


96

8.2. FDI AND EMPLOYMENT IN HUNGARY

FDI has played a vital role in the successful restructuring of the Hungarian economy since the regime change in 1990. Hungary

has had one of the most open economies in the region. It has facilitated productivity growth, technological modernization,

the creation of an export capacity indispensable for a healthy growth potential and the creation of new jobs (Ministry for

National Economy, 2014). Hungary has continued to be an attractive investment destination. The country is widely considered

to be the gateway to Central and Southeast Europe, which makes it an attractive market for foreign investment. Hungary’s

labor force is highly educated and skilled. The integration in the EU reinforces its political and economic stability, while the

support of large international organizations has reduced the effects of the crisis (Santander Trade, 2017).

According to data (GMGEF-Ministry for National Economy 2010) published at the beginning of 2010, the volume of FDI that

had flowed into Hungary since the beginning of the economic transformation was 64.2 billion EUR (85.9 billion USD) at the

end of 2009. Other participating interests and working capital investments in the form of reinvested revenues accounted for

59.9 billion EUR and other capital accounts for 4.3 billion EUR. The volume of FDI was 78.5 billion EUR at the end of 2012

(Ministry for National Economy, 2013). Hungary has one of the highest rates of FDI stock per capita in Central and Eastern

Europe. In percent of GDP the Hungarian FDI stock is the highest (82.2%) in the Central European region (Czech Republic:

66%, Slovakia (59.4% at the end of September 2013), Poland: 47%, Romania: 43.1%, Slovenia: 31.3%). The stock of FDI in

Hungary amounted to EUR 80.6 billion at the end of 2013. Of this, EUR 67.8 billion took the form of equity capital and re-

invested earnings and EUR 12.8 billion that of other capital (Ministry for National Economy, 2014).

Table 97: Foreign Direct Investment in Hungary

Foreign Direct Investment 2013 2014 2015

FDI Inward Flow (million USD) 3,404 7,49 1,27

FDI Stock (million USD) 108,517 98,885 92,132

Number of Greenfield Investments 88 90 103

FDI Inwards (in % of GFCF) 12,4 25,0 4,9

FDI Stock (in % of GDP) 80,6 71,5 76,4

Source: UNCTAD (2015)


97


In his work Hunya (2000) draws the attention to the importance of the origin of companies. The typical weighted configuration

of national firms operating in Hungary at the beginning of the millennium is as follows:

1. Germany

2. USA

3. The Netherlands

4. Austria

5. UK

6. France

7. Italy

8. Belgium

9. Switzerland

10. Japan

11. Luxembourg

Regarding the weighted volume of the FDI invested in Hungary, according to data at the end of 2012, the order of the most

significant investors has somewhat changed compared to earlier reported research of Hunya (2000). Germany (24.7) retained

its leading position, but Luxembourg (13.6) stepped forward, Austria somewhat fell behind, and the USA remained the same

place (3.2). The Netherlands (12.4), Austria (11.6), France (4.2) as well have an ongoing presence. Overall it is found that more

than 2/3 (77.2) of FDI stock comes from nations in the European Union (Ministry for National Economy, 2014) (Table 98).

Table 98: FDI by country of origin (at end -2012)

Order Country

1. Germany 24,7

2. Luxembourg 13,6

3. The Netherlands 12,4

4. Austria 11,6

5. France 4,2

6. UK 3,7

7. USA 3,2

8. Belgium 2,9

9. Switzerland 3,7

10. Cyprus 1,5

11. South-Korea 1,3

12. Spain 1,0

13. Japan 1,0

14. Others 16,2

Total 100

Source: Ministry for National Economy (2014): An overview of the current FDI inflow processes.

Hungarian Ministry for National Economy, Competitive Department, Budapest:, 31 March


98

According to the Hungarian Central Statistical Office (2016) the subsidiaries operating in Hungary in 2014 were managed

from 107 different countries. 70% of the parent companies were established in a member state of the European Union.

Overall, the EU member states are in dominance. In 2014 72% of foreign owned companies were controlled by 10 countries,

of which eight are EU countries. Germany is still leading, 188 thousands people (29% of total employee, who works for

multinational company) are employed by German multinational companies.


At the beginning of the millennium, the majority of FDI was connected to the economic sector labelled industry, included

industrial production of goods (Figure 5). These days, this has changed significantly (Figure 9).

Figure 9: Typical areas of FDI in Hungary (1989-2002)

Source: Sohinger, J. (2005): Growth and Convergence in European Transition Economies. Eastern European Economics, Vol. 43, 2:73-94

Figure 10: Typical areas of FDI in Hungary (2014)

Source: Based on Hungarian Central Statistical Office (2017a): Foreign Owned Companies in Hungary (2008–2014)

http://statinfo.ksh.hu/Statinfo/haViewer.jsp?lang=en


99

Some 71.6% of all FDI stock was attracted by services (EUR 56.2 billion at end-2012); the leading sectors here include

activities of head offices (EUR 25.3 billion or 32.3%), wholesale and retail trade (EUR 9 billion or 11.5%),real estate activities

(EUR 5 billion or 6.3%), banking sector (EUR 4.7 billion or 6%), telecommunication (EUR 3.3 billion or 4.2%), other business

support services (EUR 2.8 billion or 3.5%) and transportation and storage (EUR 1.8 billion or 2.3%). Manufacturing accounts

for 20.1% (EUR 15.8 billion), especially: transport equipment (EUR 2.6 billion or 3.2%), computer, electronic and optical

product(EUR 2.3 billion or 2.9), pharmaceutical products (EUR 2 billion or 2.6%), food products (EUR 1.9 billion or 2.4%) and

other non-metallic mineral products (EUR 1.4 billion or 1.7%). The stock and share of manufacturing increased compared to

end-2011, while that of services decreased. The stock of FDI in the energy sector amounted to EUR 3.2 billion (4.1%) and the

stock of private real estate of non-residents amounted to EUR 1.5 billion (2%) (Ministry for National Economy 2014).

According to the Hungarian Central Statistical Office publication (2010a), the number of foreign owned companies has

grown from several hundred in 1988 to 28,987 in 2008. Table 99 shows the whole picture between 2008-2014 based on

data of Hungarian Central Statistical Office.

Table 99: The number of direct foreign investment enterprises (pieces) in the Hungarian economy (2008-2014)

No. Section of national economy 2008 2009 2010 2011 2012 2013 2014

1. Agriculture, forestry and fishing 705 737 774 754 733 702 655

2. Manufacturing 3119 3039 3016 3019 2915 2854 2801

3.Wholesale and retail trade, repair of

motor vehicles and motorcycles8871 8838 9002 9209 8455 8356 8135

4. Construction 1519 1473 1418 1371 1267 1181 1099

5. Transportation and storage 731 744 764 776 771 766 748

6. Information and communication 1067 1051 1070 1128 1115 1134 1125

7.Professional, scientific and technical

activities2671 2433 2863 2941 2829 2810 2815

8. Other 10304 10837 10782 10752 10217 9945 9718

Total 28987 29152 29689 29950 28302 27748 27096

Source: Based on Hungarian Central Statistical Office (2017b): Foreign Owned Companies in Hungary (2008–2014)

based on http://statinfo.ksh.hu/Statinfo/haViewer.jsp?lang=en

(Explanation: Foreign direct investment enterprise is an incorporated or unincorporated enterprise in which an investor resident in another economy

owns 10 % or more of the ordinary shares or voting power in an incorporated enterprise, or the equivalent for an unincorporated enterprise.)


100

8.2.3 EMPLOYMENT


UNCTAD (2007) report, international companies employ more than 80 million people in their subsidiaries globally and it is

worth examining this number more closely in two ways:


of the employed in business varies significantly between countries, According to the representative data of the UNCTAD

report, 50.6 of the employees in the private sector work for multinational companies in Ireland. The same value in Hungary

was 22.4 at the beginning of the millennium, according to the aforementioned report.

Foreign owned companies employed nearly half a million people in Hungary in 1995, while this number was 580 thousand

in 2008 (KSH, 2010b and 2010c). The number in 2008 equals to one fifth of the people employed in the Hungarian national

economy and one third of the people employed in the private sector. (KSH, 2010b and 2010c)

Table 100: The number of enterprises with foreign interest by the number of staff,

2010- 2014 (based upon statistical number of staff)

Year

Foreign owned firms

CountNumber of staff

(persons)

2010 18296 602331

2011 18609 628310

2012 18093 632495

2013 17689 632235

2014 18273 653132

Source: Based on Hungarian Central Statistical Office (2017c): Foreign Owned Firms in Hungary.

(In Hungarian) Budapest: http://statinfo.ksh.hu/Statinfo/haViewer.jsp?query=kshquery

As a result of the economic crisis Hungary became perceived as a less favorable market environment, which affects the

operation of foreign-owned firms. As a result, employment declined slightly in 2009 and in 2010 entered into a growth

pattern again. (Table 100)

The territorial distribution of employed by foreign-owned organizations show a strong concentration of the Hungarian

Central. Labor market relevance, particularly in economically developed regions: (Central Transdanubia, Central - Hungary,

Western Transdanubia). (KSH, 2010b) In September–November 2016, the number of employed people was 4,414 thousand,

142 thousand more than a year earlier. The employment rate of people aged 15–64 increased to 67.5%, the improvement

in the employment indicators of women and men was the same (KSH, 2017d).

http://statinfo.ksh.hu/Statinfo/haViewer.jsp?query=kshquery


101



8.3.1 COMPANY SIZE

The subsidiaries examined employ 21% of the people employed in Hungary by foreign owned companies.

Based on the following two subsections we can state that the majority of the companies are large enterprises, based on the

number of their employees. It is important to highlight that although a minority of the subsidiaries is SMEs based on their size

(number of staff); all the Hungarian companies analyzed are parts of larger international companies and thus were regarded

as large enterprises from an operational and management point of view.

8.3.2 TOTAL NUMBER OF EMPLOYEES

The majority of the participants are based on large enterprises (Table 101, the number of their employees above 250 persons).


Total number of employees of the company Frequency Percentage distribution ()

Below 250 31 35,6

251-1000 22 25,3

1001-2000 15 17,2

2001-5000 13 14,9

Over 5000 6 6,9

Total 87 100,0


8.3.3 MANDATE OF THE ORGANIZATION

» We also examined how much control these organizations have over the entire value chain.

» Almost every subsidiaries (97.8) participating in the survey have typical local subsidiary roles

(R&D, production or service and sales) (Table 102).

Table 102: Mandates of the companies participating in the survey

Roles and mandates of your subsidiary Frequency Percentage distribution ()

Mandate 1 48 53,3

Mandate 2 0 0

Mandate 3 32 35,6

Mandate 4 0 0

Mandate 5 88 97,8

Source: Primary research by the authors. Note-multiple responses allowed

(As a reminder of the five mandates, see Section 3.2.4 earlier.)


102

8.3.4 ORIGIN OF THE PARENT COMPANY

The subsidiaries participating in the survey came to Hungary from 20 different countries (Table 103). More than 60 of them

from the following four countries: Germany (36.67), Austria (12.22), USA (11.11), France (7.78), while another 16 countries

account for the remaining 32.22.


Origin of the parent company Frequency distribution

Germany 33 36,67

Austria 11 12,22

USA 10 11,11

France 7 7,78

Netherland 5 5,56

United Kingdom 3 3,33

Belgium 2 2,22

Canada 2 2,22

Israel 2 2,22

Italy 2 2,22

South-Korea 2 2,22

Denmark 1 1,11

India 1 1,11

Norway 1 1,11

Spain 1 1,11

Sweden 1 1,11

Switzerland 1 1,11

UK 1 1,11

Others* 4 4,44

Total 90 100,00


* There was not given origin of the parent companies.

The composition described above substantially corresponds with the ranking of the statistics of Ministry for National Economy

(2014): which shows that most foreign direct investment in Hungary was made by German, French and US companies. The

Dutch and Luxembourg subsidiaries participating in the survey are for example under presented.


103

If we take a look at the management culture of the companies (Table 104), (Bartlett and Beamish, 2014) the highest

proportions of companies in the sample analyzed belong to the so-called Germanic (59.55) and the Anglo-Saxon (17.98)

management cultures. It can be found in Hungarian trends that, besides the groups of traditional MNCs (American, Western

European and Japanese), companies from the so-called emerging and transitional countries have also appeared.


Management cultures of mother companies Frequency distribution

German 54 59,55

Anglo-Saxon 16 17,98


Nordic 3 3,37

Asian 3 3,37

Other 4 4,49

Total 90 100,00


8.3.5 YEAR AND FORM OF ESTABLISHMENT OF THE SUBSIDIARIES

The foreign owners of more than 40 of the subsidiaries examined acquired majority control or carried out their Greenfield

investments before 1995. Other 42.31% of the companies settled in Hungary between 1995 and 2000 and the remaining

ones (14.11) appeared in the new millennium (Table 105).

About 43.6 of the foreign owners of the companies participating in the survey came to Hungary in the form of Greenfield

investments while almost 56.4 of them obtained majority control in Hungarian companies during the privatization period

and the following rush for acquisitions.


Year of

establishment of the

subsidiary

Merger,

acquisition

Greenfield

investmentTotal

%

distribution

Before 1995 21 13 34 43,59

1995-2000 10 9 19 24,36

2001-2005 8 6 14 17,95

2006-2010 4 4 8 10,26

After 2010 1 2 3 3,85

Total 44 34 78 100,00

distribution 56,4 43,6 100



104

8.3.6 FIELD OF OPERATION: SECTOR-INDUSTRY

The majority (near 30) of the organizations examined is engaged in manufacturing while the others (70) were classified in

trade, tangible and intangible services (Table 106):


Main sector of the subsidiary’s activity Frequency distribution

Industry 26 29,5

Trade 20 22,7


Other service 15 17,0

Business service 1 1,1

Others 7 8,0

Total 88 100,0








8.4.1 MAIN STRATEGIC ISSUES-ORIENTATIONS

More than two thirds (74.2) of the respondents indicated that the growth and portfolio expansion during the period

examined. Almost 24.7 of the companies surveyed were characterized by seeking stability. The fact that a much lower

proportion (1.1) of the respondents chose the redundancies and rationalization option suggests a timely Hungarian recovery

from the world economic crisis. (Table 107).



“yes” answersdistribution

Growth, market expansion, portfolio expansion 66 74,2


retention, adapting to the market situation22 24,7

Redundancies, rationalization 1 1,1

Total 89 100,0



105

8.4.2 MAIN COMPETITIVE FACTORS IN THE PERIOD EXAMINED

High quality workforce (58.9), optimal organization size and management (both 53.3%) were chosen most frequently by the

respondents from the provided listing of most important competitive factors for their firm (more than one answer could be

marked in this question). In contrast to the results of our other studies involving mainly SMEs (Fodor-Kiss-Poór, 2010), for this

sample a large number (32.2) of the respondents emphasized the criticality of having ample financial resources, reflecting

the stronger financial positions of their parent multinational companies being seen as a source of competitive advantage.

The respondents also deemed production technology (42.2) and low workforce costs (23.3) to be very important competitive

factors (Table 108).

Table 108: The importance of competitive factors


answers

distribution

Workforce 53 58,9

Optimal plant/organization size 48 53,3

Management 48 53,3

Production technology 38 42,2

Financial resources 29 32,2

Low workforce costs 21 23,3

Other 9 10

Source: Primary research by the authors. Note-multiple responses allowed






8.5.1 NUMBER OF HR STAFF

The average number of employees served by one HR professional was 73,5 persons.

Table 109: Number of employees and HR staff in the participating companies

YearNumber of

employeesHR staff

Employees per HR

position

2015 136437 1852 73,5



106

The HR departments of the companies examined are relatively large as the number of HR staff was higher than five persons

in the case of more than 60 of the respondents. Only two of the organizations participating in the survey did not have a HR

department, moreover these four firms did not employ a single HR professional. (Table 110)

Table 110: Number of HR staff (n=..)


Frequency distribution

None 2 2,4

1-4 persons 30 36,6

5-10 persons 15 18,3

11-15 persons 6 7,3

16-20 persons 3 3,7


Total 82 100,0



107


8.6.1 LABOR COST – OPERATING COST RATIO

The labor cost to operating cost ratio is one of the frequently analyzed indicators of the importance of the HR function in

a company (Boudreau, 2010). According to this logic, the effects of HRM have a stronger and more direct influence on the

company’s performance if this ratio is higher.

About one third of the subsidiaries participating in the survey fell into this category (where the labor cost ratio is higher than

30). But the vast majority (67) of the companies operated with a relatively low (under 30) labor cost ratio4 (Table 111).

Table 111: Labor cost in of the operating cost (n=45)

Labor cost in of the operating cost2015


Under 5 3 6,7

5-10 7 15,6

10-20 8 17,8

20-30 12 26,7

30-40 6 13,3

40-50 6 13,3

Over 50 3 6,7

Total 45 100.0


4 In the case of the respondents participating in the already referred (Farkas-Poór-Karoliny-2007) 2005 Cranet surveys – that involved not only MNCs –

the average organizational labor cost ratio in Hungary was 28% that was right in the middle of the 19-38% band calculated in the six Central Eastern

European countries examined. The country with the highest average ratio (64%) within the entire sample was the Netherlands.


108

8.6.2 RELATIVE SIZE OF THE TRAINING BUDGET

Literature considers the relative size of the training budget (compared to the entire annual labor cost) as an important

indicator of modern and effective HR activity. In more than 70 of the companies examined, the relative size of the training

budget was under 3 of labor costs and only about 20 of the companies examined spent 3-5 of the annual labor budget on

training employees.5 In 2011 the typical size was between 1 and 3 (Table 112).

Table 112: Annual training budget as a per cent of the entire annual labor cost (n=82)

Annual training budget in of the


2015


Under 1 22 26,8

1-3 36 43,9

3-5 15 18,3

over 5 9 11,0

Total 82 100


8.7. EXPATRIATES

8.7.1 FOREIGN EXPATRIATES AND THEIR ROLES

Usually two types of long-term emissaries are distinguished (Dowling, Festing and Engle, 2017). The ones arriving from

abroad (from the parent company of from a third country), which are also called expatriates and the ones from the Hungarian

subsidiary appointed for a long-term deputation abroad (at the parent company or subsidiaries operating in other countries)

(Table 113).

» 71.1 of the subsidiaries participating in the survey did not employ foreign expatriates in non-managerial

positions. In those few companies that employed foreign expatriates in non-managerial positions

permanently, the number of these expatriates was typically only one to two positions. 13 respondents

employed more than 10 such expats.

» The presence of expatriates employed in managerial positions is more significant, around 34 of the

respondents employed foreign expatriates in such positions in the period examined. Where they were

present, their number was typically between one and five expats but a few respondents employed 10 to15

expatriates or even more than 20 of them.

(Note: It is important to indicate that companies send an increasing number of employees abroad for a short time, for

different projects (often called “international assignees” – see Dowling, Festing and Engle, 2017, chapter 5). Our survey did

not cover this issue.)

5 The global average of this indicator calculated using the previously mentioned Cranet international comparative HR database was 3.36%, the Eastern European index was 3.15% and the Hungarian statistic was 3.54% (Karoliny-Poór, 2010).


109



Frequency distribution Frequency distribution

1 person 6 17,6 2 7,7

2-3 persons 15 44,1 5 19,2

4-5 persons 2 5,9 3 11,5

6-10 persons 3 8,8 3 11,5

11-15 persons 2 5,9 1 3,8

16-20 persons 2 5,9 4 15,4

Over 20 persons 4 11,8 8 30,8

Total 34 100,0 26 100,0


8.7.2 HUNGARIAN EXPATRIATES

Below we outline how typically and to what positions Hungarian expatriates were sent to foreign companies of MNCs (Table 114).

Table 114: Number and positions of Hungarian expatriates

Number of Hungarian

expatriates


Frequency distribution Frequency distribution

1 person 6 46,2 3 10,7

2-3 persons 1 7,7 10 35,7

4-5 persons 1 7,7 5 17,9

6-10 persons 4 30,8 4 14,3

16-20 persons 1 7,7 2 7,1

Over 20 persons 0 0,0 4 14,3

Total 13 100,0 28 100,0


» Although more respondents sent to rather than received employees from abroad in non-managerial

positions, there was no such foreign deputation in more than 68.8 of the respondents. Companies that sent

employees abroad sent usually one to five employees.

» The proportion of companies not sending employees “out” to managerial positions (85.5) was higher

proportion of those not sending employees to non-managerial positions. Of the companies that sent out

employees who obtained foreign managerial positions, mostly sent between one and three persons.


110


8.8.1 THE RELATIONSHIP BETWEEN HEADQUARTERS AND LOCAL HR

We found several different role configurations or function- sharing practices among the companies examined (Table 115).

» However, the typical solution, one implemented by almost half of the respondents, was that the HR

department of the company’s headquarters, besides carrying out the auditing function, lays down general

guidelines and provides a standard framework for the work of HR departments of the subsidiaries and

requires information and reporting from them.

» In addition, in the case of 27.6 of the companies the headquarters HR unit was also responsible for

developing the detailed HR model and not only personnel guidelines but also the rules, procedures, and HR

processes were developed centrally. The operations of these global HR systems were usually supported by

modern IT solutions.

» Some 6.9 of the respondents characterized their relationship as one of absolute centralization.

» On the other hand, about one fifth (21.8) of the HR departments of the responding subsidiaries reported

a hands-off approach from HQ, enjoying almost complete freedom from the headquarters, resulting in a

locally decentralized HR activity.



answers

Multiple answers possible,

response

Hands-off, provide complete freedom 19 21,8

Provide general guidelines and framework

for actions38 43,7

Provide detailed HR model, policies,

procedures and rules24 27,6

Source of all remotely significant HR

decisions6 6,9



111

8.8.2 CHANGES IN THE IMPORTANCE OF HR FUNCTIONS

Recruitment, selection was first in the ranking of HR areas considered most critical in the period examined, being a little

ahead of that ongoing problem area, the issue of compensation and benefits, HR planning. The responding subsidiaries

deemed talent management, communication, HRIS, training and development, and finally performance evaluation almost as

critical. The respondents regarded employee relations and health&safety as the least critical area of their work (Table 116).



The ranking of the areas of HRM

critical in …

The average of the

answers



HR planning 2,76


Communication 2,61

HRIS 2,54




Health&Safety 1,92

Other 2,00



112

8.8.3 TYPICAL HR COMPETENCIES FOR SUCCESS

From the list of HRM competency areas (Table 117) identified by one of the best known HR theorists, Dave Ulrich et al. in

2009, the respondents considered the following three to be the most important:

» personal credibility (effectiveness, efficient connections, communication skills) (44.8),

» foreign language skills (46.6),

» HR services (41.4).

Strategic contribution and business knowledge were followed. According to the opinion of the respondents, the use of HR

information systems ranked last among very important HR competencies in their companies in the period examined.



Very important

Frequency%

distribution

Business knowledge (value chain, value creation) 25 28,7

Strategic contribution (managing culture, championing

changes, strategic decisions)23 26,4

Personal credibility (achieving results, effective relationships,

communication skills)39 44,8

HR services (recruitment, selection, training and development,

performance management, etc.)36 41,4

Usage of HRIS 14 15,9

Foreign languages skills 41 46,6


Multiple responses permitted.


113

8.8.4 PRIMARY RESPONSIBILITY OF DECISION MAKING IN THE MAIN FUNCTIONS OF HR

Our current survey confirms the finding also established in other studies (Cranet, 2006 and 2011) that members of the

management hierarchy have larger responsibility or control in some HR decisions and local employees of the HR department

have primary responsibility in other areas of HR (Table 118).

Table 118: Responsibility of decision making in key functions of HR

Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but

in consultation

with the HR

department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

department

Human Resource Planning 16 45 23 5

Recruitment 10 12 30 37

Selection 9 27 34 19

Performance Evaluation 27 32 20 10

Training and Development 17 21 38 13

Talent management 18 22 29 18

Compensation and Benefits 15 36 28 10

Industrial-Labor Relations 11 13 25 40

Employee Communication 15 17 24 32

HRMS/IT 17 10 26 29

Health & Safety 14 16 12 44


(*Comments: Recall that multiple categories of functional HR areas were possible and that these figures do not reflect percentages.)

As the responses in Table 118 reflect, the majority of the respondents regard most of the interventions in the key functions

of HR as the result of a joint decision in which the final decision is made by the local line management based usually on

consultation with the HR department. Less seldom do we see that the responsibility attached to HR decisions is shared in

a way that the final decision maker is the representative of the local HR department. HR remains a secondary source of

authority.


114

8.8.5 THE ROLE OF EXTERNAL HR SERVICE PROVIDERS

Today human resources are managed in many organizations with the involvement of external service providers. Besides

traditional HR consultants, an increasing number of service providers appear who enter the market offering new services (e.g.

labor leasing, outsourcing, interim managers, etc.) (Poór-Németh, 2010)

External service providers were most often used in the area of recruitment and selection, as reported by the respondents.

They were also often involved in the area of training and development, compensation and benefits, HRIS. Almost none of

the companies used the help of external service providers in human resource planning or in performance evaluation. The

practice of companies in this respect either did not change or where it did, companies reported an increase in the use of

external partners (Table 119).



External

providers not

used

Human Resource Planning 5 3 20 60

Recruitment 31 2 34 21

Selection 18 5 25 41

Performance Evaluation 6 4 14 65

Talent management 11 6 30 42

Training and Development 22 2 35 29

Compensation and Benefits 10 3 25 51

Industrial-Labor Relations 5 4 26 52

Employee Communication 8 4 17 59

HRMS/IT 12 6 32 37

Health &Safety 10 5 48 25




115


Knowledge management refers to processes and methods for the management and sharing of the critical firm specific

collective knowledge (know-how, skills and intellectual skills) of an organization’s employees in an integrated way. In

connection with the practice of the indicated topic in the field of HR we examined the following three areas:




8.9.1 PERSONAL COMPETENCY DEVELOPMENT IN HR

The respondents found local training to be the most important method of personal competency development in the field of

HR and they thought that informal learning - that is learning at the HR department of subsidiary - as well as informal learning

at parent company also plays a very important role.

According to responses, the role of informal learning at the HR department of another subsidiary and HR training and

development at other subsidiaries were rated almost a grade worse in importance. (Table 120)




the answers









116

8.9.2 HR KNOWLEDGE TRANSFER BETWEEN THE PARENT COMPANY AND THE SUBSIDIARY

The respondents ranked knowledge flows within the HR department of their own subsidiaries as being most important

(3.31). Flows from the parent company were only secondary (3.17). Much lower, but still of considerable importance was

deemed to be knowledge flows at your subsidiary between the HR department and other organizational units (2.96).

Very few respondents indicated that HR experience generated in and proposals coming from subsidiaries find a responsive

audience at the parent company (Table 121).




the answers









8.10.1 THE KEY BUSINESS ISSUES, TRENDS FOR HR TO FACE

With regard to the key issues of the next 12 to 24 months, the interviewed HR managers considered lack of workforce,

shrinking resources the most important task before them. Almost all respondents thought that this business expectation is

the most important task HR professionals have to face. In many of the companies this is accompanied by problems in the

area of retention and motivation of talents (Table 122).



Lack of workforce, shrinking resources

Retention and motivation of talents

High turnover rates

Strengthening the strategic role of HRMS

Digitalization

Change management

Carrier management

Succession planning



117


From the personal characteristics of the interviewed professionals we examined demographic characteristics, their professional

qualifications and the characteristics of their positions held.

8.11.1 DEMOGRAPHIC CHARACTERISTICS AND QUALIFICATION

Almost all the interviewees participating in the survey have university, college or equivalent qualifications, some of them also

had PhD degrees as well. (Table 123)


Level of qualification Frequency distribution



College (BSc) 40 47,1

Other 5 5,9

Total 85 100.0


The majority of the respondents obtained qualifications in social sciences (72.8) or engineering (14.8) but we also found

professionals with qualifications in natural sciences (4.9) (Table 124).


Field of professional qualification Frequency distribution


Engineering 12 14,8


Other 6 7,4

Total 81 100.0



118

40.7 of the respondents have worked in their current positions for less than three years. However, the majority (48.8) have

spent longer time, typically 3-10 years in their positions. More than 9 have worked 10-15 or over 15 years in their positions

(Table 125).

Table 125: Time spent in current position (n=86)

Time spent in current position Frequency distribution

0-3 years 35 40,7

3-5 years 18 20,9

5-10 years 24 27,9

10-15 years 8 9,3

Over 15 years 1 1,2

Total 86 100.0



119

9. KAZAKHSTAN (AINUR ABDRAZAKOVA, ZOLTÁN BUZÁDY AND JÓZSEF POÓR)

9.1. INTRODUCTION

Population: 16.8 Million people

Territory: 2,727,300 km2

Items/years 2013 2014 2015GDP (%) 5,8 4,1 1,2Unemployment (%) 5,2 5 5Inflation (%) 4,8 7,4 13,6GDP per capita in PPS EU-27=100% 7,7 6,1 2,2


120

9.2. FDI AND EMPLOYMENT IN KAZAKHSTAN


The typical weighted configuration of national firms operating in Kazakhstan for 1st half of 2016 is as follows:

1. The Netherlands

2. The USA

3. Switzerland

4. France

5. The U.K.

6. China

7. Russian Federation

8. Belgium

9. Japan

10. South Korea

11. Turkey

12. Germany

According to data by National Agency for Export and Investment in 2015 the inflow of foreign direct investment was

significantly reduced in Kazakhstan. Foreign direct investment fell by 30%. This primarily was due to the global situation.

But in 2016 there is an improvement in growth rates in attracting foreign direct investment. So, in the first quarter of 2016

Kazakhstan has attracted $ 2.7 billion of foreign direct investment. Which is the same level as was in 2013 and 2014.

Foreign Direct Investment in Kazakhstan increased by 4956.48 USD Million in the second quarter of 2016. Foreign Direct

Investment in Kazakhstan averaged 4084.33 USD Million from 2001 until 2016, reaching an all-time high of 8206.11 USD

Million in the first quarter of 2012 and a record low of 864.32 USD Million in the first quarter of 2002. Foreign Direct

Investment in Kazakhstan is reported by the National Bank of Kazakhstan.

Despite common perceptions that China and Russia are the main external influences on Kazakhstan’s economy, newly released

information from the National Bank of Kazakhstan shows that, as of the end of June 2016, Western countries topped the

charts as the main sources of foreign direct investment (FDI)(see table 126). The Netherlands alone was responsible for one

third (USD 3,333 mln.) of all the country’s FDI. The US came second (USD 1,929 mln.). The UK, France, Switzerland, Belgium

also ranked among the top ten. The People’s Republic of China (USD 369,6 mln.), and the Russian Federation (USD 360 mln.)

were the two main non-Western FDI sources (National Bank of Kazakhstan, October 2016).


121


Order Country %

1. The Netherlands 35,8%

2. USA 20,7%

3. Switzerland 11,2%

4. France 5,76%

5. UK 4%

6. China 3,9%

7. Russian Federation 3,8%

8. Belgium 3,1%

9. Japan 2,2%

10. South Korea 1,45%

11. Turkey 1,33%

12. Germany 1,32%

13. Other countries 5,44%

Total 100

Source: The National Bank of the Republic of Kazakhstan

After the significant decline recorded in 2015, FDI flows to transition economies are expected to increase modestly in 2016,

barring any further escalation of geopolitical tensions in the region. In the CIS, several countries, including Kazakhstan, the

Russian Federation and Uzbekistan, have announced large privatization plans, which if realized, will open new avenues for

foreign investment.

In its economic policy, Kazakhstan has always taken an active cooperation with foreign companies, so it is not surprising

that over the past two decades, the influx of FDI demonstrated consistently high volumes and growth rates. Moreover, this

process can be divided into two main stages. The first – in the years 1992-2008 the country was able to make the most of its

advantages in the field of natural resources and to attract investment in the oil and gas and uranium industry, the financial

sector, and partly in the production of building materials and food. According to estimates of the Ministry of Industry 51

large investment project with foreign TNCs it has been implemented in Kazakhstan during this period.


122

9.2.2 DISTRIBUTION BY SECTORS

According to the data provided by the Committee on Statistics of the Republic of Kazakhstan FDI inflows in the first half

of 2016 were focused on the primary sector, and in professional and technical services, many of which are involved in the

extractive industries. The high share of investments in the latter may be explained by the central role that a range of business

services, such as engineering activities, technical testing and analysis activities and geological exploration and prospecting

activities, play in supporting activities in the primary sector.

Figure 11: Typical areas of FDI in Kazakhstan (1 half-year 2016)

Source: Committee on Statistics of the Republic of Kazakhstan


123

FDI in wholesale trade was also principally geared towards supporting the primary sector (table 127). The manufacturing

sector received only about a tenth of all FDI inflows, and these investments were heavily concentrated in basic metals and

fabricated metal products, with much more modest investments in food, beverages and tobacco products. Construction,

information and communications technology, and financial services each accounted for a small share of FDI inflows.

Table 127: FDI by sector (1 half-year 2016)

Order Sectors %

1. Professional, scientific and technical activities 36%

2. Mining industry 26%

3. Manufacturing industry 12%

4. Trade, repair of cars and articles of household goods 9%

5. Financial activities 5%

6. Information and communication 2%

7. Transport and storage 2%

8. Production and distribution of electrical energy, gas and water 1%

9. Construction 4%

10. Others 3%

Total 100



124


According to a publication of Committee on Statistics of the Republic of Kazakhstan the number of foreign owned companies

has grown from eight thousand to nine thousand for the last ten years (Table 128).

According to official sources, the composition of the foreign companies operating in Kazakhstan remained unchanged; the

vast majority of them belong to small businesses: 8691 company. Since June 2015 the number of small businesses increased

by 197 companies, medium – 10, the number of large companies declined by 2. These changes have not affected the existing

structure of the operating companies with foreign ownership.

Foreign companies are represented fairly evenly in the regions of the country; most of them work in Almaty and Astana. At

the same time the number of operating companies is gradually increasing in the capital. The relatively high share of foreign

companies is in the neighboring Russian regions (especially in Kostanay, Aktobe and Pavlodar), as well as in oil-producing

regions – Mangistau and Atyrau regions.

Karaganda region does not have hydrocarbon resources, and is not a border region. But for foreign companies it is of special

interest due to the coal industry, metallurgy potential, which leads to the expansion of their presence in the region.

Table 128: The number of foreign owned companies operating in the Kazakh economy (2005-2016)

No. Sectoral groups 2005 2010 2015 2016

1. Agriculture, forestry and fisheries 62 56 70 81

2. Mining 83 132 192 199

3. Manufacturing 521 558 694 736

4. Electricity, gas, steam and air conditioning 24 18 36 38

5.Water supply; sewerage system, control over the collection and

distribution of waste12 24 37 41

6. Construction 765 1,150 1,010 1,032

7. Wholesale and retail trade; repair of motor vehicles and motorcycles 5,164 4,232 3,992 4,031

8. Transportation and warehousing 234 366 465 469

9. Accommodation and catering services 121 166 122 131

10. Information and communication 107 176 231 237

11. Financial and insurance activities 61 143 125 137

12. Real estate activities 121 249 323 335

13. Professional, scientific and technical activities 394 864 742 742

14. Activities in the field of administrative and support services 113 180 239 249

15. Education 40 60 85 89

16. Health care and social services 33 50 57 65

17. Arts, entertainment and recreation 63 32 53 60

17. Other service activities 92 109 292 398

Total 8,010 8,565 8,765 9,070


(Explanation: Companies with 100% or majority foreign interest and also companies with Kazakh and foreign interest with at least 10% foreign

ownership are included in this list.)


125

9.2.4 EMPLOYMENT



globally and it is worth examining this number more closely in two ways:


of the employed in business varies significantly between countries.

The role of FDI in job creation varies considerably by sector. Foreign companies registered in Kazakhstan account for roughly

7 percent of total employment, or about 238,000 jobs. Foreign firms employ a full 27 percent of workers in the mining

sector. In manufacturing, foreign firms account for 17 percent of employment on average, while in professional, financial

and business services the share of foreign firms in total employment is 17, 13 and 16 percent, respectively. The contribution

of foreign firms to employment in sectors traditionally dominated by the state, such as education, healthcare, social services,

and water and sanitation, is negligible.

Meanwhile in 2015 over 25 thousand jobs were created by the employers attracting foreigners for the citizens of Kazakhstan,

55 foreign specialists are replaced by Kazakhstan citizens, 5428 Kazakhstan citizens attended the training courses.

Foreign nationals and stateless persons can work in Kazakhstan on the basis of the following types of permits:

» permit for the recruitment of foreign labor issued to an employer;

» permit for self-employment issued to a foreign worker; and

» permit issued to a labor migrant for work (providing services) for private individuals.

Since 2001 to protect the domestic labor market, Government of the Republic of Kazakhstan yearly establishes the quota for

attracting foreign experts to the republic. This quota does not exceed 0.7% of the economically active population.

The percentage of the economically active population quotas and the priority projects quotas are allocated among the

following categories of foreign workers, meeting certain qualification requirements:

» chief executives and their deputies (Category 1),

» heads of departments or divisions (Category 2),

» specialists (Category 3),

» qualified workers (Category 4).

There is a separate category for foreign seasonal workers hired by employers for seasonal work, which is performed, due to

climatic or other conditions, during a certain period (season) but for no longer than one year.

The quota on foreign labor power attraction to Kazakhstan in 2016 makes more than 63100 people, which is 0.7% of the

size of economically gainful population in 2016 (approximately 63100 people).

As of September 2016, 12 thousand 963 people (in 2015, 16 thousand 349.) came in Kazakhstan with the purpose of

employment. From the participating countries, EEU, are citizens of Russia – 9 thousand 388 people (in 2015 – 12 thousand.

529), Kyrgyzstan – 1 thousand 496 people (in 2015 – 1 thousand 138), Belarus – 394 people (in 2015 – 608), and Armenia

–1 thousand 685 people (in 2015 – 2 thousand 074).

Within the CIS, the largest group of labor migrants is made up of the citizens of Uzbekistan, Kyrgyzstan and Tajikistan, of

whom an average of about 15% are officially registered and have the status of labor migrants; the remaining 85% work


126

illegally, mainly in the construction industry and in households. Legal labor migrants in Kazakhstan are principally engaged in

agriculture, plant farming, construction, mining and manufacturing industries, real estate, trade and services. Labor migrants

are predominantly male, aged 18 to 45. Women make up about a quarter of the total number of labor migrants.

Outside the CIS countries the main countries of origin of labor migrants are China (19.5%) and Turkey (11.5%), as well as the

US, Russia and the United Kingdom.

Table 129: Employees in foreign companies

YearForeign owned firms in Kazakhstan

Count Number of staff (persons)

2005 8010 25,819

2010 8565 31,886

2015 8765 32,363

2016 (first half) 9070 29,458


9.2.5 THE NUMBER OF ENTERPRISES WITH FOREIGN INTEREST BY THE NUMBER OF STAFF (BASED UPON STATISTICAL NUMBER OF STAFF)

From 1996 to 2010, the leader in the number of foreign labor force in the Republic of Kazakhstan was Turkey, with the

share of labor migrants ranging from one third to one half of all labor migrants. Since 2010, when the general trend towards

the reduction prevailed, China took the first place, which is mainly related to the construction of the highway Western

China - Western Europe. Some 115 thousand workers (or 81.4%) received permits for construction/repair works with private

individuals, 10 thousand as gardeners, 6.8 thousand as nurses /nannies, 2.8 thousand as cooks and 6 thousand for other

types activities.

From 2017 annual maximum number of foreign workers arriving in Kazakhstan will be split among the sectors of economy.

According to the information given by the Ministry of Health and Social Development of Kazakhstan, the situation is that

certain sectors appear getting the bigger number of foreign workers whilst other sectors get smaller part of quota because

the need in foreign specialists appeared much later. Taking into account the requests of different companies the number of

foreign workers from now on will be distributed among the sectors of economy. This will help all the sectors to cover the

real needs in foreign manpower.


127




The subsidiaries examined employed over 20 thousand persons in 2016. Based on the number of their total employees, 65.7

% of the companies participating in the survey are SMEs. See table 130.


Total number of

employees of the companyFrequency

Percentage

distribution (%)

Below 250 23 65,7%

251-1000 9 25,7%

1001-2000

2001-5000 3 8,6%

Over 5000

Total 35 100%


We also examined how much control the respondent subsidiaries have over the entire value chain.

Most of the subsidiaries participating in the survey have mandate # 2, thus are business producing a designated set of

component parts for a multi-country or the global market. Operational activities are limited to packaging, bulk breaking,

some final processing and warehousing, distributing (53.8%). Not surprisingly many have mandate #1, second most frequent

type of activity: 28.2% have the role to market products manufactured centrally into the local trading area. The business is

a small-scale replica of the parent. However we also found a significant segment of companies with mandate #4 and/or #5.

7.7% of the respondents companies develops and markets a certain product chain for global markets. Products, markets

and basic technologies are similar to the parent company, but the exchange of information between the subsidiary and the

parent are rare, and/or is a business that has the freedom and resources to develop lines of business for either local, multi-

country or the global market. The subsidiary is allowed unconstrained access to global markets and freedom to pursue new

business opportunities.



Mandate 1 11 28,2%

Mandate 2 21 53,8%

Mandate 3 2 5,10%

Mandate 4&5 3 7,70%


128

Table 132 shows that two thirds of the respondent companies contained merely 1 local subsidiary company. However over

one third (37.8%) had at least more than one – the authors think this is linked to two factors: the vast territory of Kazakhstan

as a country and the fact that with creation of Astana as the new capital city and the subsequent relocation of government

and business centers to it from it former capital city Almaty, many company’s decided to set up a second company unit for

their operations in Kazakhstan.

Table 132: Number of subsidiaries


distribution (%)

only 1 (one), subsidiary operates in

the surveyed country23 62,2%

beside the respondent subsidiary

there is more legally independent

subsidiaries in the surveyed country

14 37,8%

Total 37 100,0%


In our sample of respondent companies the single largest group were UK originated organizations, 15.4%, followed by

Turkish, 10.3%, ones. A third of the respondent companies mentioned ‘other’ as origin of its parent company. Our expert

opinion in this context is that the 7.7% of Russian and Dutch respectively is underrepresented. The first one for historic

reasons, the latter given the latest trend that the largest sums and numbers of FDI into Kazakhstan in recent period originated

from the Netherlands (table 133.)

Table 133: Origin of the parent companies of the participating companies


Others 13 33,4%

UK 6 15,4%

Turkey 4 10,3%

Russia 3 7,7%

USA 3 7,7%

Nederland 3 7,7%

Switzerland 2 5,1%

China 2 5,1%

Czech Republic 1 2,6%

Germany 1 2,6%

Luxembourg 1 2,6%

Total 39 100,0



129

An interesting grouping of the observed companies is provided by a more composite dimension, one which groups national

cultural attributes into meta-clusters, as defined by the international comparative GLOBE studies. Most Kazakh countries in

our survey felt that they did not match into any of the listed major categories (33.4%), however almost a quarter (23%) said

that their management culture belonged into the Anglo-Saxon cultural segment, followed by almost 21% in belonging the

Eastern-European cluster (see table 134). The authors of this section speculate that the interpretation of this latter cluster

includes the Russian and also the Ukrainian culture clusters predominantly.


Management cultures of mother companies Frequency % distribution

Nordic 0 0%

German 7 17,96%

Southern Europe and Latin 0 0%

Anglo-Saxon 9 23,08%

Eastern Europe 8 20,51%

Asian 2 5,10%

Other 13 33,40%

Total 39 100,0%


Almost all respondent companies replied to the question about when and how their entities were created in Kazakhstan.

Table 136 gives a cross tabulation across major historic segments of when the company was founded and also lists in sub-

tables the mode of creation, being via merger-acquisition or as new, greenfield investment.

We can see from our data the peak of company formation was during the second wave and third wave after the Independence

of Kazakhstan in the early 1990’s, that is during the period 1996-2000 extending till 2005. Unfortunately the period between

2005 till 2016 remained at much lower activity levels of new company formation.

As to the mode of company formation the green-field investment is clearly favored (81% of the cases) compared to local

acquisition, which give the industry and geographic structure of the country is understandable.


Year of establishment

of the subsidiary

Merger,

acquisition

Greenfield


Before 1990

1990-1995 2 4 6 16,2%

1996-2000 3 7 10 27,0%

2001-2005 1 9 10 27,0%

2005-2010 1 5 6 16,2%

After 2010 0 5 5 13,6%

Total 7 30 37 100.0%

% distribution 18,9% 81,1% 100%



130

The represented industry sectors in our survey are well distributed: all are present with 10+ percent in the sample. Kazakhstan

has large exports of raw materials and energy, however it is not yet an industrialized modern economy. The tertiary sector,

services, however are developing fast – this trend is well represented in table 136 by the 38% in “other services” in addition

to the financial and business service segments (totaling in 31%).



Industry 4 10,3%

Trade 6 15,4%


Other service 15 38,5%

Business service 5 12,8%

Others 5 12,8%

Total 39 100%



A more detailed analysis of the dynamics of the respondent companies now follows. Almost one in two companies in our

survey follows the most typical strategic aim of business corporations, is to expand, grow and to gain new markets and

positions. The rather large number of companies 40% which is stagnating is the second cluster. About 8% of companies are

reporting to be in recession now and are experiencing redundancies and rationalization needs (table 137.)

Table 137: Main strategic issues and orientations(n=38)

Main strategic issues, orientations Frequency of “yes”





Redundancies, rationalization 3 7,9%

Other 2 5,3%

Total 38 100,0



131

Table 138 shows that 59% of respondent companies believed that their major competitive advantage lies in their workforce

per se. This is in stark contrast to the single respondent which identified the low wage level of their work force as the

key competitive advantage. Give the relatively low level of modern industrialization or manufacturing activities within

Kazakhstan the only 18% of companies indicated that their production technology or their economies of size were their

major competitive force. Financial conglomerates and banks are rather common in Kazakhstan, reflecting the fact that

during high energy prices on global markets much capital entered the company, but also the fact that business competition

and anti-trust laws are somewhat favoring the proliferation of financial resources as a competitive advantage. See table 138

for detailed breakdown.





Workforce 23 59,0%


Management 27 69,2%


Low workforce costs 1 2,6%

Other 1 2,6%


Table 139 analyzes how respondent companies in our survey rated themselves along number of competitive company

internal factors compared to their general competitive landscape (i.e. poorer, below average, equal to their industry average,

above or superior to industry competitors).

Our sample of 36 companies is significantly above the industry average within Kazakhstan in their own self-evaluation. In

particular, they felt that the rate of innovation was higher (in case of 65% of questioned companies) and the service quality

(55%) better than that of other local companies. It is remarkable that 29% of our observed companies even reported that

they think that their service quality was superior to their competitors, and 23% think that their environmental matters were

also superior to those of others.


Competitive factors PoorBelow

average

Average or

equal to the

competitors

Better,

than the

average

SuperiorTotal

%

Profitability 2,8% 33,3% 52,8% 11,1% 100%

Service quality 15,8% 55,3% 28,9% 100%

Rate of innovation 2,7% 13,5% 64,9% 18,9%% 100%

Environmental matters 28,6% 48,6% 22,9% 100%



132


Table 140 lists that in the past year of our surveying (2015-2016) the total number of employees in our sample was over

18500, out which 433 worked in the HR functional area. There are 43 employees per HR function staff member.

Table 140: Number of employees and HR people of the participating companies (n=37)

YearNumber of

employees

Number of

HR people

Total headcount

per HR employee

2015-2016 18551 433 43


Table 141 takes a more fine-grained view about the HR functional staff composition. Most, almost half of our survey

respondents had very small, in fact minimal, HR functional staff numbers ranging between 1 to 4 persons. The second

largest cluster was those companies which employed a small number of 5 to 10 people for HR activities. Only 8% of our

surveyed companies had a significantly large HR department with more than 20 persons.




None

1-4 persons 17 47,2%

5-10 persons 13 36,1%

11-15 persons 3 8,3%

15-20 persons


Total 36 100,0%


133


With table 142 we start to dive into the technical details of the HR activities in the overall operational context of the observed

companies: we can see the distribution of how much a cost factor labor costs represent in the overall cost structure of each

respondent company. For a third of company’s labor costs are only 5-10% of the total cost and for another 9% even less

than that. A quarter of companies estimated that their labor costs amount to 10-20% of their total costs. The segment of

20-50% of labor costs per total cost is minimal and then we found another significant segment of companies (22%) for

which the labor costs are above 50%!

This finding is somewhat surprising in our expert opinion as many company stated above that their major competitive

advantage were the labor force and not the low labor wages (see table 138 above).




Under 5 % 2 8,7%

5-10 % 7 30,4%

10-20 % 6 26,1%

20-30 % 1 4,3%

30-40 % 1 4,3%

40-50 % 1 4,3%

Over 50 % 5 21,7%

Total 23 100.0


Table 143 describes the role of annual training budgets in the total labor cost structure. Significantly we found 2 major

segments: 34% of companies spend 1-3%of annual labor costs on training, and 31% spent over 5% of labor costs on

training each year.

About 17% of companies do not spend even 1% of their labor costs on training per annum.


Annual training budget in % of the entire

annual labor cost

2015


Under 1 % 6 17,1%

1-3 % 12 34,3%

3-5 % 6 17,1%

over 5 % 11 31,4%

Total 35 100,0%



134

9.7. EXPATRIATES – INPATRIATES

Kazakhstan is an interesting research target country in terms of expatriates: for one reason the closeness to Russia in historic,

business and language terms (Russian is spoke all across the former Soviet Union countries) makes it almost questionable

to consider a Russian or many other former-SU state originated managers to be considered as an expatriate. For the second

reason, the rich natural and energy resource in the country plus the fast economic development had attracted many foreigners

to work in Kazakhstan when the economy was booming. However, during the past two years of severe economic recession

and currency devaluations, there were significant changes in as far that expatriate managers have become very expensive for

local business operations across all sectors.

Not all the companies in our survey replied to this sub-question. We can assume that 35%, that is 14 out of 39 companies,

did not have any expatriates employed at any level (managerial or non-managerial) – see table 144.

Those who did employ expatriates had them in managerial and in non-managerial positions. A surprising data in our finding

is that over half (48% + 4% =52%) of companies employed 6 to 15 expatriates in managerial positions, whilst having 1

expatriate manager was only the case in 12% of the cases.

In respect to non-managerial expatriates we found that some companies had a few such employees, but interestingly the

largest number of companies (27%) had 6 to 10 non-managerial expatriates employed.

Table 144: Number and positions of foreign expatriates (n=25)

Number of Hungarian inpatriates



%Frequency

distribution

%

None 0 0% 8 53,3%

1 person 3 12,0% 1 6,7%

2-3 persons 5 20,0% 1 6,7%

4-5 persons 4 16,0% 1 6,7%

6-10 persons 12 48,0% 4 26,7%

11-15 persons 1 4,0% 0 ,0%

16-20 persons 0 0% 0 0%

Over 20 persons 0 0% 0 0%

Total 25 100,0% 15 100,08



135

In the context of international HR and international knowledge transfer via employees (versus via technology) we also have

asked the surveyed companies about their practices of employing Kazakhs who return to work in Kazakhstan from abroad:

Table 145 shows that fewer companies worked with inpatriates that did with expatriates.

However those who did employ such inpatriate managers were spread more evenly across the range of 1 single person

to over 20 such persons in managerial positions. In non-managerial positions we can observe that significant number of

respondent companies (25% + 38%) actually employed a large number (between 16 and above 20) of such non-managerial

inpatriates.

Table 145: Number and positions of Kazakh inpatriates/expatriates

Number of Hungarian inpatriates



%Frequency

distribution

%

None 0 ,0% 2 25,0%

1 person 2 13,3% 1 12,5%

2-3 persons 5 33,3% 0 ,0%

4-5 persons 1 6,7% 0 ,0%

6-10 persons 3 20,0% 0 ,0%

11-15 persons 1 6,7% 0 ,0%

16-20 persons 1 6,7% 2 25,0%

Over 20 persons 2 13,3% 3 37,5%

Total 15 100,0% 8 100,0%



136


Table 146 describes our findings about the typical level of HR functional control exercised by headquarters of the Kazakh

surveyed companies.

The most typical HR function performed by 62% of the respondents is to provide general guidelines and frameworks for

actions (i.e. coordination work). 16% of the headquarters however take a very hands-off approach and let the company

perform HR functions completely freely.



answers

Multiple answers

possible, response


Provide general guidelines and framework for actions 23 62,2%

Provide detailed HR model, policies, procedures and rules 3 8,1%

Source of all remotely significant HR decisions 5 13,5%

Total 37 100,0%


Table 147 lists the average ratings of respondents as to how critical the various HR functions are: the highest score of criticality

was the role and administration of HR by IT-Systems (3.33) as well as Health and Safety regulations, which in Kazakhstan are

taken very seriously and rigorously enforced by controlling authorities. Least critical HR functions were HR planning process

and Training & Development (both almost 4).

Table 147: Critical areas of HR (on a 1 to 5 scale, on average) (n=37)

(Explanation: 1= critical to 5 = not at all critical)


critical in …

The average of the

answers

HR planning 3,97







Communication 3,47

HRIS 3,33

Health&Safety 3,40

Others 3,00



137

Table 148 list which key competencies of HR managers the respondent companies felt important. The most important

competency, in 33% of the respondents, was the execution of the general HR services such as recruitment, selection and

performance management (please note that training & development have been found not to be particularly relevant in many

companies see table 143 above.) However similarly important was, in their opinions, to have a knowledge of the actual

business processes and value creation as well as having foreign language skills and making a strategic contribution to the key

decisions and organizational development processes (around 30%of the respondents).

The least important aspect of the HR managers’ competency was personal credibility of the HR function as defined as getting

achievements, creating effective working relationships and a culture of communication, merely 22% of respondents agreed

with this competency.

Table 148: Ranking of the key competencies of HR managers (n=37)

Ranking of key competenciesdistribution

%

Business knowledge (value chain, value creation) 29,4%

Strategic contribution (managing culture, championing changes, strategic decisions) 29,3%

Personal credibility (achieving results, effective relationships, communication skills) 22,1%

HR services (recruitment, selection, training and development, performance

management, etc.)33.0%

Usage of HRIS 26,2%

Foreign languages skills 28,9%



138

Table 149 shows where decision making in various HR functions is located across the organizational levels, ranging from local

line management, over a joint decision making including consultation with HR department, over to mostly decided by central

HR but in tight consultation with the line management or centrally decided by local HR department alone.

Human resource planning is most typically done by the local line with HR department consultations (40%) or by the HR

department (32%). Recruitment (31%), selection (39%), performance evaluation (34%), training and development (47%)

and industrial/labor relation (33%) decisions are most likely to be taken by central HR but with consultation of local line

managers. Talent management (36%), compensation and benefits (32%), employee communications (41%) and HRM IT-

system decisions (46%) are however most typically decided by the local/central HR department.


Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but

in consultation

with the HR

department

Primarily local HR

department but

in consultation

with local line

mgt.

Local HR

departmentTotal %

Human Resource Planning 8,1% 40,5% 18,9% 32,4% 100,0%

Recruitment 16,7% 13,9% 30,6% 38,9% 100,0%

Selection 11,1% 22,2% 38,9% 27,8% 100,0%




Compensation and

Benefits21,6% 18,9% 27,0% 32,4% 100,0%

Industrial-Labor Relations 19,4% 19,4% 33,3% 27,8% 100,0%


HRMS/IT 25,7% 11,4% 17,1% 45,7% 100,0%

Health & Safety 37,5% 12,5% 25,0% 25,0 100,0%

Average% 19,1% 20,0% 29,4% 31,5% 100,0%



139

Table 150 highlights what transformations were implemented at respondent companies’ HR departments: Most of them 55%

experienced that their role has moved more into HR as business partner and 58% implemented a self-service function for the

management layers, whilst 52% also did so for the non-managerial, other employees. The least typical transformation of HR

functional departments in Kazakhstan was the implementation of using a shared-service-center solution for their corporate

or central Asian regional activities 19%).



Completed

Frequency of

“yes” answers

distribution

%



Implementation of HR as a role of business partner 10 30,3%








140

Table 151 shows the trends in what functional areas external service providers are being used recently. The core activity of

HR planning is the area least outsourced (49%), still it remains surprising to the expert authors that over 51% claim that they

actually do use external service providers for this key/core activity. 46% of respondents report that they do not use external

training providers at all, which is explanatory to the little developed training market across this large country.

The most often used external providers are in the following functional areas: recruitment (80%), talent management (88%)

and selection (74%).

Table 151: Role and use of external service providers in the different key functions of HR (n37)


External

providers not

used

Total %

Human Resource Planning 25,7% 25,7% ,0% 48,6% 100,0%

Recruitment 20,6% 26,5% 32,4% 20,6% 100,0%

Selection 20,6% 14,7% 38,2% 26,5% 100,0%




Compensation and

Benefits32,4% 2,9% 29,4% 35,3% 100,0%

Industrial-Labor Relations 24,2% ,0% 33,3% 42,4% 100,0%


HRMS/IT 21,2% ,0% 39,4% 39,4% 100,0%

Health &Safety 24,2% 6,1% 39,4% 30,3% 100,0%

Average% 25,4% 9,9% 30,4% 34,4% 100,0%



141

When asked who is in charge of HR issues if there is no dedicated HR department at a Kazakh company, our respondents

replied in 18% of the cases the CEO and 16% other, which the expert authors interpret to be the owner-managers. Table

152 lists the other decision makers and the percentages.

Table 152: If there is no HR department at your company who is in charge of personnel / HR issues? (n=35)

The greatest decision-making power of HR issues of

firms working without a designated HR management

position

Frequency of

“yes”

answers

distribution

%




Production manager 0 ,0%

Head of Marketing/Sale 0 ,0%

Others 6 15,8%


In 2015 the “hot” HR issues were finding staff with appropriate foreign language skills and followed by being able to pay

adequate salaries to retain staff (please note that Kazakhstan is currently experiencing very high inflation rates over the past

2 years, when the local currency was devalued by almost 50%).

Table 153: HR issues

HR issues in 2015

No feature

at all

%

Minor

feature

%

Large

feature

%

Full

feature

%

Total

%


in labor market19,4% 33,3% 41,7% 5,6% 100,0%


technical workers11,1% 27,8% 50,0% 11,1% 100,0%



jobs

5,6% 27,8% 30,6% 36,1% 100,0%


easily13,9% 33,3% 38,9% 13,9% 100,0%



every job

2,7% 18,9% 59,5% 18,9% 100,0%


trade unions65,6% 21,9% 12,5% ,0% 100,0%



142


All of the functional areas within an organization specialize and develop particular and relevant knowledge bases, which

together ensure that the organization can survive and strive. These functional components are dynamic over time as they

develop responding to external new challenges and new solutions/trends. However knowledge is also dynamic within an

organization: where is located and how much it is being valued by the representatives of other organizational functions and

the top managerial decision makers, whose role is to integrate the various functional inputs.

Table 154 list a variety of sources of how new knowledge is being generated within the HR function, focusing on developing

personal competencies. We have asked our respondents to rate the importance of each such channel of competency

development and found that the most important source what to develop the local HR functions, those of staff and line

managers (3.6) followed by obtaining informal learning and competency development by the parent company. This shifts the

focus on the importance of having international knowledge and competency transfer also within the HR functions.


(Explanation: 1= unimportant to 5 = very important)


the answers








About the internal dynamics of knowledge flows related to HR function we can report that the most important form for

such exchanges is within HR department and the subsidiary company i.e. the classic coordination role of HR and the line/

staff management (4.3). We also see in table 155 that knowledge flowing from parent to the subsidiary company is also

particularly active (4), whilst the weakest from of knowledge exchange exists the inverse direction: Kazakh respondent

companies felt that little local knowledge can be transferred towards the parent company, or that there is little such new

knowledge to be transferred (3.3).


(Explanation: 1= unimportant to 5 = very important)


the answers




HR related knowledge flows within the HR department at your

subsidiary 4,25

HR related knowledge flows at your subsidiary between the HR

department and other organizational units3,78



143


Regarding the descriptive details about the persons who responded to our Kazakh HR questionnaire, table 156 shows all

most all had a university qualification of some sort. 70% earned a Master-level degree and 26% held a Bachelor-level degree.


Level of qualification Frequency distribution %

University PhD 0 %



Other 2 5,1%

Total 39 100.0%


Asking about their professional background as current functionary we can report that similar to global trends, the majority

of them (63%) had a background in Social sciences, and only 3% in Engineering. 21% of the respondents did not list

themselves into either of the three offered categories (Natural, engineering or social sciences) listed in table 157.


Field of professional qualification Frequency distribution %


Engineering 1 2,6%


Other 8 21,1%

Total 38 100,0%


Table 158 gives us an overview how many years our respondents have spent in HR service so far: Most of them (51%) had

only spent maximum 3 years in professional life. This can be explained by the nature of sample taking, as filling in forms and

data is being delegated to lowest administrative staff members in Kazakhstan also. We can see that the table shows that

respondents however also included those who had spent 10 to 15 years in HR professional work already (8%).


Service years Frequency distribution %

(0-3 years) 20 51,3

(3-5 years) 9 23,1

(5-10 years) 7 17,9

(10-15 years ) 3 7,7

Over 15 years 0 ,0

Total 39 100,0



144

10. POLAND (MARZENA STOR – ADAM SUCHODOLSKI – JÓZSEF POÓR)

10.1. INTRODUCTION

Population: 38 518 241 people


2013 2014 2015GDP (%) 1,4 3,3 3,9Unemployment (%) 10,3 9,0 7,7Inflation (%) 1,0 0,1 -0,9GDP per capita in PPS EU-27=100% 67,0 68,0 69,0

ItemsYears


145

10.2. FDI AND EMPLOYMENT AT THE MULTINATIONAL COMPANIES IN POLAND

10.2.1 THE DEVELOPMENT OF FDI INFLOW TO POLAND

Foreign capital in Poland has had long history and it played a vital role in the Polish economy before World War II, although

its share in the national wealth amounted only to a few percent. After World War II, Poland together with some other Central

and Eastern European countries, fell under the Soviet zones of influence as a consequence of Yalta agreements, and that new

political situation significantly restricted the inflow of foreign capital. Some changes appeared in the late 1970s when the

government issued the law allowing for opening a representation of the foreign companies in Poland. And then, with the

collapse of the state socialism in 1989, the government started substantial economic reforms toward market economy and

the further liberalization of FDI polices was implemented. The inflow of FDI increased in various forms. Further development

in FDI was initiated by Poland’s accession to the European Union in 2004. Again more FDI inflow is observable as depicted

in Figure 12.

Figure 12: Annual inward FDI flows to Poland between 1976 and 2015 in USD at current prices and current exchange rates in millions

Source: Foreign direct investment: Inward and outward flows and stock, annual, 1970-2015 (in:) World Investment Report. http://unctadstat.unctad.

org/TableViewer/tableView.aspx (access 07.11.2016).

The global economic crisis of banking and financial markets in the period of 2007-2010 exerted a smaller or bigger influence

on the business activities of almost all companies worldwide. The economic situation in Poland was relatively better than

in other countries. But in 2012 and 2013 the value of FDI in Poland dropped dramatically as a partial consequence of the

previous year’s worldwide economic slowdown. Activities in 2014 brought a dynamic recovery and 2015 data evidences

some slowdown in FDI inflow to Poland.

The value of FDI in Poland grew from $109 million in 1990 to the impressive $250 billion in 2014. Poland has become an

undisputed number one investment location in Central and Eastern Europe, and also a major foreign investment player in

Europe (Majman, 2015:7).


146

In December 2015 foreign direct investors income on their capital involvement in Polish companies amounted to PLN 4.7

billion (of which: reinvested earnings PLN 2.0 billion, dividends amounting to PLN 1.6 billion and interest on debt instruments

PLN 1.1 billion) (Information Bulletin..., 2016:20).

The data presented in the further sections of this chapter are calculated as of the end of 2014. It is because in the time this

research monograph was being written, the latest statistical data on MNCs in Poland were available only to 2014.

10.2.2 FDI BY COUNTRY OF ORIGIN

Foreign capital invested in Poland at the end of 2014 came from 125 countries. Almost 90% of this capital came from the EU

member states. The highest value of investment capital originated from four countries, i.e. the Netherlands (18.4% of foreign

capital in total), Germany (15.89%), France (15.13%), and Luxembourg (13,14%). The detail structure of foreign capital by its

country of origin is presented in Figure 13.

Figure 13: The structure of inward FDI inflow to Poland by country of the capital origin as of the end of 2014

(in % of foreign capital in total)

18,415,89

15,1313,14

4,274,073,98

3,282,95

2,782,72,63

1,781,711,71

1,130,860,85

0,610,410,320,310,240,210,20,160,140,14

0 5 10 15 20

NetherlandsGermany

FranceLuxembourg

SwedenCyprus

United StatesSpain

United…Italy

BelgiumDenmark

AustriaSwitzerland

OtherSouth Korea

FinlandJapan

NorwayPortugalHungary

Czech RepublicMalta

GreeceIrelandCanada

Hong KongChina

Percent

Coun

try

Source: Economic Activity of Entities with Foreign Capital in 2014. Statistical Information and Elaborations. (2015), Polish Central Statistical Office.

Enterprise Department. Warsaw,, p. 58-60.


147

The United States is the most important investor outside Europe. It is worth to emphasize that if the country of residence

of the direct investor was adopted as criterion, the FDI inflow from the United States would be over twice higher in the

statistics. Basing on such a criterion, the United States would be on the second position, behind Germany. The United States

makes its investments through subsidiaries located in other countries, like the Netherlands and Luxembourg, which leads to

diminishing their role (statistically) as an investor in Poland (Poland 2015. Report. Economy..., 2015:256).

10.2.3 SECTORAL DISTRIBUTION OF FDI

Wholesale and Retail Trade with Repair of Motor Vehicles and Motorcycles was the most popular sector of economy in

which foreign investors located their capital in 2014. It amounted to 28,13% of the total number of investing companies

(see Table 1). Manufacturing is placed on the second position with 19,48%. The third position belongs to Professional,

Scientific and Technical Activities (9,45%) and the fourth is occupied ex aequo by Real Estate Activities and Construction

(8,32 respectively).

Table 159: The structure of entities with foreign capital by the type of business activities as of the end of 2014

Eurostat

code

Type of business activity

(NACE Sections*)

% of total number of

MNCs

A0395 Agriculture, Forestry and Fishing 2,68

B0995 Mining and Quarrying 0,58

C3395 Manufacturing 19,48

D3500 Electricity, Gas, Steam and Air Conditioning Supply 2,45

E3995 Water Supply; Sewerage, Waste Management and Remediation Activities 0,64

F4395 Construction 8,32

G4795 Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 28,13

H5395 Transportation and Storage 4,11

I5695 Accommodation and Food Service Activities 2,04

J6395 Information and Communication 5,37

K6695 Financial and Insurance Activities 2,09

L6800 Real Estate Activities 8,83

M7595 Professional, Scientific and Technical Activities 9,45

N8295 Administrative and Support Service Activities 3,77

P8500 Education 0,49

Q8895 Human Health and Social Work Activities 0,63

R9395 Arts, Entertainment and Recreation 0,53

S9695 Other Service Activities 0,41

X9999 Total 100

*NACE Sections – Sections by the Statistical classification of economic activities in the European Community

Source: Bezpośrednie inwestycje zagraniczne w Polsce w 2014., (2016), Ministerstwo Gospodarki. Departament Strategii i Analiz, Warszawa; Economic

Activity of Entities with Foreign Capital in 2014. Statistical Information and Elaborations. (2015), Polish Central Statistical Office. Enterprise Department.

Warsaw, p. 36.


148

Three countries constituted almost a half (49.4%) of foreign capital invested in Manufacturing: the Netherlands, Germany

and Luxembourg. With regard to trade, Repair of Motor Vehicles, 38.9% of the capital came from two countries: Germany

and the Netherlands. As for Construction, 55.7% of capital came from Spain, the Netherlands, Luxembourg and Germany.

As about Real Estate Activities, 59.3% accounted for capital from Luxembourg, the Netherlands and Germany. And majority

of capital invested in Professional, Scientific and Technical activities came from the Netherlands, Luxembourg and Germany

(Economic Activity ....,2015:24).

The last statistical data for 2015 show that in 2015 the FDI was mostly located in entities whose main business lied in

Manufacturing (Zagraniczne inwestycje..., 2016:2).

10.2.4 THE NUMBER OF MNCS, THEIR SIZE AND LEGAL FORMS

In 2014 the number of MNCs operating in Poland increased significantly by 4626 entities, from 78 926 to 83 552 (see Table

160). It is worth mentioning that the vast majority of new entities with foreign capital in Poland are greenfield (List of Major

Foreign Investors..., 2016:9; World Investment Report..., 2016:224).

Table 160: The number of entities with foreign capital (registered as of 31.XII each year)

Year Number of companies

2010 68 325

2013 78 926

2014 83 552

Source: Poland in Figures 2015, (2015), Central Statistical Office, Current Studies Section of Analysis and Comprehensive Studies Department, Zakład

Wydawnictw Statystycznych, Warsaw, p.37.

In 2014 nearly 93% of multinational companies (MNCs) were limited liabilities companies. The remaining percentage was

composed of joint-stock companies (3,80 %), Limited partnership (2,60 %0, branch offices (0,80 %), and others (o,40 %).

The structure of this class of enterprises by their legal forms is presented in Figure 14.

Figure 14: The structure of entities with foreign capital by their legal form at the end of 2014 (in %)

Limited liabilities companies; 92,40

Joint-stock companies; 3,80

Limited partnerships; 2,60

Branch offices; 0,80

Others; 0,40

Source: Economic Activity of Entities with Foreign Capital in 2014. Statistical Information and Elaborations. (2015), Polish Central Statistical Office.

Enterprise Department. Warsaw,, p. 14.


149

MNCs can be also characterized by their size. Using the standard measure of the number of employed, it is the large

companies that make the overwhelming percentage share in the total number or MNCs. It amounts to about 84 %. The

mid-sized companies make about 10 %, whereas small only 5 %. The data are graphically presented in Figure 15.

Figure 15: The structure of MNCs in Poland by their size (measured by the number of employees) at the end of 2014 (in %)

84,40%

10,50%5,10%

Small (to 49 employed)

Middle (50-249 employed)

Large (above 250 employed)

Source: Economic Activity of Entities with Foreign Capital in 2014. Statistical Information and Elaborations. (2015),

Polish Central Statistical Office. Enterprise Department. Warsaw,, p. 14.

10.2.5 EMPLOYMENT GENERATED BY MNCS

At the end of 2014 MNCs in Poland employed 1.747.811 people. Large enterprises, that is those employing more than

249 workers, were employers for 74 % of them (Economic Activity of Entities..., 2015:14). What is interesting, at the same

time the large companies make only 5,1 % of all enterprises with foreign capital in Poland. On the other side, the small

companies, although they make 84,4 % of all MNCs’ subsidiaries in Poland, they employ only 8 % of people working for all

the enterprises with foreign capital. And the mid-sized companies employ 18 %. The data are depicted in figure 16.

Figure 16: The structure of employment in companies with foreign capital by the enterprise size at the end of 2014 (in %)

8%

18%

74%

Small (to 49 employed)

Middle (50-249 employed)

Large (above 250 employed)

Source: calculated from (Enterprise Groups in Poland in 2014,(2015), Statistical Information and Elaborations. Polish Central Statistical Office. Enterprise

Department. Warsaw, p. 34; Economic Activity of Entities..., 2013:14).


150

The employment generated by MNCs and analyzed by the particular type of business activity leads to some other conclusions.

Basing on the business classification system which is commonly referred to as NACE (Statistical Classification of Economic

Activities in the European Community and is a European industry standard classification system, it can be said that in 2014

MNCs dealing with Manufacturing employed 45.76 % of total number of persons working in entities with foreign capital,

whereas entities dealing with Whole sale and retain Trail together with Repair of Motor Vehicles and Motorcycles employed

23.34 % of such persons. These two types of business activity provide nearly 70 % of all working places generated by the

MNCs in Poland. The rate of employment in other types of industry is shown in Table 161.

Table 161: The structure of employment in companies with foreign capital by the NACE sections as of the end of 2014 (in %)

Eurostat

code

Type of business activity

(NACE Sections*)

% of the total

employment in

MNCs

A0395 Agriculture, Forestry and Fishing 0,33

B0995 Mining and Quarrying 0,24

C3395 Manufacturing 45,76

D3500 Electricity, Gas, Steam and Air Conditioning Supply 0,61

E3995 Water Supply; Sewerage, Waste Management and Remediation Activities 0,57

F4395 Construction 2,89

G4795 Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 23,34

H5395 Transportation and Storage 5,69

I5695 Accommodation and Food Service Activities 1,26

J6395 Information and Communication 5,79

K6695 Financial and Insurance Activities 1,96

L6800 Real Estate Activities 0,47

M7595 Professional, Scientific and Technical Activities 4,13

N8295 Administrative and Support Service Activities 5,52

P8500 Education 0,09

Q8895 Human Health and Social Work Activities 0,75

R9395 Arts, Entertainment and Recreation 0,24

S9695 Other Service Activities 0,36

X9999 Total 100

*NACE Sections – Sections by the Statistical classification of economic activities in the European Community

Source: Own calculations based on: (Economic Activity of Entities with Foreign Capital in 2014. Statistical Information and Elaborations. (2015), Polish

Central Statistical Office. Enterprise Department. Warsaw,, p. 37).


151


57 foreign-owned, legally independent subsidiaries participated in the questionnaire survey.

10.3.1 COMPANY SIZE

Unfortunately, not all companies gave information about the size of their subsidiary measured by the number of employed

people – 55 out of 57 revealed this data (see table 162). Anyway, the biggest percentage of the whole sample is made by the

subsidiaries that hire less than 250 workers (approx. 44 %) and the smallest one by those hiring over 5000 employees (5.5

%). On the second place there are subsidiaries employing between 251 and 1000 people (approx. 29 %), on the third those

with the number of employees between 2001-5000 (14,5 %), and on the fourth those hiring between 1001-2000 workers.

Table 162: Number of staff (N=55)

Total number of employees of the

company

2015

FrequencyPercentage

distribution ()

Below 250 24 43,6

251-1000 16 29,1

1001-2000 4 7,3

2001-5000 8 14,5

Over 5000 3 5,5

Total 55 100



152


In our survey we were also interested in how much of the value chain is covered by the range of activities of the local

subsidiary.

Mandate 3 appears to be the most typical as nearly 92% of companies indicated this response (see table 163), of course

having in mind that more than option of responses could be chosen. So, it means it is a business that does not have control

over the entire value chain of a business unit but has activities in a number of stages of the value chain. This might be the

preparation of manufacturing activities or a regional logistics brief.

Mandate 4 makes the second choice with approximately 61%, meaning it is about the business that develops and markets

a certain product chain for global markets. Products, markets and basic technologies are similar to the parent company, but

the exchange of information between the subsidiary and the parent are rare.

Mandate 1 and 2 seems to be of nearly equal frequency and the percentage share of each of them in the whole sample is

something around 32-33%. To remind, as it was explained in the introductory part of this book, Mandate 1 refers to the

business which markets products manufactured centrally into the local trading area and resembles the parent company in its

replicative structure and Mandate 2 covers businesses producing designated sets of components parts for a multicounty or

global markets and their activities are mostly limited to packaging, bulk breaking, some final processing, warehousing, and

distributing.

Table 163: Mandates of the companies participating in the survey* (n=35)

Roles and mandates of your subsidiary Frequency Percentage distribution ()

Mandate 1 18 31,6

Mandate 2 19 33,3

Mandate 3 52 91,2

Mandate 4 35 61,4

Mandate 5 0 0,0


10.3.3 THE NUMBER OF THE SUBSIDIARIES OF THE MULTINATIONAL COMPANIES, PARTICIPATING IN THE SURVEY (N=57)

In the research sample 42.1 % of the companies have only one subsidiary in the country. At the same time nearly 58 % of

the responding firms operate multiple legally independent units in the country. The data is presented in table 164.

Table 164: The number of the subsidiaries (n=57)

The number of the subsidiaries Frequency Distribution

Only 1 operating subsidiary of respondents to the survey

of the country24 42,1

More than 1 subsidiary of the respondents in that country 33 57,9

Total 57 100,0



153


The companies participating in the research represented 18 countries as shown in table 165. Among them the most often

encountered are those that come to Poland from Germany. They make about 26 % of the whole research sample. The

second place is occupied ex aequo by companies from France and the USA – each of them with 14 percentage share in the

whole sample. Some minor representation comes from Switzerland, UK, and Spain (between 5 and 9 %), very little from

Austria and Finland (each with 3,5 %), and only one company from Czech Republic and one from Denmark.

Table 165: Origin of the parent companies (n=57)

Origin of the parent company Frequency Distribution

Germany 15 26,3

France 8 14,0

USA 8 14,0

Switzerland 5 8,8

UK 4 7,0

Spain 3 5,3

Austria 2 3,5

Finland 2 3,5

Belgium 1 1,8

Czech Republic 1 1,8

Denmark 1 1,8

Greece 1 1,8

Ireland 1 1,8

Italy 1 1,8

Liechtenstein 1 1,8

Netherland 1 1,8

Ukraine 1 1,8

South Korea 1 1,8

Total 57 100,0


This composition of the research sample is quite similar to the sequences issued by the Polish Statistic Office. As mentioned in

section 10.2.2. Depending on the measures being used, Germany, France and the USA make the biggest investors in Poland.


154

One of the results of the above country structure of companies under research is their management culture. Namely,

the Latin & South-European management culture is represented by approx. 33 % of respondents which is the highest

percentage in this range. The Germanic management culture makes about 30 % and Anglo-Saxon about 23 %. Eastern-

European management culture is represented only by two subsidiaries – originated from Ukraine and Czech Republic, and

one representative is from South Korea which means the Asian management culture. The respective data are depicted in

table 166.


The origin of the parent company by management culture Frequency Distribution

Nordic 5 8,8

Germanic 17 29,8

Latin and South-European 19 33,3

Anglo-Saxon 13 22,8

Eastern European 2 3,5

Asian 1 1,8

Total 57 100



Before 1995, more than one fifth (19,2%) of the subsidiaries, have been acquired via majority control or by Greenfield

investments on the part of the foreign owners. Between 1996 and 2000, 33,3 of them settled in Poland. And 48,1 of them

were coming to the country after the years of the Millennium.

Greenfield investments have been realized by 59,6 of the foreign owners of these companies, participating in our survey.

Fully 40,4 of the firms obtained majority control in Polish companies during the period of the privatization and acquisitions.


Year of establishment of the

subsidiary

Merger,

acquisition

Greenfield

investmentTotal Distribution

Before 1995 6 6 12 21,1

1995-2000 5 9 14 24,6

2001-2005 3 8 11 19,3

2006-2010 4 6 10 17,5

After 2010 3 7 10 17,5

Total 21 36 57 100,0

distribution 36,8 63,2 100,0



155


The sectoral structure of the companies under study is placed in table 7. It shows that most of the companies deal with heavy

industry because these companies make around 44 % of all companies under research. Second high percentage is found in

companies whose business is in financial services, this figure reaches around 19 %. The details are presented in table 168.


Main sector of the subsidiary’s activity Frequency Distribution

Heavy industry 25 43,9

Trade 7 12,3


Other services 11 19,3

Internal business services 2 3,5

Other 1 1,7

Total 57 100



According to the topic indicated in the subtitle, we examined the importance of three strategic orientations:

» Growth, market expansion, portfolio expansion

» Stability, efficiency improvement, revenue retention, adapting to the market situation

» Redundancies, rationalization


The majority of the Polish companies, i.e. approximately 74 %, followed the growth strategy (market expansion, portfolio

expansion), whereas about 17 % of the respondents indicated that they were realizing the stability strategy (covering

efficiency improvement, revenue retention, and adapting to the market situation). And about 9 % of the subsidiaries chose

the redundancies and rationalization option as shown in table 169.



“yes” answers

distribution

Growth, market expansion 42 73,7

Stability 10 17,5

Size reduction 5 8,8

Total 57 100,0



156


In our research we also wanted to know what companies consider to be their competitive factors and how they value

these factors. The data are depicted in figure 9. It needs to be explained that multiple answers were possible. That’s why to

columns don’t add up to either the total number of companies participating in the research or to 100%.

The data leads to the conclusion that the majority of companies bet on the quality of their workforce. This results in about

74 % of choices. For about half of the respondents there are two factors that make their competitive advantage - that is the

optimal plant or organization size and low labor cost. And for about one third of companies what is nearly equally important

is financial resources, quality management and production technology.


Competitive factorsFrequency of “yes”

answersDistribution


Quality of workforce 42 73,7


Quality Management 22 38,6


Low labor costs 31 54,4



157

10.4.3 KEY PERFORMANCE EVALUATION OF THE SUBSIDIARIES

To gain some information about the business performance we ask the companies to conduct a kind of self-evaluation using

the scale presented in table 171. Our desire was to collect data referring to four areas of business performance, i.e.:

» Profitability,

» Quality of service,

» Rate of innovation, and

» Environmental issues.

The data analysis suggests that on average the Polish companies evaluate their performance much over the middle level. As

about the details, with reference to the profitability the organizations are nearly equally divided into three groups settled

around three points of the scale, that the same as the competitors, better than average and outstanding. The distribution of

companies looks similarly when results of self-evaluation are compared in the scope of innovation rate. As about the quality

of service nearly 50% of respondents evaluate it as being better than average, about 30% as outstanding and about 20%

as the same as competitors. And in a descending order the evaluations come in the area of environmental issues, that is the

same of competitors - approx. 50%, better than average – approx. 30%, and better than average – approx. 20%.

Table 171: Enterprise performance evaluation (n=56)

Companies’

performancesMeasure

Self-evaluation scale

WeakBelow

average

Same

as the

competitors

Better

than

average

Out-

standingTotal

ProfitabilityFrq. 1 2 22 16 15 56

% 1,8 3,6 39,3 28,6 26,8 100,0

Quality of serviceFrq. 0 0 13 26 17 56

% 0 0 23,2 46,4 30,4 100,0

Innovation rateFrq. 0 2 20 17 18 57

% 0 3,5 35,1 29,8 31,6 100,0

Environmental casesFrq. 0 1 28 15 13 57

% 0 1,8 49,1 26,3 22,8 100,0



158



» number and workload of the HR staff,

» the main indicators representing the importance, results, and efficiency characteristics of the HR activity,

and relative size of the training budget.


In 2015, there were 80.804 employees served by 92 HR professional on average in the companies participating in the survey

(table 172).

Table 172: Number of employees and HR staff (n=57)

HR staffEmployees per

HR positionYearNumber

of employees

Total number

of HR staff

2015 80804 878 92


In 2015 a typical foreign subsidiary in Poland hired 17 employees on average dealing with HRM. When the data are analyzed

by the particular quantitative categories of HR personnel, then we can notice that approx. 41 % of companies employed

1-4 of such personnel on average which is the highest percentage in the research sample. And slightly above 20 % of the

companies employ between 5 and 10 persons and another nearly 20 % of them have over 20 HR staff in their personnel

on average. The details in this scope are presented in table 173. The data are given for 51 subsidiaries in Poland because 6

companies provided no information in this field.



Frequency Distribution

None 5 9,8

1-4 persons 21 41,2

5-10 persons 12 23,5

11-15 persons 1 2,0

15-20 persons 1 2,0


Total 51 100,0

Average 17


The data shown above are consistent with the data of international HR research described in CRANET (2006 and 2011).


159


Table 174 below shows the proportion of the total annual payroll costs of production implanted. The results are significantly

distorted, because, there were participants of the survey who did not give the value of this indicator.

Table 174: Labor cost as a percentage of operating cost (n=32)

Labor cost in of the

operating cost

2015


Under 5 1 3,1

5-10 3 9,4

11-20 8 25,0

21-30 6 18,8

31-40 6 18,8

41-50 2 6,3

Over 50 6 18,8

Total 32 100,0



The development of the relative size of the training budget (compared to the total annual labor cost) is considered as an

important and modern indicator of effective HR work/activity by the literature.

The research data bring to the conclusion that in most of the companies (approx. 60 %) the percentage share of the training

budget in the entire annual labor cost amounts to 1-3 %. At the same time in about one fourth of the companies this budget

reaches less than 1%, in about 15 % of companies it is between 3 and 5 %. The highest percentage hare of training budget

in the entire annual labor cost is encountered in about 4 % of local subsidiaries researched in Poland. The appropriate data

are shown in table 175.

Table 175: Annual training budget as % of the entire annual labor cost (n=54)

Annual training budget in the

entire annual labor cost in %

2015


Under 1 12 22,2

1-3 32 59,3

3-5 8 14,8

5-10 2 3,7

Total 54 100,0



160



We found several different functional roles and responsibility sharing practices among the companies examined. Our interest

center on the relationship between Headquarters (HQ) HR and HR activities taken in local subsidiaries.

The data collected in table 176 allows to characterize the research sample in the following way:

» Approximately 34% of respondents described that the HQ-HR department provides general guidelines and

framework for actions to the local HR departments of the subsidiaries.

» A similar percentage of respondents, i.e. approximately 32%, said that the function of the HQ-HR is to

provide the subsidiaries with detailed HR model, policies, procedures and rules.

» Slightly less, meaning approximately 29% of respondents stated that HQ-HR, expects information and

reports, while as an auditor provides complete freedom (decentralization) for the local HR departments of

the subsidiaries as well.


FunctionsFrequency of

“yes” answersDistribution

Hands-off, provide complete freedom (decentralization) 16 28,6

Provide general guidelines and framework for actions 19 33,9

Provide detailed HR model, policies, procedures and rules 18 32,1

Source of all remotely significant HR decisions

(centralization)3 5,4

Total 56 100



161

10.6.2 PRIMARY RESPONSIBILITY OF DECISION MAKING IN MAIN FUNCTIONS OF HR

In Poland, as shown in table 177, most of the decisions within the range of the main HRM functions is taken either by the

local line management or by the local line management with consultation with the HR department. It’s worth noticing that

the local line management is highly empowered to do their managerial work independently in many HR functions. The

highest percentage of respondents indicating the managers’ independence appears in such HR functions as performance

evaluation with 60% of indications, employee communication with approx. 40%, and three other functions where each

is with approximately 30% of indications, i.e. compensation and benefits, talent management, selection and HR planning.

There are only two functions within which the decisions are made exclusively by the local HR department itself, meaning

occupational safety & health and HRMS/IT. The first function is strongly regulated by the law, and the second one is based

on IT technological developments.

Table 177: Responsibility of decision making in key functions of HR (%)

Key functions of HRLocal line

management

Local line

management

consulting

with the HR

department

Local HR

department

consulting

with local line

management

Local HR

department


Recruitment 19,6 39,3 32,1 8,9

Selection 33,9 37,5 23,2 5,4







HRMS/IT 16,1 17,9 16,1 50,0

Occupational Safety and Health

(OSH)26,8 14,3 23,2 35,7


The results are confirmed by our current survey, which were also established in other studies (CRANET, 2006 and Karoliny et

al. 2009; 2010) that the members of the local line management hierarchy have larger responsibility and control in some HR

decisions, while the local employees of the HR department have larger responsibility in other areas.


162

10.6.3 IMPLEMENTED TRANSFORMATION IN HR DEPARTMENT

In 2015 some transformation HR activities were implemented in foreign subsidiaries located in Poland. The most visible

transformations appeared in the changing role of HR managers and specialists. In about 21% of companies their role as

business partner was increasing, and in 14% their standard role was changed into the role of a business partner. Transformation

number two covered getting back HR tasks to management (14.5%), and transformation number three referred equally to

outsourcing of the tasks in HR department and self-service HR for employees (each 12.5% respectively). All the data in this

scope are presented in table 178.



Completed

Frequency of

“yes” answersDistribution

Outsourcing of the tasks in HR department 7 12,5

Management gets back the HR tasks 8 14,5

Implementation of HR as a role of business partner 8 14

Increasing HR as a role of business partner 12 21,4

Whole HR SSC* 5 8,8

HR SSC * in corporate and regional areas 5 8,8

Self-service HR for employees 7 12,5

Self-service HR for the management 6 10,9


* SSC = Shared Service Center


163


In general the overall HR tendencies of the organizations have not changed recently, but we can see an increasing tendency

in using of external partners.

The highest increase in outsourcing appeared in the field of training and development. Nearly 31 % of companies under

study used external providers of these kinds of HRM activities.

The least outsourced HR functions are HR planning, employee communication, industrial labor relations, compensation and

benefits and talent management. Table 179 provides more details on this topic.

Table 179: Role and use of external service providers in the different key functions of HR (%)

Key functions of HRIncreased Decreased Same

External

providers not

used


Recruitment 18,2 1,8 16,4 63,6

Selection 7,3 1,8 16,4 74,5



Talent Management 3,6 3,6 7,3 85,5




HRMS/IT 5,5 1,8 9,1 83,6


(OSH)14,8 0,0 16,7 68,5



164

10.6.5 LACK OF HR MANAGER

The Chief Executive apparently works mainly as the HR manager in about 28 % of companies where there is no HR manager

at all. In other companies with no HR manager it is either an administrative manager (5,3 %) or head of marketing/sale (5,3

%) that make decisions within the HR functions.

Table 180: The greatest decision-making power of HR issues of firms working without HR manager (n=

Position

Frequency of

“yes”

answers

Distribution

Chief Executive 16 28,1

Administrative manager 3 5,3

Head of the Finance department 1 1,8

Production manager 1 1,8

Head of Marketing/Sale 3 5,3


10.7. CRITICAL HR ISSUES

10.7.1 CHANGES IN IMPORTANCE OF MAIN HR ISSUES

In our research we also asked the respondents about the critical HR issues in the examined period. The calculated ranking

presented in table 181 shows that the highest importance was ascribed to recruitment (3,69), HR planning (3,43), and talent

management (3,35). At the same time the lowest rank was achieved by industrial-labor relations (2,12) and HRIS (1,88).

Table 181: Critical HR issues (on a 1-5 scales on average)

(Explanation: 5= critical ⇒ 1= not critical at all)

Critical HR issues in Average of the

answers

Recruitment 3,69

Human Resource Planning 3,43


Selection 3,14

Training and Development 3,11


Health & Safety 2,84


Employee Communication 2,41

Industrial-Labor Relations 2,12

HRIS 1,88



165

10.7.2 CONDITIONS AND RESULTS OF THE SUBSIDIARIES

There were some conditions and results of the subsidiaries that were more or less typical. Anyway, those that were absolutely

typical didn’t reach high percentages. For example, only 20 % of companies experienced the conditions in which foreign

language skills were easily accessible in most of the jobs but at the same time this is the highest percentage of companies

indicating this phenomenon as absolutely typical (full feature).

The features that were particularly typical covered competitive wages offered to workers in nearly all jobs (approx. 44 %),

easy to find manual workers (approx. 43 %), and again – easy to find employees with foreign language skills (approx. 43 %).

What didn’t characterize the most of the subsidiaries was a significant influence of the trade unions. Approximately 52 % of

companies reported this as not a feature at all. Table 182 presents the other data in this field.


HR issues in 2015No feature

at all

Minor

feature

Large

feature

Full

feature

Easy to find manual workers in labor market 31,5 18,5 42,6 7,4

Easy to find well-trained technical workers 38,2 34,5 20,0 7,3

Foreign language skills are not problem in

most of the jobs7,1 30,4 42,9 19,6

We can keep the talents easily 16,1 42,9 28,6 12,5

We can offer competitive wages for our

employees in every job14,5 32,7 43,6 9,1

Significant influence of the trade unions 51,8 28,6 12,5 7,1


10.8. DELEGATES AND ROLES

10.9. EXPATRIATES

10.9.1 FOREIGN EXPATRIATES

In our research we consider two types of long-term expatriate assignments. Arrivals from abroad, i.e. from a parent company

or from a third country are one of them. The other type refers to employees from the domestic subsidiary appointed for a

long-term period on mission abroad, i.e. to the parent company or subsidiaries working in other countries.

One obvious thing that comes from our research is that the smaller the company the less expatriates are hired. But there are

also some interesting findings worth of sharing with the readers. One of them brings to the conclusion that in the companies

that hire more than 16 expatriates on non-managerial positions there are no expatriates employed on managerial positions

at all. As shown in table 183 these companies make 20 % of the whole research sample. The opposite situation takes place

in 14,3 % of companies. Those that offer job to 11-15 managerial expatriates at the same time give no assignments for non-

managerial expatriates.

Among the companies that use only one person as an expatriate there are 35,7 % of those in which expatriates appear

on managerial positions and 26,7 % of such in which they occupy non-managerial positions. The advantage of managerial


166

expatriates over non-managerial ones is also visible in companies that employ 4-5 persons on expatriate positions. The

opposite advantage, meaning non-managerial expatriates over managerial ones is present in subsidiaries that offer 6-10

expatriate assignments.

Table 183: Number of foreign expats


Frequency Distribution Frequency Distribution

1 person 5 35,7 4 26,7

2-3 persons 2 14,3 5 33,3

4-5 persons 4 28,6 1 6,7

6-10 persons 1 7,1 2 13,3

11-15 persons 2 14,3 0 0,0

16-20 persons 0 0,0 1 6,7

Over 20 persons 0 0,0 2 13,3

Total 14 100,0 15 100,0


10.9.2 POLISH EXPATRIATES

In table 184 below we can see the number and positions of Polish expatriates sent to foreign companies of their respective

MNCs. It looks as the same number of managerial and non-managerial employees is delegated to the expatriate positions

abroad.

Table 184: Number and position of Polish expatriates

Number and positions

of Polish expats


Frequency Distribution Frequency Distribution

1 person 3 30,0 3 30,0

2-3 persons 5 50,0 2 20,0

4-5 persons 1 10,0 1 10,0

6-10 persons 1 10,0 1 10,0

11-15 persons 0 0,0 0 0,0

16-20 persons 0 0,0 1 10,0

Over 20 persons 0 0,0 2 20,0

Total 10 100,0 10 100,0


What is interesting is that 2-3 Polish expatriates on managerial positions abroad makes a typical situation in 50% of companies.

It should be recognized as rather high percentage.


167


According to the supplemented list of HRM competency areas identified by one of the most well-known HR consultants

Dave Ulrich (et al. in 2009), the most important competencies considered by the respondents in Poland are competencies

connected with personal credibility which cover effectiveness, efficient connections and communication skills. About 60%

of respondents considered them as very important.

Communication in foreign languages is on the second place with about 46% of indications. A little less, meaning

approximately 43% of respondents, recognized competencies strictly associated with HR services as very important. It means

that competencies responsible for success in such exemplary HR services as recruitment & selection, training & development,

performance appraisal or HR measurement are believed to be o very high importance. These and other data in this scope

are presented in table 185.

Table 185: Ranking of key competencies of HR managers

Ranking of the importance of

key competencies

Very important


Personal credibility

(effectiveness, efficient connections, communication skills)31 57,4

Communication in foreign languages 25 46,3

HR services

(recruitment-selection, training, performance evaluation, HR

measurement, etc.)

23 42,6

Business knowledge

(value chain, value creation)16 30,2

Strategic contribution

(culture management, quick changes, strategic decision making)12 23,1

Use of HRMIS (IT) 6 11,1



In our research knowledge management refers to the integrated management and sharing of the collective strategic

knowledge (know-how, skills and intellectual abilities) of a certain organization’s employees. In connection to the application

of knowledge transfers in the field of HR, we examined the following three areas:

» Methods of personal competency development in HR

» Enablers of HR knowledge flows

» Directions of HR knowledge flows


168


The ranking drawn up in table 186 supports the conclusion that Polish respondents considered informal learning in HR

department of the subsidiary the most significant method of personal competency development. Using the scale from 1

(unimportant at all) to 5 (important) an average value for this competency development reached 3,50. The second position is

occupied by local HR training and development with the score of 3,48, whereas HR training and development in Headquarters

with the value of 3,02 is on the third place. The other methods of personal competency development in HR gained the values

below 3 and are shown in table below.

Table 186: The importance of the methods of personal competency development in HR (on a scale 1-5)

(Explanation: 5 = important ⇒ 1 = not important at all)


the answers

Informal learning in HR department of the subsidiary 3,50

Local HR training and development 3,48

HR training and development in Headquarters 3,02

Informal learning in Headquarters 2,65

HR training and development in other subsidiaries 2,56

Informal learning in HR departments of other subsidiaries 2,48



Another ranking with responses was prepared for HR knowledge transfer between the parent company and the subsidiary.

Using the same scale as before, the respondents ranked the HR knowledge flows in HR department of the subsidiary (3.46)

and HR knowledge flows between subsidiaries and other departments (3,43) as the most important. Table 187 presents the

ranking in this field.



HR knowledge flows in HRThe average of

the answers

HR knowledge flows in HR department of the subsidiary 3,46

HR knowledge flows between subsidiaries and other departments 3,43

HR knowledge flows from parent to subsidiary 3,19

HR knowledge flows between yours and other subsidiaries 3,04

HR knowledge flows from subsidiary to parent 2,98



169



The respondents were also asked about the key issues and trends they consider to be important in the next 24 months. It

was a kind of an open question and the answers most often given are found in table 188.

It seems that the Polish respondents may be afraid of labor shortages on the labor market the most.

Table 188: Rank order of key business challenges in the next 1-2 years

Order of priority of the key business directions, challenges

1. Labor shortages on labor market

2. People Development, Coaching of key people

3. Retention and motivation of employees

4. Talent management, talent retention



In our survey we have also examined the demographic characteristics, the professional qualifications and the characteristics

of their positions.

Almost all the research participants have university, college or equivalent qualifications as shown in table 189.


Level of qualification Frequency Distribution


University (MA/MSc) 53 94,6

College (BA/BSc) 3 5,4

Total 56 100,0



170

The majority of the Polish respondents obtained qualifications either in Engineering (46,4%) or Social sciences (46,4%) and

the remaining part graduated in Natural Sciences (7,1%) (see table 190).


Field of professional qualification Frequency Distribution


Engineering 26 46,4


Total 56 100,0


As shown in table 191 nearly 36% of respondents – which is the highest percentage – worked in their current positions no

longer than 3 years, about 29% between 5 and 10 years, and about 24% between 3 and 5 years. The smaller group is made

by those who worked between 10 and 15 years, i.e. approximately 11%, whereas no respondents with tenure longer than

15 years were identified.


Time spent in current position Frequency Distribution

0-3 years 20 36,4

3-5 years 13 23,6

5-10 years 16 29,1

10-15 years 6 10,9

Over 15 years 0 0,0

Total 55 100,0



171

11. ROMANIA (KINGA KEREKES – MONICA ZAHARIE – JÓZSEF POÓR)

11.1. INTRODUCTION

Population: 20 121 641 people (Census 2011)

19 870 647 people (1st January 2015)


2013 2014 2015

GDP growth rate (%) 3.5 3.1 3.9

Unemployment rate (%) 7.1 6.8 6.8

Inflation rate (%) 3.2 1.4 –0.4

GDP per capita in PPS (EU28=100) 55 55 57

Source: Eurostat


172

11.2. FDI AND EMPLOYMENT IN ROMANIA

The FDI inflows that have entered Romania over the past years proved beneficial to the domestic economy, foreign-owned

companies accounting for around half of national gross value added and for over 75 percent of the total foreign trade

transactions (NBR, 2016b:25)

The foreign direct investments channeled to Romania went through a steadily growth until 2008. According to the records

of the Romanian National Bank (NBR 2013), the highest growth was registered in 2006 (EUR 9 059 million), an increase of

73.8% compared to the previous year. Within the global economic crisis, in the period 2008-2011 Romania lost much of its

attractiveness to foreign investors and FDI inflow decreased. In 2012 the signs of recovery could be noticed. The total volume

of FDI in Romania reached EUR 57 851 million at the end of 2012 (7.7% higher than in 2011).Than, the annual FDI growth

decreased again, to 3.6% in 2013 and to 0.4% in 2014. The FDI stock amounted to EUR 64 433 million in Romania at the

end of 2015, an increase of 7.0% compared to 2014 (NBR, 2016a:18).

The FDI stock in greenfield enterprises, bearing an amount of EUR 36 484 million, holds 56.6 percent of the FDI stock (NBR,

2016a:12).


Most of the FDI invested in Romania has its origins in The Netherlands (25.0%), Austria (14.2%), Germany (12.4%), Cyprus

(6.9%), France (6.7%) and Italy (5.2%) (Table 192).


Order Country %

1. The Netherlands 20.8%

2. Austria 11.8%

3. Germany 11.1%

4. Cyprus 8.9%

5. France 5.7%

6. Italy 5.5%

7. Greece 4.3%

8. Spain 4.1%

9. Luxembourg 3.8%

10. Czech Republic 3.2%

11. Switzerland 2.4%

12. UK 2.0%

13. Hungary 2.1

14. USA 1.9%

15. Turkey 1.3%

16. Netherlands Antilles 1.2%

17. Belgium 1.0%

18. Others (less than 1% each) 8.1%

Total 100%

Source: ONRC, December 2016 (Statistical synthesis of the data from the national registry of commerce)


173


Significant FDI flows were directed to the industrial sector, the role of this sector in the economy is currently prominent (NBR,

2016b:26).

The economic sector receiving the highest share of FDI was manufacturing (31.8% of total FDI stock), out of which the

largest recipients were oil processing, chemicals, rubber and plastic products (6.0 of total FDI stock), and transport activities

(5.9%). The second largest share of the FDI stock was channelled to financial intermediation and insurance (13.1%), followed

by trade (12.2%), construction and real estate transactions (12.2%), and electricity, gas and water supply (9.8%) (Table 193).

Table 193: FDI by sector (at 31 December 2015)

Order Sectors %

1. Manufacturing 31.8%

2. Financial intermediation and insurance 13.1%

3. Trade 12.2%

4. Construction and real estate transactions 12.2%

5. Electricity, gas and water supply 9.8%

6.Professional, scientific, technical and administrative activities and support

services6.3%

7. Information technology and communications 5.7%

8. Mining 3.0%

9. Agriculture, forestry and fishing 2.6%

10. Transportation 1.8%

11. Accommodation and food service activities 0.8%

12. Other activities 0.7%

Total 100%

Source: NBR 2016a:9

From a country regions point of view, FDI went mainly to the Bucharest-Ilfov region (59.3%). Other development regions

which attracted significant FDI were the Centre region (9.0%), the West region (8.1%), the South-Muntenia region (7.2%),

and the North-West region (5.9%), while in the South East region arrived only 4.5%, in the South-West Oltenia region 3.4%,

and in the North-East Region arrived only 2.6% of the total FDI (NBR, 2016a:11). This statistic may be distorted by the fact

that all FDI is registered at the headquarters (often located in Bucharest, the capital city), even if the company operates in

several other regions as well.


174

11.2.3 THE NUMBER OF FOREIGN OWNED COMPANIES

Foreign owned enterprises had been registered in greater numbers especially in the period 1992-1994 and 2004-2008, the

peak year being 2007, when 15 720 foreign owned companies were registered. The impact of the economic crisis is clearly

visible on the evolution of the number of companies registered in Romania, as well as on the volume of their capital involved

in the various investments (Table 194).

Table 194: Evolution of foreign owned companies operating in the Romanian economy (1991-2015)

YearNo. of registered

companies

Yearly registered

capital

(thou EUR)

Total registered

capital

(thou EUR)

1991 5 499 817 976 817 976

1992 11 765 443 106 1 261 082

1993 10 583 322 970 1 584 052

1994 11 053 681 484 2 265 536

1995 3 400 183 742 2 449 277

1996 3 630 443 356 2 892 633

1997 5 251 278 192 3 170 825

1998 8 801 583 940 3 754 765

1999 7 383 729 941 4 484 706

2000 8 567 648 611 5 133 317

2001 7 175 1 190 959 6 324 276

2002 7 518 833 810 7 158 086

2003 6 609 996 235 8 154 321

2004 10 167 2 343 733 10 498 054

2005 11 719 2 434 525 12 932 579

2006 12 823 2 417 237 15 349 816

2007 15 720 2 389 392 17 739 208

2008 12 264 3 984 433 21 723 641

2009 6 801 3 512 611 25 236 251

2010 6 302 3 914 441 29 150 692

2011 6 377 3 329 432 32 480 124

2012 6 385 2 856 417 35 336 541

2013 6 624 2 355 804 37 692 345

2014 6 219 3 877 240 41 569 585

2015 5 831 1 239 306 42 808 890

2016 5 348 1 999 867 44 808 757

1991 – 2016 209 814

Source: ONRC (2016)


175

11.2.4 EMPLOYMENT

Foreign owned companies employed less than five thousand people in Romania in 1995, while this number exceeded 600

thousand in 2015 that represent 13.5% of the total number of employees in the entire Romanian economy (Table 195).

The global economic crisis had a negative impact on the operation of foreign-owned companies; as a result, employment in

these companies declined slightly in 2009-2010 and showed recovery in 2011.

Table 195: The number of employees in foreign integral ownership companies from Romania and their share in total employment

(1995-2015)

Year

Employees in foreign integral

ownership companies

Number %

1995 4 533 0.1%

1996 10 486 0.2%

1997 29 432 0.5%

1998 52 619 1.0%

1999 69 024 1.5%

2000 103 939 2.3%

2001 216 316 4.7%

2002 233 145 5.1%

2003 194 523 4.2%

2004 24 9727 5.6%

2005 291 603 6.4%

2006 321 450 6.9%

2007 374 266 7.7%

2008 454 203 9.0%

2009 408 189 8.6%

2010 399 399 9.1%

2011 461 984 10.6%

2012 516 782 11.6%

2013 537 471 12.1%

2014 556 904 12.4%

2015 624 120 13.5%

Source: NIS (2016)

Not all companies with foreign capital registered are foreign integral ownership companies. Thus, the National Bank of

Romania reports for 2015 a total number of 1,228 thousand employees (NBR, 2016a:14), and a turnover of 143 868 million

Euro (NBR, 2016a:13) of direct investment enterprises coming from Romania.

Considering current developments, the persistence of skilled labor shortage, the wage growth above productivity gains

and the lack of noticeable improvement in infrastructure quality have diminished the competitive edge of Romania (NBR,

2016b:27).


176




11.3.1 COMPANY SIZE

The size of the subsidiaries examined varied from less than ten to over five thousand employees. In total, the subsidiaries

included in the sample employed over 22 thousand persons in 2015. Based on the number of their total employees, 57.6%

of the companies participating in the survey are SMEs (Table 196).


Total number of employees

of the companyFrequency

Percentage

distribution %

Below 250 19 57.6%

251-1000 10 30.3%

1001-2000 0 0%

2001-5000 3 9.1%

Over 5000 1 3.0%

Total 33 100.0%



» We also examined how much control the respondent subsidiaries have over the entire value chain.

» Most of the subsidiaries participating in the survey have typical local subsidiary roles (73.0% production/

operation, 43.2% sales/marketing, 8.1% purchase) and just around 16.2% have a more complete mandate,

incorporating most if not all links in the value chain, including also the “back end” R&D activities (Table 197).


Roles and mandates of your

subsidiaryFrequency

Percentage

distribution %

Mandate 1

Sales & Marketing16 43.2%

Mandate 2

Production/Operation27 73.0%

Mandate 3

Purchase3 8.1%

Mandate 4

Research & Development6 16.2%

Mandate 5

Other6 16.2%



177

In over half of the cases (55.6%), there are more legally independent subsidiaries in the surveyed country, beside the

respondent subsidiary (Table 198).


Number of subsidiaries Frequency

Percentage

distribution

(%)

only 1 (one), subsidiary operates in the

surveyed country16 44.4%

beside the respondent subsidiary

there is more legally independent

subsidiaries in the surveyed country

20 55.6%

Total 36 100.0%


The subsidiaries participating in the survey came to Romania from ten different countries. More than half of them come from

the USA and Germany, while other eight countries account for the remaining half of the subsidiaries (Table 199).


Origin of the parent company Frequencydistribution

%

Canada 1 2.7%

France 1 2.7%

Germany 11 29.7%

Hungary 3 8.1%

India 1 2.7%

Lithuania 1 2.7%

Netherlands 1 2.7%

Slovakia 1 2.7%

UK 4 10.8%

USA 11 29.7%

Others 2 5.4%

Total 33 100.0%


The composition described above partly corresponds with the data of the Romanian National Bank (NBR 2016), according

to which seven of the ten countries represented in our survey are at the origin of an important share (at least 1% each) of

foreign direct investment arrived to Romania.


178

If we take a look at the management culture of the companies (Table 200), the highest proportions of companies in the

sample analyzed belong to the so-called Anglo-Saxon (43.2%) and Germanic (32.4%) management cultures.



mother companiesFrequency % distribution

Nordic 0 0%

Germanic (Germany, Netherlands) 12 32.4%

Southern Europe and Latin (France) 1 2.7%

Anglo-Saxon (Canada UK, USA) 16 43.2%

Eastern European (Hungary, Slovakia, Lithuania) 5 13.5%

Asian (India) 1 2.7%

Others 2 5.4%

Total 37 100%


In the Romanian sample, beside traditional MNCs (North American and Western European), representing 78.3%, companies

from the so-called emerging and transitional countries (21.7%) are represented in the sample.


None of the subsidiaries examined was established before 1995, a few (6.9%) of the companies settled in Romania between

1996 and 2000 and an overwhelming majority (93.1%) appeared in the new millennium. Two third of the foreign owners

of the companies participating in the survey made greenfield investments and 34.5% of them obtained majority control of

existing Romanian companies through merger or acquisition (Table 201).



of the subsidiary

Merger,

acquisition

Greenfield

investmentTotal

%

distribution

1990-1995 0 0 0 0.0%

1996-2000 2 0 2 6.9%

2001-2005 3 7 10 34.5%

2006-2010 2 7 9 31.0%

After 2010 3 5 8 27.6%

Total 10 19 29 100.0%

% distribution 34.5% 65.5% 100.0%



179


The biggest share (24.3%) of the organizations examined is engaged in financial services, 18.9% in industry and the same

share in trade, 16.2% in business services, 8.1% report a focus in other services, and 13.5% are active in other (unmentioned)

sectors (Table 202).



Industry 7 18.9%

Trade (wholesale, retail and warehousing retail) 7 18.9%

Financial services 9 24.3%

Other services 3 8.1%

Internal business service 6 16.2%

Other 5 13.5%

Total 37 100.0%



We have examined how important the following three strategic orientations were for the respondents:





The great majority (73.0%) of the respondents indicated that growth and portfolio expansion were their main strategic

orientations during the period examined. Almost 21.6% of the companies surveyed were characterized by seeking stability

and improving efficiency. Only two respondents (5.4%) chose redundancies and rationalization (Table 203).



“yes” answers

distribution

%

Growth, market expansion, portfolio expansion 27 73.0%

Stability, efficiency improvement, revenue retention,

adapting to the market situation8 21.6%

Redundancies, rationalization 2 5.4%

Total 37 100.0%



180


From the provided list of the most important competitive factors (from which more than one answer could be marked) most

companies mentioned the high quality workforce (86.5%), quality of the management (73.0%), and optimal organization

size (59.5%). A lower share of the respondents considered availability of financial resources (43.2%) production technology

(32.4%), and low workforce costs (24.3%) to be very important competitive factors (Table 204). One respondent considered

benefits offered to employee (such as wellness services and CSR), another mentioned the Romanian market as a competitive

advantage.



answers

distribution

%

Optimal plant/organization size 22 59.5%

Quality workforce 32 86.5%

Financial resources 16 43.2%

Quality of the management 27 73.0%

Production technology 12 32.4%

Low workforce costs 9 24.3%

Other 2 5.4%


The majority (54.1%) of the respondents declared that the profitability of their company is at an average level, 35.1%

considered it to be better than the average, and 10.8% assessed their profitability as being superior.

As regards service quality, 56.8% declared that they perform better than the average, 27.0% appreciate that they offer

exceptional services, and only 16.2% considered to be average or equal to their main competitors.

Innovation was not the strongest edge of the respondent companies (8.3% performed below, and 27.8% just about the

average), but around 25.0% of the respondents thought their companies’ innovation rate is much superior and 38.9% better

than the average.

Almost half of the respondent subsidiaries (44.4%) treat environmental matters better than the average and 19.4% at a

superior level, while 30.6% perform at average level, and only 5.6% considered their performance below average.


181



» number and workload of the HR staff,

» the main indicators representing the importance, results, and efficiency characteristics of the HR activity



Many respondents were reluctant to answer the questions regarding the number of employees (10.8%) and HR staff (21.6%).

Thus, even though the number of employees was of 22 597 (in 33 companies), we could only consider for our report 29

companies.

The average number of employees served by one HR professional was 50 persons (Table 205).

Table 205: Number of employees and HR staff in the participating companies (29)

YearNumber of

employeesHR staff

Employees per HR

position

2015 17 127 346 50

The HR departments of the companies employ in average 12 persons; most frequently reported (55.2%) are HR departments

with 1-4 employees (Table 206). Four organizations participated in the survey that did not have a HR department; moreover

these four firms did not employ one single HR professional.



2015


%

None 4 13.8%

1-4 persons 16 55.2%

5-10 persons 4 13.8%

11-15 persons 0 0.0%

15-20 persons 0 0.0%

Over 20 persons 5 17.2%

Total 29 100.0%



182


Just around half of the examined companies give data referring to the labor cost – operating cost ratio, due to a consideration

that this type of information is proprietary and should be kept private. The variety of responses is due to the variety of their

fields of activity. For about a quarter of the subsidiaries the labor cost ratio is higher than 30% (Table 207).


Labor cost in % of the

operating cost

2015


%

Under 5 % 11 68.8%

5-10 % 0 0.0%

11-20 % 0 0.0%

21-30 % 1 6.3%

31-40 % 1 6.3%

41-50 % 0 0.0%

Over 50 % 3 18.8%

Total 16 100.0%



Even though literature considers the relative size of the training budget (compared to the entire annual labor cost) as an

important indicator of modern and effective HR activity, for two thirds of the respondent companies, the relative size of the

training budget was under 3%. At the same time, about 19.4% of the companies spent more than 5% of the annual labor

budget on training employees (Table 208).


Annual training budget in % of

the entire annual labor cost

2015


%

Below 1 % 8 25.8%

1-3 % 12 38.7%

3-5 % 5 16.1%

Over 5 % 6 19.4%

Total 40 100.0%



183

11.6. EXPATRIATES

11.6.1 FOREIGN EXPATRIATES AND THEIR ROLES

Around half (48.6%) of the subsidiaries participating in the survey employed foreign expatriates, but not all of them gave

information about their number and position. The presence of expatriates employed in managerial positions is more significant,

32.4% of the companies employed typically between one and three expatriate managers. In those few companies that

employed foreign expatriates in non-managerial positions permanently (13.5%), the number of these expatriates was also

between one and three, except for one company who employed eight expatriates (Table 209).

Table 209: Number of foreign expatriates (n=37)



None 19 51.4% 21 56.8%

Not specified 6 16.2% 11 29.7%

1 person 4 10.8% 1 2.7%

2-3 persons 6 16.2% 3 8.1%

4-5 persons 1 2.7% 0 0.0%

6-10 persons 1 2.7% 1 2.7%

11-15 persons 0 0.0% 0 0.0%

16-20 persons 0 0.0% 0 0.0%

Over 20 persons 0 0.0% 0 0.0%

Total 37 100.0% 37 100.0%



184

11.6.2 ROMANIAN EXPATRIATES

Table 210 shows how typically and to what positions Romanian expatriates were sent to foreign companies of MNCs.

Table 210: Number and positions of Romanian expatriates (n=34)

Number of Romanian

expatriates



None 21 61.8% 20 58.8%

Not specified 9 26.5% 9 26.5%

1 person 0 0.0% 1 2.9%

2-3 persons 0 0.0% 2 5.9%

4-5 persons 0 0.0% 0 0.0%

6-10 persons 3 8.8% 1 2.9%

11-15 persons 1 2.9% 0 0.0%

16-20 persons 0 0.0% 1 2.9%

Over 20 persons 0 0.0% 0 0.0%

Total 34 100.0% 34 100.0%


There was no foreign deputation in 58.8% of the respondents. Around the same number of respondents sent employees in

managerial positions as in non-managerial positions. The maximum reported was 16 persons sent abroad (in non-managerial

positions).



» We found several different function-sharing practices describing the relationship between the local HR unit

and the corporate HQ HR unit among the companies surveyed (Table 211):

» The solution implemented by 38.9% of the respondents, was that the HR department of the company’s

headquarters lays down general guidelines and provides a standard framework for the work of HR

departments of the subsidiaries.

» In 16.1% of companies the headquarters was also responsible for developing the detailed HR model and not

only personnel guidelines but also the rules, procedures, and HR processes were developed centrally.

» 8.3% of the respondents characterized their relationship as one of absolute centralization.

» On the other hand, 36.1% of the HR departments of the responding subsidiaries reported getting hands-

off, almost complete freedom from the headquarters and locally decentralized HR activity, stating that the

HR department of the company’s headquarters only carries out the auditing function and requiring reports.


185



answers

Distribution

%

Provide autonomy both in decision-makings and in

implementation13 36.1%

Provide general guidelines and framework for actions 14 38.9%

Provide detailed HR model, policies, procedures and rules 6 16.7%

Centralized decision-making with tight control 3 8.3%

Total 36 100.0%


The most significant transformation implemented is related to the business partner role of the HR department, some 38.7%

of the companies strengthened the HR’s business partner role, while another 33.3% just initiated it (Table 212).



Completed

Frequency of “yes”

answers

distribution

%

Outsourcing of the tasks in HR department 4 12.1%

Management gets back the HR tasks 5 16.1%

Initiating the HR business partner role 10 33.3%

Strengthening the business partner role of HR 12 38.7%

Establishing local HR SSC 6 18.2%

Establishing regional HR SSC 8 24.2%

Self-service HR for employees 5 15.2%

Self-service HR for the management 5 16.1%


186


Recruitment & selection was first in the ranking of HR areas considered most critical in the period examined, just a little

ahead of HR planning and compensation & benefits. The responding subsidiaries regarded performance evaluation as the

least critical area of their HR work (Table 213).


(Explanation: 1 = not at all critical ⇒ 5 = critical)

The ranking of the areas of HRM critical in The average of the answers

HR Planning 3.00

Recruitment 3.29

Selection 2.97

Performance Evaluation 2.34

Training and Development 2.80

Talent Management 2.74

Compensation and Benefits 2.94

Employee Relations 2.62

Communication 2.57

HRIS (9 response) 2.56

Health & Safety (5 responses) 3.80

Others (1 response) 2.00



187


From the list of HRM competency areas most respondents considered personal credibility (effectiveness, efficient connections,

communication skills) and foreign language skills (both at 60.6%) to detain the highest importance, followed by HR services

(51.5%), and strategic contribution (42.4%) (Table 214).

Table 214: Highly important key competencies of HR managers (n=33)

Ranking of key competencies%

distribution

Business knowledge (value chain, value creation) 21.2%

Strategic contribution (managing culture, championing changes, strategic decisions) 42.4%

Personal credibility (achieving results, effective relationships, communication skills) 60.6%

HR services (recruitment, selection, training and development, performance management, etc.) 51.5%

Usage of HRIS 27.3%

Foreign languages skills 60.6%

Others 3.0%


Multiple responses allowed, hence sums to more than 100%


Our current survey confirms the finding also established in other studies (Karoliny et al. 2009; 2010 and Kerekes et al. 2011)

that members of the management hierarchy have larger responsibility or control for some HR decisions and local employees

of the HR department have more responsibilities in other functions.


Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but in

consultation with

the HR department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

department

Human Resource Planning 34.3% 34.3% 25.7% 5.7%

Recruitment 13.9% 33.3% 27.8% 25.0%

Selection 17.1% 28.6% 34.3% 20.0%

Performance Evaluation 34.3% 40.0% 25.7% 0.0%

Training and Development 31.4% 28.6% 34.3% 5.7%

Talent management 26.5% 23.5% 35.3% 14.7%

Compensation and Benefits 36.1% 27.8% 20.6% 5.6%

Employee Relations 27.3% 24.2% 30.3% 18.2%

Communication 25.0% 30.6% 36.1% 8.3%

HRIS 40.0% 20.0% 23.3% 16.7%

Health & Safety 30.3% 15.2% 27.3% 27.3%

Others (3 responses) 33.3% 33.3% 0.0% 33.3%


(*Comments: multiple categories of functional HR areas were possible to be chosen)


188

As the responses in Table 215 reflect, local line managers take the final decision regarding most of the interventions in the

key functions of HR, based usually on consultation with the HR department. Only seldom the final decision maker is the

representative of the local HR department. Health & safety and recruitment & selection are those areas where the role of

HR departments is more important.


External service providers were most often used in the area of training and development, as reported by the respondents.

They were also often involved in recruitment and selection. Few companies used the help of external service providers in HR

planning and performance evaluation. The practice of companies either did not change or, where it did, companies reported

an increase in the use of external partners (Table 216).



External

providers not

used

Human Resource Planning 25.7% 0.0% 31.4% 42.9%

Recruitment 34.3% 5.7% 40.0% 20.0%

Selection 34.4% 5.7% 37.1% 22.9%

Performance Evaluation 27.3% 0.0% 30.3% 42.4%

Training and Development 43.8% 0.0% 40.6% 15.6%

Talent management 24.2% 3.0% 36.4% 36.4%

Compensation and Benefits 34.3% 5.7% 22.9% 37.1%

Employee Relations 12.1% 3.0% 54.5% 30.3%

Communication 17.6% 5.9% 38.2% 38.2%

HRIS 20.0% 2.9% 45.7% 31.4%

Health &Safety 13.9% 2.8% 61.1% 22.2%


(*Comments: multiple categories of functional HR areas were possible to be chosen)


189

Table 217: HR issues in 2015

HR issues in 2015

No feature

at all

%

Minor

feature

%

Large

feature

%

Full

feature

%

Total

%

Easy to hire blue-collar staff 63.0% 25.9% 7.4% 3.7% 100.0%

Easy to hire technical staff 48.3% 24.1% 20.7% 6.9% 100.0%

Knowledge of foreign

languages is appropriate in

most roles

10.3% 13.8% 20.7% 55.2% 100.0%

No problem with retaining

talent3.6% 28.6% 57.1% 10.7% 100.0%

We provide competitive

reward in each job0.0% 21.4% 57.1% 21.4% 100.0%

The influence of unions is

significant 50.0% 34.6% 15.4% 0.0% 100.0%


In about 45.9% of the respondent companies there is no HR department (Table 218). In these companies HR issues are

mainly dealt by the CEO (58.5%) or the administrative director (29.4%).

Table 218: If there is no HR department at your company who is in charge of personnel / HR issues? (n=17)

The greatest decision-making power of HR issues of

firms working without HR manager position

Frequency of

“yes” answers

distribution

%

Chief Executive 10 58.5%

Administrative Director 5 29.4%

Finance Director 1 5.9%

Production Director 0 0.0%

Marketing/Sales Director 1 5.9%

Others 0 0.0%


190


Knowledge management refers to the management and sharing of the collective, strategically linked, firm-specific knowledge

(know-how, skills and intellectual skills) of an organization’s employees in an integrated way. Related to knowledge of critical

HR capabilities we examined the following three areas:





Romanian respondents found local HR training and development, as well as informal learning at the local HR department to

be the most important methods of personal competency development in the field of HR, while mobility within subsidiaries

was seen as the least important method (Table 219).




the answers

Informal learning at the HR department of your subsidiary 3.71

Informal learning at the HR department of another subsidiary 3.04

Informal learning at the parent company 2.87

Local HR training and development 3.84

HR training and development at the parent company 3.03

HR training and development at other subsidiaries 2.69



191


The respondents ranked knowledge flows from the parent company to the subsidiaries as being the most characteristic form

of HR knowledge flows, followed by knowledge flows within the local HR department (Table 220).


(Explanation: 1= not characteristic ⇒ 5 = very characteristic)

Knowledge flows in HRThe average of the

answers

Knowledge flows from the parent company to the subsidiary 3.84

Knowledge flows from the subsidiary to the parent company 3.63

Knowledge flows between subsidiaries 3.69

HR-related knowledge flows within the HR department at your subsidiary 3.75

HR-related knowledge flows at your subsidiary between the HR department

and other organizational units3.43



With regard to the key issues of the next 12 to 24 months, the interviewed Romanian HR managers considered attracting

and retaining skilled workforce the most important task they will face.


From the personal characteristics of the interviewed respondents we examined demographic characteristics, their professional

qualifications, and the characteristics of their positions held.


All but one of the interviewees participating in the survey have university, college or equivalent qualifications (Table 221).


Level of qualification Frequency % distribution

PhD 1 2.7%

University (MSc) 21 58.3%

College (BSc) 13 36.1%

Other 1 2.8%

Total 36 100.0%



192

A majority of the respondents (69.4%) obtained qualifications in social sciences, followed by engineering (16.7%) but we

also found professionals with qualifications in natural sciences (8.3%) as well, and one of them studied medicine (Table 222).


Field of professional qualification Frequency % distribution

Natural sciences 3 8.3%

Engineering 6 16.7%

Social sciences 25 69.4%

Other 2 5.6%

Total 36 100.0%


Some 30.6% of the respondents have worked in their current positions for less than three years, 19.4% between 3-5 years

and only two persons (5.6%) have worked over 15 years in their current position (Table 223).


Time spent in current position Frequency % distribution

0-3 years 11 30.6%

3-5 years 7 19.4%

5-10 years 9 25.0%

10-15 years 7 19.4%

Over 15 years 2 5.6%

Total 36 100.0%



193

12. RUSSIA (JÓZSEF POÓR, SZERGEJ VINOGRADOV, IGOR BORISOV, DMITRY LINGE AND ÁDÁM SZOBI)

12.1. INTRODUCTION

Population: 143,438.707 people

Territory: 17,075.200km2

2013 2014 2015GDP per capita in PPS, US$ 26.046 26.688 25.965Foreign direct investment, net inflows (% of GDP) 3,1 1,1 0,5Unemployment (%) 5,5 5,2 5,6Inflation (%) 6,5 11,4 12,9

ItemsYears


194

12.2. FDI AND EMPLOYMENT IN RUSSIA

Russia’s political economy defies simple categorization. It has always been a difficult place to do business, if sometimes a very

profitable one. Since the end of year 2014 the environment facing foreign businesses has been subject to several shocks: first,

sanctions, then a fall in oil prices, and throughout, a more volatile environment for public policy than even seasoned Russia

investors have become accustomed.

The GDP per capita in Russia in PPS increased by 642 US dollars (by 2.5%) in 2014 compared to 2013. In 2015, the GDP per

capita decreased by 723 US dollars (by 2.7%) compared to previous year.

The inward direct investments in Russia were about 1.1% of GDP in 2014 and decreased to 0.5% in 2015. The big share

of FDI inflows in GDP in 2013 (3.1%) is primarily related to Rosneft-BP transaction. The dramatic further reduction of share

of FDI inflows in GDP in 2014 reflected overall slump of investment activities in the country that followed introduction of

sanctions and rapid deterioration of oil prices. In 2014 for the first time in many years the share of accumulated FDI inflows

in GDP exceeded the share of accumulated FDI outflows.

The unemployment rate in Russia declined to 5.2 per cent in 2014 from 5.5 per cent in 2013. In 2015, the unemployment

rate increased to 5.6 percent.

As of December of 2015 year, according to the Russian State Statistics Service (RosStat), the consumer price index had risen

12.9 percent, compared to the same month in 2014, against an 11.4 per cent increase a year earlier.

12.2.1 THE DEVELOPMENT AND STRUCTURE OF FDI INFLOW TO RUSSIA

The Figure 17 shows that the highest value of FDI inflows was noted in 2008. The growth reversed in 2009 when Russia was

heavily hit by the global economy crisis. In 2009 FDI inflows were twice as low as compared to 2008.

The rapid economy revival after the crisis led also to gradual FDI growth. As in the other world destinations, the value of FDI

inflows stabilized at much lower level as compared to before-crisis figures.

In 2012 Russia together with many other countries faced FDI contraction that was more substantial than average contraction

of developing economies, but less considerable as compared to the world on average (around 8 per cent contraction in

Russia vs. 4 per cent in developing economies vs. 18 per cent in the world on average6).

The year 2013 was a local extremum for Russian FDI inflows primarily due to BP-Rosneft transaction: BP acquired 18.5%

shareholding in Rosneft, one the leading Russian O&G companies, after selling TNK-BP Russian business to Rosneft for USD

57 billion7. If that transaction is not considered, one can conclude that the negative trend in FDI inflows in Russia actually

started in 2012.

In the 3rd quarter of 2014 there started rapid FDI deterioration that led to 3 times FDI inflows reduction on annual basis as

compared to 2013 (from USD 69.2 billion to USD 22.0 billion). That slump took place primarily due to influence of Ukrainian

conflict, introduction of economic sanctions against Russia, poor investment climate as well as overall economy deceleration

related to falling oil prices8.

6 UNCTAD (2013): World Investment Report 2013 – GVCs: Investment and Trade for Development.7 ROSNEFT (2014): Press release: Russia enters Top 3 World FDI Leaders owing to BP-Rosneft transaction, published on 30.01.2014 online: http://www.

rosneft.ru/news/news_in_press/ 300120142.html#8 Factosphere: Project Russia (2016): Investments in Russia. Available online: http://www.factosphere.com/macro/investments/fdi (accessed on 28 January

2017).

http://www.rosneft.ru/news/news_in_press/

http://www.rosneft.ru/news/news_in_press/


195

Figure 17: FDI Net Inflows to Russia between 2007 and 2015

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

2007 2008 2009 2010 2011 2012 2013 2014 2015

55,9

74,8

36,643,2

55,150,6

69,2

22,0

6,5

billi

on d

olla

rs

Source: Central Bank of the Russian Federation (2016)

The Russian FDI inflows decreased to USD 6.5 billion in 2015 (approx. 70% slump as compared to 2014).

According to the published data of FDI inflows to Russia in 2014, the stock was $ 366.5 billion (Figure 18). In fact the year

2014 became the first year when outward FDI stock exceeded inward FDI stock in Russia.

Figure 18: Stock of FDI to Russia between 2009 and 2015

0,0

100,0

200,0

300,0

400,0

500,0

600,0

2009 2010 2011 2012 2013 2014 2015

377,4

489,0454,9

514,9565,7

366,5342,4

billi

on d

olla

rs

Source: Central Bank of the Russian Federation (2016)

The Figure 19 shows by country, the structure of FDI to Russia at the end of 2015. We can see that the most amount of

the capital 27.57% of FDI has been received from Cyprus. The Luxembourg 11.99% is in the second place and Netherlands

11.79% is the third one.


196

Figure 19: Russian FDI Inward Stock as of January 1, 2016, by Country

27,57

11,99

11,799,27

6,24

4,04

3,98

3,98

21,14

Cyprus

Luxembourg

Netherlands

Ireland

Bahamas

Virgin Islands

Germany

Bermuda

Others

Source: own construction based on data of Central Bank of the Russian Federation (2016)

It is important to note that in 2015 the new law governing reporting and taxation of foreign companies belonging to Russian

legal entities and individuals (Federal Law No. 376-FZ “On Controlled Foreign Companies”) came into power, which is

often referred as ‘the Russian de-offshorization law’. The law introduced strict rules on reporting and taxation for foreign

businesses owned by the Russian residents.

The introduction of the law on the controlled foreign companies led to diminishing Russian FDI stock originating from more

transparent offshore jurisdictions, like Cyprus and Luxemburg, with the leading role in FDI inflows held by less transparent

jurisdictions like the Bahamas and Virgin Islans9.

9 Factosphere: Project Russia (2016): Investments in Russia. Available online: : http://www.factosphere.com/macro/investments/fdi (accessed on 28

January 2017).


197


The largest share of foreign direct investment inflows to Russia for Q1-Q3 2014 accrue to wholesale and retail trade, repair

of motor vehicles and motorcycles – about 24%. (Table 224).

Table 224: Foreign direct investment inflows to Russia by sector for Q1-Q3 2014

Order Sectors %

1. Wholesale and retail trade; repair of motor vehicles and motorcycles 23,7

2. Financial and insurance activities 19,4

3. Manufacturing 19,1

4. Mining and quarrying 13,5

5. Other service activities 4,4

6. Real estate activities 3,7

7. Construction 3,5

8. Information and communication 2,7

9. Transportation and storage 2,5

10. Rental and leasing activities 2,3

11. Electricity, gas, steam and air conditioning supply 1,9

12. Other 3,3

Total 100

Source: own construction based on data of Central Bank of the Russian Federation (2016)


198

12.2.3 THE NUMBER OF FOREIGN ENTERPRISES REGISTERED IN RUSSIA

According to a publication of Russian National Statistical office, the number of foreign owned companies (excluding SMEs)

has grown from several hundred in 1988 to 26 318 on the 1st of October 2016. (Figure 20). More than 50 per cent of the

number of foreign enterprises accrue to wholesale and retail trade, repair of motor vehicles and motorcycles.

Figure 20: The distribution of the number of foreign owned companies (excluding SMEs) operating

in the Russian economy by sector on the 1st of October 2016

52,6%

15,1%

11,1%

4,8%

4,1%

2,7%2,4%

2,1%1,2%

4,0%

Wholesale and retail trade; repairof motor vehicles and motorcycles

Rental and leasing activities

Manufacturing

Transportation

Electricity, gas, steam and airconditioning supply

Information and communication

Construction

Mining and quarrying

Agricultural

Other

Source: Russian National Statistical office (2016)

(Explanation: Companies with 100% or majority foreign interest and also companies with Russian and foreign interest

with at least 10% foreign ownership are included in this list.)


199

12.2.4 EMPLOYMENT IN FOREIGN-OWNED FIRMS IN RUSSIA

According to a data of Russian National Statistical office, the foreign owned companies employed 3 132 thousand people in

Russia on the 1st of October 2016 (Figure 21). 34.5 per cent of the number of employees at foreign enterprises with interest

in Russia accrue to manufacturing. The ‘wholesale and retail trade, repair of motor vehicles and motorcycles ‘ sector had

representing the second largest share of number of employees at foreign enterprises.

Figure 21: The distribution of the number of employees at foreign enterprises with interest in Russia (excluding SMEs)

by sector on the 1st of October 2016

34,5%

23,0%

8,0%

8,0%

6,5%

5,9%

4,4%

4,2%

1,5%4,1% Manufacturing

Wholesale and retail trade; repairof motor vehicles and motorcyclesElectricity, gas, steam and airconditioning supplyRental and leasing activities

Mining and quarrying

Transportation

Information and communication

Construction

Agricultural

Other

Source: Russian National Statistical office (2016)


200


In this section of questionnaire survey 13 foreign-owned, legally independent subsidiaries participated.


According data shown in table 225 below- we can see that the sizes of most of the companies are small and medium. The

majority (41,7%) of the participating companies, have fewer employees than 250 persons.


Total number of employees of the company Frequency

Percentage

distribution

(%)

Below 250 5 41,7%

251-1000 0 0%

1001-2000 1 8,3%

2001-5000 2 16,7%

Over 5000 4 33,3%

Total 12 100%



» We have also examined in our survey, an assessment of the local role of control of value chain, controlled by

these organizations (subsidiaries), so called subsidiary mandate.

Based on the responses the most common mandate was number 1 (76,9%). These companies have main role in Sales and

Marketing. Other significant mandate was number 2 (Production/Operation) with 38,5%. In Russia, the final portion of

respondents both with 15,4% of subsidiaries control only two elements of processes of the value chain namely purchasing

and development.

Table 226: Mandates of the companies participating in the survey


Mandate 1 (Sales&Marketing) 10 76,9%

Mandate 2 (Production/Operation) 5 38,5%

Mandate 3 (Purchasing) 2 15,4%

Mandate 4 (R&D) 2 15,4%

Mandate 5 (Other) 0 0%



201


From the subsidiaries that are practicing in this survey came to Russia from nine different countries. The largest portion of

these subsidiaries 30,8% are coming from Germany, and 15,4% of these companies coming from the UK, meanwhile the

rest 53,9% are coming from another seven different countries.



Germany 4 30,8%

Austria 1 7,7%


France 1 7,7%

Greece 1 7,7%

Japan 1 7,7%

UK 2 15,4%

US 1 7,7%

Other 1 7,7%

Total 13 100%


If we look at the management cultures of the companies, we can see that the German (38,5%), and the Anglo-Saxon (23,1%)

management cultures are representing the largest portion of the sample. Also, the number of the traditional multinationals

15,4% (Southern European and Latino) is very close to the Anglo-Saxon management culture. The rest of management

cultures representing each 7,7% in the sample.




Nordic 0 0%

German 5 38,5%

Southern Europe and Latin 2 15,4%

Anglo-Saxon 3 23,1%

Eastern Europe 1 7,7%

Asian 1 7,7%

Other 1 7,7%

Total 13 100,0%


202


We can see that between 1990 and 2000 53,9% of the subsidiaries have been acquired via majority ownership control or

carried out as greenfield investments by foreign owners. The remaining 46,2% of subsidiaries were established between

2001- 2005.

Both greenfield investments and acquisition representing 50% in the establishment of the subsidiaries (table 229).



of the subsidiary

Merger,

acquisition

Greenfield

investmentTotal

%

distribution

Before 1990 0 0 0 0%

1990-1995 2 3 5 38,5%

1996-2000 0 2 2 15,4%

2001-2005 2 4 6 46,2%

After 2005 0 0 0 0%

Total 4 9 13 100.0%

% distribution 30,8% 69,2% 100%



Both Trade and Financial services representing 38,5% of the organizations. Other significant are 15,4% is in the industry.



Industry 2 15,4%

Trade 5 38,5%


Other service 0 0%

Business service 0 0%

Others 1 7,7%

Total 13 100%



203


Referring to the topic indicated in the subtitle, we examined the importance of three strategic orientations:





As presented in table 231, 61,5% of the Russian respondents indicated that they were seeking growth and portfolio

expansion during the survey period. The other significant strategic issues 23,1% were stability, efficiency improvement,

revenue retention, and adapting to the market situation. 14,7% of the participants chose Cut-back, outsourcing and the

other category.

Table 231: Main strategic issues and orientations






Cut-back, outsourcing 1 7,7%

Other 1 7,7%

Total 13 100.0%



204


The most competitive factors with 61,5% are optimal organization size and production technology. These two factors are

following three important factors with 53,8% (Workfare, Financial resources, Management). None of the subsidiaries chose

Low workforce costs as a main competitive factor in the examined period (table 232).





Workforce 7 53,8%


Management 7 53,8%


Low workforce costs 0 0%

Other 0 0%




» Number and workload of the HR staff


(labor cost – total cost ratio, age distribution of employees, and relative size of the training budget).


205


Basically, in the examined companies (58,3%) the number of HR staff over 20 persons in the subsidiary (see table 233). In

33,3% of the subsidiaries the HR staff is below five persons (1-4).




None 0 0%

1-4 persons 4 33,3%

5-10 persons 1 8,3%

11-15 persons 0 0%

15-20 persons 0 0%


Total 12 100%




The labor cost – operating cost ratio is one of the most frequently analyzed indicators of the importance of the HR function

in the company’s life. According to many researchers, the effects of HRM have a stronger and more direct influence on the

company’s performance if this ratio is higher.

In this survey, there were three categories which were chose by the participants (table 234). These three categories are the

following: Under 5% (33,3%), 20-30% (33,3%), and over 50% (33,3%)


Labor cost in % of the

operating cost

2015


Under 5 % 1 33,3%

5-10 % 0 0%

10-20 % 0 0%

20-30 % 1 33,3%

30-40 % 0 0%

40-50 % 0 0%

Over 50 % 1 33,3%

Total 3 100.0%



206

12.6.2 TRAINING BUDGET

Many HRM researchers consider the relative size of the training budget (compared to the entire annual labor cost) as an

important indicator of modern and effective HR activity.

The relative size of the training budget was relatively low, under 5% in 66,6% of the examined companies (see table 235).

On the other hand 33,3% of the firms said that their annual training budget is over 5%.




2015


Under 1 % 1 11,1%

1-3 % 3 33,3%

3-5 % 2 22,2%

over 5 % 3 33,3%

Total 9 100%


12.7. EXPATRIATES

On the table below we can see that there are more expatriates in the managerial positions than the non-managerial positions.

The data shows that 42,9% of the subsidiaries has only 1 expatriate in the managerial positions, while 28,6% of the firms

has 4-5 expatriate in this positions. The rest two categories with 14,3% is 2-3 persons and 6-10 persons. Two firms answered

that they have expatriates in non-managerial positions.




None

1 person 3 42,9%

2-3 persons 1 14,3%

4-5 persons 2 28,6% 1 50%

6-10 persons 1 14,3% 1 50%

11-15 persons

16-20 persons

Over 20 persons

Total 7 100,0% 2 100,0%



207

In table 237 below we can see the number and position of the Russian expatriates. We can see that 50% of the subsidiaries

are sending 6-10 persons on a long term international assignments, while 25% sending only 1 person and the rest 25% 2-5

persons.

Table 237: Number and positions of Russian expatriates

Number of Hungarian expatriates



%Frequency

distribution

%

None

1 person 2 25%

2-3 persons 1 12,5%

4-5 persons 1 12,5%

6-10 persons 4 50%

11-15 persons

16-20 persons

Over 20 persons

Total 8 100,0% 100,0%



208



» Most the respondents 66,7% reported that the HQ-HR department provides general guidelines, and

framework for actions for the local HR departments of the subsidiaries (see table 238).

» Some 25% of the respondents said that the function of the HQ-HR is to provide detailed HR model,

policies, procedures and rules.

» Some 8,3% of respondents stated the function of the HQ-HR is to provide complete freedom and Hands-off.

» None of the respondents reported that the function is Source of all remotely significant HR decisions.



answers


response



for actions8 66,7%


procedures and rules3 25%


decisions0 0%



209

12.8.2 CHANGES IN THE IMPORTANCE OF MAJOR HR ISSUES

Performance evaluation (4,3 out of 5) was first in the ranking of HR areas considered to be the most critical during the period

examined (see table 239). The following two critical areas, which were over 4 points are (Compensation and Benefits 4,2

and Employee Relations 4). The less important issues are Training and Development, and Talent Management both of these

areas got rating 3,6 out of 5.




critical in …

The average of the

answers

HR planning ….*

Recruitment, selection ….*





Employee Relations 4

Communication 3,8


* = No valid values available.


210

12.8.3 TYPICAL HR COMPETENCES FOR SUCCESS

According to the supplemented list of HRM competency areas identified by one of the most well-known HR consultants Dave

Ulrich (et al. in 2009), the most important competencies are considered by the respondents:

» Personal credibility: effectiveness, efficient connections and communication skills were 100%

» Foreign language skills: 63,6%

» Usage of HRIS: 40%

» HR services: recruitment, selection, training and development, performance management, etc. 20%



Very important


%

Business knowledge (value chain, value

creation)0 0%

Strategic contribution (managing culture,

championing changes, strategic decisions)1 33,3%

Personal credibility (achieving results,

effective relationships, communication skills)1 100%

HR services (recruitment, selection, training and

development, performance management, etc.)2 20%

Usage of HRIS 4 40%

Foreign languages skills 7 63,6%



211


The data presented in table 241 reflects that the category Primarily local line mgt. but in consultation with the HR department

had the highest rate in the following HR functions: Compensation and benefits, Employee communication, and HRMS/IT.

The category primarily local HR department but in consultation with local line mgt. is the significant factor in the following

HR functions: Training and Development, Industrial-Labor Relations, and Health & Safety. The Local HR department makes

his decisions in the following key HR functions: Performance evaluation, and Talent Management.


Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but

in consultation

with the HR

department

Primarily local HR

department but

in consultation

with local line

mgt.

Local HR

department

Human Resource Planning

Recruitment

Selection

Performance Evaluation 0% 16,7% 16,7% 66,7%

Training and Development 0% 8,3% 58,3% 33,3%

Talent management 0% 25% 33,3% 41,7%

Compensation and Benefits 0% 72,7% 27,3% 0%

Industrial-Labor Relations 0% 36,4% 45,5% 18,2%

Employee Communication 0% 36,4% 36,4% 27,3%

HRMS/IT 0% 45,5% 36,4% 18,2%

Health & Safety 0% 20% 50% 30%



212


External service providers were most often used by the companies in the areas of Selection and Recruitment. They were also

involved in many activities like: Talent management, Training and Development, Compensation and Benefits, and HRMS/IT.



External

providers

not used

Human Resource Planning 33,3% 50% 16,7% 0%

Recruitment 66,7% 33,3% 0% 0%

Selection 83,3% 16,7% 0% 0%

Performance Evaluation 22,2% 11,1% 0% 66,7%

Talent management 10% 30% 50% 10%

Training and Development 30% 30% 30% 10%

Compensation and Benefits 37,5% 0% 25% 37,5%

Industrial-Labor Relations 40% 30% 20% 10%

Employee Communication 22,2% 11,1% 11,1% 55,6%

HRMS/IT 22,2% 11,1% 33,3% 33,3%

Health &Safety 11,1% 22,2% 0% 66,7%


Table 243: The greatest decision-making power of HR issues of firms working without HR manager

PositionFrequency of

“yes” answers

distribution

%

Chief Executive 0 0%



Production manager 0 0%

Head of Marketing/Sale 0 0%



213



in table 244.

The participants report 42,9% has large feature in the easy to find manual workers in labor market category. They also report

that they can easily keep the talents (71,4%) and they can offer competitive wages for their employees (75%), but on the

other hand they can hardly find well trained technical workers.


HR issues in 2015

No feature

at all

%

Minor

feature

%

Large

feature

%

Full

feature

%


in labor market14,3% 42,9% 42,9% 0%


technical workers100% 0% 0% 0%



jobs

0% 0% 0% 0%


easily0% 28,6% 71,4% 0%



every job

0% 25% 75% 0%


trade unions0% 20% 30% 50%



214



The Russian respondents stated that the Local HR-training and development (3,9 out of 5) is the most important method

of personal competency development in the field of HR. Other important methods are the following HR training and

development at other subsidiaries (3,6 out of 5), and Informal learning at the HR department of your subsidiary (3,5 out of

5). The less significant method is HR training and development at the parent company with the rating 2,6 out of 5. See table

246 below.

The importance of the methods of personal competency development in HR (on a 1-5 scale, on average)

Table 245: (Explanation: 1= unimportant ⇒ 5 = very important)


the answers


Informal learning at the HR department of another subsidiary 0

Informal learning at the parent company 0






The two highest rank were Knowledge flows from the parent company to the subsidiary, and Knowledge flows from the

subsidiary to the parent company (both with rating of 3,6 out of 5) - table 246. Other important knowledge flow is the HR

related knowledge flows within the HR department at your subsidiary (3,5 out of 5). The less important knowledge flow is

the Knowledge flows between subsidiaries (3,3 out of 5).




the answers









215


We have also examined demographic characteristics, the professional qualifications and the characteristics of the HR

professionals responding to our survey as well


Most of the respondents are in the category other (69,2%). 23,1% of the participants reported that they have College

degree, and only 7,7% of them had PhD degree.



%

University PhD 1 7,7%

University (MSc) 0 0%


Other 9 69,2%

Total 13 100.0%


The majority of Russian respondents obtained their qualifications in Social sciences (76,9%), and 15,4% of them in Engineering.


Field of professional qualification Frequencydistribution

%

Natural sciences 0 0%

Engineering 2 15,4%


Other 1 7,7%

Total 13 100.0%



216

13. SERBIA (SLAVIĆ AGNEŠ – NEMANJA BERBER – MILAN NIKOLIC)

13.1. INTRODUCTION


Territory : 188.499 km2

2013 2014 2015GDP (%) 2.6% (-1.8) 0.8%Unemployment (%) 23.0% 19.7% 18.2%Inflation (%) 12.8% 3.1% 0.1%GDP per capita in PPS EU-27=100% 38.0% 37.0% 36.0%

Items

Source: Statistical of Republic Serbia and Eurostat


217

13.2. FDI IN SERBIA

Over the past several years, the Serbian economy has experienced growth due to strong foreign investment and continuous

improvement of its business environment, even during the crisis and recession in 2009. Current characteristics of Serbian

business environment, which speak in favor of FDI, are: availability of high quality labor, competitive operating costs, customs

free access to 1.1bn consumers, financial benefits and incentives, optimal geographic location and proactive and supportive

government. (Serbian Development Agency, 2016; Why invest in Serbia, pp. 7).

Since the year 2000, often referred to as a starting point for major economic and political transition, Serbia has attracted

more than 25 billion EUR of inward foreign direct investment. The FDI flowing into the country by the end of 2010 exceeded

EUR 14.5 billion. According to data published in 2013 the volume of FDI that flowed into Serbia was 1,087 million EUR. In

2014 it was 1.4997 million Euros, while in 2015 the FDI inflow was 2.115,425 million Euros. (National Bank of Serbia, 2016)

Figure 22 shows the value of FDI inflows in Serbia between 2000 and 2013.

Figure 22: Inward FDI in Serbia, 2000-2013 in millions of EUR

Source: SIEPA (Serbia Investment and Export Promotion Agency), 2014

Since the onset of economic reforms, Serbia has grown into one of the premier investment locations in Central and Eastern

Europe. A list of leading foreign investors is topped by world-class companies and banks such as FIAT, Telenor, Stada,

Microsoft, Coca-Cola, Delhaize, Michelin, Gazprom, Bosch, Siemens, Intesa Sanpaolo, Mobilkom Austria, Continental, and

many others.

According to IBM Global Location Trends 2014 Report Serbia has regained its position as the top investment destination

country in the world, measured by the number of jobs relative to the size of the population.(IBM Institute for Business

Value)

Serbia’s strong FDI track-record is substantiated by internationally recognized awards for local Greenfield investors. Between

2004 and 2006, Greenfield projects in Serbia were awarded by the OECD as the largest investments of this type in South

East Europe. The first Award was presented to Ball Packaging Europe (headquartered in the USA), followed by METRO Cash

& Carry (Germany), and Israeli Africa-Israel Corporation/Tidhar Group for their Airport City Belgrade real estate project.


218


According to data from the country of origin of FDI distribution, the European Union member states are listed as the top

countries. SIEPA (Serbia Investment and Export Promotion Agency) stated that the leading spot on the country list is held

by the Netherlands, followed by Austria, Greece, Norway and Luxembourg, while major investor countries also include

Germany, Italy, Slovenia, and the Russian Federation. In relation to the actual amount of U.S. investment it is important to

note that the volume of investment is significantly higher than the official figure due to their companies investing primarily

through European affiliates. This also holds for Belgium, Denmark, Israel, and a number of other countries.

Between 2000 and 2007 the most of the volume of the FDI flowed into Serbia came from the following countries: Austria

(22%), Greece (16%), Norway (16%), Germany (14%), the Netherlands (6%) and Slovenia (5%).

Figure 23: FDI by country of origin (2000-2007)

Source: National Bank of Serbia (2010). Beograd

22%

16%

16%14%

6%

5%4%

4% 3% 3% 7%

FDI by country of originAustriaGreeceNorwayGermanyNetherlandSloveniaFranceLuxemburgGreat BritanHungaryOther

According to the result of Development Agency of Serbia, in 2016 the most important investors, ranking by the value are:

Italy (13,8%), US (12,2%), Austria (11,8%), Greece (8,4%), Norway (7,0%), Germany (6,9%) and France (5,1%).


219


Between 2005 and 2009 the majority of FDI was connected to the finance (30%) and processing industry (19%) sectors of

the economy. Beside those areas a considerable part of the FDI was connected to transport and telecommunication (16%),

trade (13%) and the business field of real estate (13%). Figure 24 presents the typical areas of FDI in Serbia.

Figure 24: Typical areas of FDI in Serbia (2005-2009)

Adatsor1; Finance; 31; 30%

Adatsor1; processing

indutry; 20; 19%

Adatsor1; transport and

telecommunication; 16; 16%

Adatsor1; real state; 13; 13%

Adatsor1; trade; 13; 13%

Adatsor1; mining; 3; 3%

Adatsor1; architecture; 2; 2%

Adatsor1; other; 4; 4%

Finance

processing indutry

transport and telecommunication

real state

trade

mining

architecture

other

Source: National Bank of Serbia (2010). Beograd


220

The National Bank of Serbia stated that service sectors have proven to be the most attractive to international investors (see

Figure above). Banking and insurance recorded the largest FDI inflow of 5 billion EUR. Manufacturing industries held the 2nd

spot with €4.8 billion, followed by wholesale, retail and repair of motor vehicles and real estate activities.

Table 249: FDI by Industries (2004-2013)

Source: SIEPA (Serbia Investment and Export Promotion Agency), 2014

Based on the data of Development Agency of Serbia (table 250), in 2016 the FDI is led towards Automobile industry (17,4%),

Food, Beverages and agriculture (10,8%), Construction (6,9%), Textile and clothing (6,7%), Electrical and electronics (5,6%),

Machinery and equipment (5,6%) and Financial sector (4,2%).

13.2.3 EMPLOYMENT


221



13.3.1 COMPANY SIZE

About 45,2% of the examined Serbian companies employ 250 persons or less, 38,78% have between 250 and 1000

employees. The remaining 16,1% of responding firms belong to the classification of typical large enterprises with more than

1000 employees. From these results we can state that the majority of the companies belong to the small and medium sized

companies. Despite the fact that a local subsidiary may be considered a small firm, these firms are mainly subsidiaries of large

international companies.

Table 250: Table: Number of staff

Total number of employees of the company Frequency Percentage distribution (%)

Below 250 14 45,2

251-1000 12 38,7

1001-2000 4 12,9

2001-5000 0 0

Over 5000 1 3,2

Total 31 100


13.3.2 – MANDATE - THE MAIN ACTIVITIES OF THE ORGANIZATIONS

We also examined the main activities of the examined organizations in the value chain. The multiple answers show that

the majority (77,4%) of subsidiaries are focusing on production or services, about half of them (51,6%) think that their

main activity is sales and marketing, about 1/5 of analyzed organizations assume development as their main activity, while

about 1/10 of them (9,7%) consider purchasing as their main activity. The answers show that the majority of subsidiaries in

Serbia are in the beginning mandates, but it to be stresses that almost 20% of multinational subsidiaries in Serbia consider

development as their main focus, proving that they are in more developed phase.



Development 6 19,4

Purchasing 3 9,7

Production / Services 24 77,4

Sales and Marketing 16 51,6



222


The origin of the parent companies participating in the survey is illustrated in table 253.

The subsidiaries participating in the survey came to Serbia from 13 different countries. The majority (about 20%) of them came

from France, about 13 % came from Germany and the same proportion from Italy, while about 10%-10% came from Switzerland

and Slovenia. The remaining 32,3 % of respondents came from Austria, Hungary, Denmark, USA, UK, Greece or Russia.

Table 252: Origin of the parent companies of the participating companies


France 6 19,4

Germany 4 12,9

Italy 4 12,9

Switzerland 3 9,7

Slovenia 3 9,7

Austria 2 6,5

Hungary 2 6,5

Denmark 2 6,5

USA 1 3,2

UK 1 3,2

Greece 1 3,2

Russia 1 3,2

Other 1 3,2

Total


Table 254 gives an overview of the participating subsidiaries by their management tradition.

Table 253: Participating companies by management tradition


parent companiesFrequency % distribution

German 9 29,0

Northern 2 6,45

Eastern European 6 19,35

Latin and South European 11 35,48

Anglo-Saxon 2 6,45

Asian 0 0

Other 1 3,22

Total 31 100


From the above it can be concluded that the most (35.48%) of the respondents are companies with Latin and South

European management culture. About 29% of respondents are German culture, while 19.35% are from Eastern Europe.

Firms originating from the Northern or Anglo-Saxon region comprised only 6.45-6.45% of the sample companies.


223

13.3.4 ESTABLISHMENT YEAR AND FORM OF SUBSIDIARY

The majority (58,7%) of examined subsidiaries acquired control or carried out Greenfield investments after 2005. Some

13.7% of the companies settled in Serbia before 2000 while the remaining 27,6% came to Serbia between 2000 and 2005.



of the subsidiary

Merger,

acquisition

Greenfield

investmentTotal

%

distribution

Before 1995 0 1 1 3,4

1996-2000 2 1 3 10,3

2001-2005 5 3 8 27,6

2006-2010 5 4 9 31,1

After 2010 2 6 8 27,6

Total 14 15 29 100

% distribution 48,3 51,7 100 100



Table 255 shows distribution by sector (industry) of business of the companies examined in the survey. 41,9% of the examined

companies are engaged in industry and another 29.0% of them in financial institutions and banks. Only 12,9% of the

respondents operate in trade while another 9,7% of companies present some other sector of business.

Table 255: Sectoral distribution of the participants


Industry 13 41,9

Trade 4 12,9

Financial services 9 29,0

Other services 3 9,7

Total 31 100



224








Most of the respondents in table 256 (64.5%) indicated that they were seeking growth, market, expansion or portfolio

expansion during the examined period. About 35,5% of the companies surveyed was characterized by stability, revenue

retention or adapting to the market situation. None of the respondents presented rationalization and reorganization as

strategic goals for the period, while only one organization claimed for something else as a strategic goal.

Table 256: Main strategic issues and orientations



Growth, market expansion,

portfolio expansion20 64,5

Stability, efficiency improvement,

revenue retention, adapting to the

market situation

11 35,5

Redundancies, rationalization 0 0

Other 0 0

Total 31 100



225


In figure 257 we present the distribution of the answers regarding the strategic issues, the most important competitive

factors. We have to point out that more than one answer could be marked in this question.

The majority of respondents (87.1%) consider management as the most important competitive factor. The second main

factor by the opinion of 64.5% of subsidiaries is the quality of workforce, while the third is production technology (48.4%).

Optimal plant/organization size, protected, regulated market, financial sources and other sources were chosen by 41.9%,

32.3%, 16.1%, 9.7% of the subsidiaries respectively.



answers

Multiple answers possible, response

Management 27 87,1

Workforce 20 64,5



Protected, regulated market 10 32,3


Other 3 9,7


13.4.3 KEY PERFORMANCE EVALUATION OF SUBSIDIARY

A separate part of the survey dealt with the subsidiaries organizational performances relative to competitors’ performance.

According to the data from table 258 the majority of the subsidiaries operating in Serbia described their performance as

better than average, according to the Serbian average, and often characterized their performances as outstanding. It is

interesting that none of the respondents have considered their performances as poor or below the Serbian average.

Table 258: The level of performances in foreign subsidiaries in Serbia %

Poor

or very

week

Below the

average

On the average

of industry

Better than

averageOutstanding

Profitability 0 0 41,9 51,6 6,5

Service quality 0 0 12,9 58,1 29,0

Rate of innovations 0 0 32,3 38,7 25,8

Ecology 0 0 29,0 45,2 25,8



226

According to the profitability, about 52% of respondents self-reported as better than the average, about 6.5% of respondents

described their performances as outstanding, while 41.9% of the respondents claimed that their profitability is on the level of

industry. The subsidiaries have achieved the best results in the area of the quality of service, as 58.1% of respondents claimed

that the quality of their services is better than average, 29% of them believed that they provide outstanding service quality,

and only 13% claimed that their service quality is on the average of industry. In the case of the innovation rate, 38.7% of

respondents evaluated their innovation rate as better than the average, and 25.8% consider it as outstanding. Some 32.3%

of the respondents claimed that their innovation rate is on the level of the industry average. Evaluating the environmental

issues, 45.2% of companies claimed that their environmental performances are better than the average, 25.86% pointed to

outstanding results, while 29% to average results in this area.







The average number of employees served by one HR professional decreased from 88 in 2009 to 65 in 2011. In 2015 one HR

staff was responsible for 71 employees. See table 260 below.

Table 259: Number of employees and HR staff in the participating companies (n=19)

HR staff

Employees per

HR positionYearNumber of

employees

HR professional

HR admin staff


2015 23166 326 71,06



227

Some 38.7% of the companies examined employ one to four persons in their HR departments. Additionally, 29.0% of the

respondents employ five to ten HR persons while 12.9 percent of the firms employed 11-15 HR staff. One 3.28% of the HR

departments examined in the survey have more 15-20 or more than 20 employees. It is important to underline that 12.9%

of analyzed subsidiaries do not have a HR staff at all (table 260).

Table 260: Number of HR staff



None 4 12,9

1-4 persons 12 38,7

5-10 persons 9 29,0

11-15 persons 4 12,9

15-20 persons 1 3,2


Total 31 100

Average



The labor cost – operating cost ratio is one of the frequently analyzed indicators of the importance of the HR function in a

company. According to some researchers, the effects of HRM have a stronger and more direct influence on the company’s

performance if this ratio is higher. About 44.75% of the subsidiaries participating in the survey fell into this category (where

the labor cost ratio is higher than 30%). But a significant proportion of subsidiaries (38%) spend between 5 and 20% of their

operating cost to their human resources.

Table 261: Labor cost in % of the operating cost

Labor cost in % of the operating costFrequency % distribution

Under 5 % 2 6,9

5-10 % 4 13,8

10-20 % 7 24,2

20-30 % 3 10,3

30-40 % 9 31,0

40-50 % 1 3,45

Over 50 % 3 10,3

Total 29 100



228


Many researchers consider the relative size of the training budget (compared to the entire annual labor cost) as an important

indicator of modern and effective HR activity. In 54.9% of the companies examined, the relative size of the training budget

was under 3%, and only about 29% of the companies examined spent 3-5% of the annual labor budget on training

employees (table 263). But 16.1% of analyzed subsidiaries claimed that their annual training budget is 5-10% of the entire

annual labor costs.

Table 262: Annual training budget in % of the entire annual labor cost


entire annual labor cost Frequency % distribution

Under 1 % 7 22,6

1-3 % 10 32,3

3-5 % 9 29,0

5-10 % 5 16,1

Total 31 100



229

13.6. EXPATRIATES

13.6.1 FOREIGN EXPATRIATES

Usually two types of long-term international travelers are distinguished. The ones arriving from abroad (from the parent

company of from a third country) who are also called expatriates and the ones from the Serbian subsidiary appointed for a

long-term deputation abroad (at the parent company or subsidiaries operating in other countries).

» Some 38.7% of the subsidiaries participating in the survey did not employ foreign expatriates in non-

managerial positions (table 264). In those companies that employed foreign expatriates in non-managerial

positions permanently, the number of these expatriates was typically 2-3 positions (6.5% of the

respondents).

» All examined companies employed foreign expatriates in managerial positions. The number was typically

4-5 or 2-3 positions. Finally 3.2% of the companies have 20 or more expatriates in managerial and 3,2% in

non-managerial positions.

Table 263: Number of foreign expatriates

Number of expatriatesIn managerial position In non-managerial position


None 0 0 12 38,7

1 person 4 12,9 0 0

2-3 persons 5 16,1 2 6,5

4-5 persons 6 19,4 0 0

6-10 persons 0 0 1 3,2

11-15 persons 0 0 0 0

16-20 persons 0 0 0 0

Over 20 persons 1 3,2 1 3,2

Total 16 51,6 16 51,6



230

13.6.2 SERBIAN EXPATRIATES

In table 264 below we outline how typically and to what positions Serbian expats were sent to foreign companies of MNCs.

Most of the Serbian subsidiaries did not send employees to foreign companies of MNCs. In those companies that sent

employees abroad, the number was typically two to three Serbs in the managerial positions and 2-10 positions in the non-

managerial positions.

Table 264: Number and positions of Serbian expatriates

Number of Serbian

expatriates



None 3 9,7 1 3,2

1 person 1 3,2 0 0

2-3 persons 2 6,5 2 6,5

4-5 persons 0 0 2 6,5

6-10 persons 1 3,2 2 6,5

11-15 persons 0 0 0 0

16-20 persons 0 0 0 0

Over 20 persons 0 0 0 0

Total 7 22,6 7 22,6



231



We found several different activity or function sharing practices among the companies examined.

» About 35% of the respondents reported that the local HR department has complete freedom.

» In the same part of respondents (35.5%) the HR department of the company’s headquarters, besides

carrying out the auditing function, lays down general guidelines, provides a standard framework for the

work of HR departments of the subsidiaries, and requires information and reporting from them.

» In 19.4% of the companies the headquarters was responsible for developing the detailed HR model and not

only personnel guidelines but also the rules of procedures, processes were developed centrally.

» Centralized HR activities, i.e. the situation when the headquarter is the source of all significant HR decisions,

is characteristic for the 9.76% of the subsidiaries. See table 265 below.



answers


response

Hands-off, provide complete freedom 11 35,5


for actions11 35,5


procedures and rules6 19,4


decisions3 9,7

Total 31 100



232


The following issue deals with the critical HRM areas. In 2015 the subsidiaries of multinational companies operating in Serbia

considered Training and development (2.55) as the most critical HR area (table 266). The second in line was Recruitment

and selection (2.35), the third Health and safety (2.33) and the fourth Talent management (2.29). Performance evaluation

(2.26), HR planning (2.06) and Industrial relation (1.97) are of medium importance, while Compensation and benefits (1.81),

Communication with the employees (1.74) and HRIS (1.71) are chosen as the least critical areas of HR functionality.


(Explanation: 1= not critical at all ⇒ 5 = critical)

The ranking of the areas of HRM critical in 2011The average of the

answers

Human resource planning 2,06

Recruitment and selection 2,35

Performance evaluation 2,26


Talent management 2,29

Compensation and benefits 1,81

Industrial-labor relations 1,97

Communication with the employees 1,74

HRIS 1,71

Health and Safety 2,33

Other 1,80



233


From the list of HRM competency areas identified by one of the most well-known HR consultants, Dave Ulrich et al. (2009),

the majority of respondents (61.3%) considered personal credibility (effectiveness, efficient connections, communication

skills) to be the most important (table 268).

According to 45.2% of the respondents, knowledge of foreign languages and HR services are very important key

competencies. But strategic contribution (32.3%), use of HRMIS (25.8%) and business knowledge (16.1%) are considered to

be the less critical competences of an HR manager in Serbia.



Very important

FrequencyMultiple answers

possible, response

1. Personal credibility

(effectiveness, efficient connections, communication

skills)

19 61,3

2. Business knowledge

(value chain, value creation) Change management5 16,1

3. Knowledge of foreign languages 14 45,2

4. HR services (recruitment-selection, training,

performance evaluation, HR measurement, etc.)14 45,2

5. Use of HRMIS (IT) 8 25,8

6. Strategic contribution (culture management, quick

changes, strategic decision making)10 32,3



234


This survey confirms the finding established in other studies (Cranet, 2006 and Karoliny et al. 2009; 2010) that members of

the management hierarchy have larger responsibility or control for some types of HR decisions and local employees of the

HR department have more responsibilities in other areas.


Key functions of HR

Local line

management

(mgt.)

Primarily local

line mgt. but in

consultation with

the HR department

Primarily local HR

department but in

consultation with

local line mgt.

Local HR

department


Recruitment 22,6 25,8 19,4 32,3

Selection 19,4 29,0 38,7 12,9

Performance Evaluation 30,0 40,0 30,0 0


Talent Management 19,4 29,0 45,2 6,5




HRMS/IT 16,1 12,9 41,9 29,0

Employee health and safety 22,6 9,7 45,2 22,6


As the data in table 268 reflects, the majority of the respondents regard most of the interventions in the key functions of

HR as the result of a joint decision in which the final decision is made rather by the local HR management based usually on

consultation with the line management. This result was measured in the function of talent management (45.2%), employee

health and safety (45.2%) and training and development (43.3%). Some 29.0% of the companies reported that the local

line management has complete freedom in decision considering HRIS (29.0) and employee health and safety (22.6%). Line

mangers have the authority to make autonomous decisions considering HR planning (35.5%) and performance evaluation

(30%). Line managers make decisions consulting HR managers concerning performance evaluation (40%) and compensations

and benefits (38.7%) and industrial relations (38.7%). In general, we can conclude that in the Serbian subsidiaries HR

decisions are mainly made by HR department in consultation with local line management.


235



traditional HR consultants, an increasing number of service providers appear who enter the market offering new services (e.g.

labor leasing, outsourcing, interim managers, etc.).

The majority of respondents do not use external providers in the field of performance evaluation, industrial relations, HR

planning and employee communications (table 270). External service providers were most often used in the area of training

and development, health and safety and recruitment. The practice of Serbian companies in this respect has not changed a lot.



External

providers not

used

1. Human Resource Planning 6,7 0 10,0 83,3

2. Recruitment 10,0 0 43,3 46,7

3. Selection 6,7 0 26,7 66,7

4. Performance Evaluation 3,3 0 6,7 90,0

5. Training and Development 29,0 13,3 13,3 43,3

6. Compensation and Benefits 0 0 13,8 62,1

7. Industrial-Labor Relations 3,2 0 10,3 86,2

8.Employee Communication 6,9 0 10,3 82,8

9. HRMS/IT 20,4 0 26,7 53,3

10. Health and Safety 10,0 3,3 43,3 43,3

Source: Prim10,0ary research by the authors



Knowledge management means the management and sharing of the collective, strategically relevant knowledge (know-

how, skills and intellectual skills) of an organization’s employees in an integrated way. In connection with the forms and

patterns of knowledge management specific to the field of HR we examined the following three areas:





236


The respondents considered informal (3.93) and local learning (3.77) at the subsidiaries HR department to be the most

important methods of personal competency development in the field of HR. Furthermore, they thought that informal training

at the parent company (3.40) also play very important roles in professional development of HR competencies –see table 271

below.

According to the responses, the role of HR training and development in parent companies (2.90) HR training and development

at other subsidiary and informal learning at the HR department of other subsidiary (2.34) were rated lower in importance

than the previously mentioned methods. But as the values are around 3, we can conclude that all mentioned methods are

important for competence development in HR.


(Explanation: 1= not at all critical ⇒ 5 = critical)


the answers

Informal learning at the subsidiaries HR department 3,93

Informal learning at the HR department of other subsidiary 2,53

Informal training in parent companies 3,40

Local training 3,77


HR training and development at other subsidiary 2,34



The respondents ranked knowledge flows from the (4.03) company parent to be the most important form or direction of HR

knowledge flows. For the second place they chose the knowledge flows within their own local unit (3.67). The knowledge

flows between the subsidiaries (3.14) was chosen as third important HR knowledge flow. The least important knowledge

flow was assigned to be knowledge flows from the local unit to the parent company (2.40) (see table 271).


(Explanation: 1= not critical ⇒ 5 = critical


the answers

Knowledge flows from parent 4,03

Knowledge flows to parent 2,40


Knowledge flows within your subsidiary 3,67



237



With regard to the key issues of the next 12 to 24 months, the interviewed HR managers of the subsidiaries of multinational

companies operating in Serbia underlined the issue of recruiting qualitative workforce (table 272) . Even if there is a high

unemployment rate in Serbia, most of the companies have a serious problem finding qualified workforce. Regarding the

everyday activities, the increase of work efficiency, the better use of employee potential and the management of young

employees from Y generation may be a challenge. The interviewed HR managers consider that change management, the

change of organizational culture and focus of training and development issues may be the major HR trends in Serbia in the

next few years.


Order of priority of the key business directions, challenges

HR functions (staffing, talent management, development, compensation and

benefits, employee communication, etc.)

Challenges of structural change of ownership

Challenges arising from the process of accession to EU

Labor challenges caused by laws changes

Challenge of achieving the corporate objectives of the turbulent business

environment, recession

Challenges of corporate restructuring



238


In terms of the personal characteristics of the interviewed professionals, we examined demographic characteristics and also

their professional qualifications and the characteristics of their positions.


Almost all the interviewees participating in the survey have university or college or equivalent qualifications. There were no

respondents with PhD.

Table 273: Level of qualification


University PhD 0 0


College (BSc) 1 3,2

Other 2 6,5

Total 31 100


The majority of the interviewees obtained qualifications in social sciences (83.3%) or engineering (13.4%) but there are HR

professionals with qualifications in natural sciences (3.3%)

Table 274: Field of professional qualification




Engineering 4 13,4

Other 0 0

Total 30 100


About 52% of the respondents have worked in their current positions for less than three years, 16.13% of them for 3-5

years, 22.6% for 5-10 years, while 8.7% have been working in their current HR position more than 10 years.

Table 275: Time spent in current position


0-3 years 16 51,6

3-5 years 5 16,1

5-10 years 7 22,6

10-15 years 2 6,5

Over 15 years 1 3,2

Total 31 100



239

14. SLOVAKIA (RENATA MACHOVA – ZOLTAN ŠEBEN – MARTIN VOLOŠIN – ÁDÁM SZOBI – BARNABÁS AMBRUS)

14.1. INTRODUCTION

In this chapter, we review the main things of the HR practice in Slovakian subsidiaries of international companies.




240

14.2. FDI AND EMPLOYMENT OF MULTINATIONAL CORPORATIONS IN SLOVAKIA

In this chapter we review the main dimensions of the HR practice in Slovakian subsidiaries of 16 international companies.

The Slovak Republic consists of 8 self-governing regions and 79 districts. They are in principle independent from the central

government. The most populated regions are Košice and Prešov. The highest population density can be found in the Bratislava

region (294 people/km2).

The quality of road infrastructure (above all availability of highways and motorways), the FDI inflow, the related salaries and

the unemployment rate still differ significantly from region to region. In general, western regions (Bratislava and Trnava

regions) are more developed than the central regions (Banská Bystrica region) or eastern Slovakia (Prešov, Košice regions). For

instance the highest unemployment rate and the lowest salaries can be found in Prešov and Banská Bystrica regions while

Bratislava and Trnava regions are just the opposite.

14.2.1 FDI VOLUME AND ITS DISTRIBUTION ACCORDING TO THE SECTORS AND COUNTRIES

According to data of National Bank of Slovakia published at the beginning of 2015, the volume of FDI that had flowed into

Slovakia since the beginning of the economic transformation was 40.9 billion EUR.

Table 276: Development of the volume of FDI in Slovakia between (1998 – 2015)

YearFDI (million

EUR)Year

FDI (million

EUR)

1998 (n.a.) 2007 29 058

1999 3 213 2008 36 226

2000 5 129 2009 36 469

2001 6 495 2010 37 665

2002 8 563 2011 40 173

2003 12 617 2012 41 779

2004 16 068 2013 42 071

2005 19 968 2014 40 969

2006 25 517 2015 40 128

Source: National Bank of Slovakia (2015: Preliminary data).

http://www.nbs.sk/sk/statisticke-udaje/statistika-platobnej-bilancie/priame-zahranicne-investicie


241

Figure 25: FDI in Slovakia (1998-2015)

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

FDI (million EUR)

Source: National Bank of Slovakia 2015

http://www.nbs.sk/en/statistics/balance-of-payments-statistics/foreign-direct-investment


According to final data from the NBS (National Bank of Slovakia) -published in 2015-, the volume of FDI flowed into Slovakia

was 40.969 billion EUR by the end of 2014. The partial slow-down of the FDI inflow can be seen above but there is still a

great potential for foreign investments in Slovakia, especially in the central and eastern regions.

With respect to the majority of the FDI invested in Slovakia, according to data at the end of 2015, the order of most significant

investors has somewhat changed compared to the previous year. The Netherlands and Austria retained their leading position.

Czech Republic, Luxembourg and South Korea stepped forward and Germany lost its previous (third) ranking position.

Table 277: FDI in Slovakia by country of origin (2015)

Order Country %

1. Netherlands 19

2. Austria 15

3. Czech Republic 11

4. Luxembourg 9

5. South Korea 7

6. Italy 6

7. Germany 6

8. Belgium 5

9. Hungary 5

10. Cyprus 3

11. Other 14

Total 100

Source: National Bank of Slovakia (2015) Preliminary data. http://www.nbs.sk/en/statistics/




242

Figure 26: FDI in Slovakia by country of origin (2015)

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

8 000 000

Net

herla

nds

Aust

riaC

zech

Rep

ublic

Luxe

mbo

urg

Sout

h Ko

rea

Italy

Ger

man

yBe

lgiu

mH

unga

ryC

ypru

sFr

ance

Switz

erla

ndIre

land

Spai

nU

nite

d Ki

ngdo

m

Thousands €

Source: Primary research by the authors (on base of data from http://www.nbs.sk/en/statistics)

By the end of the observed period, 54 countries from around the world invested in the Slovak Republic which is 7 percent

less than in year 2014. In totally 91% of FDI in Slovakia comes from the European Union members. Investments from third

countries are relatively small except the FDI from South Korea.



243


The sectoral distribution and inflow of FDI in the Slovak Republic significantly changed. This change in pattern is particularly

evident after Slovakia joined the European Union in 2004.

During this period the industrial sectors have 33% part of FDI in Slovakia. In the past several years Slovakia became the

most intensive world car producer with the biggest number of cars produced yearly per capita. This rapid growth of the car

production was caused by huge investments of three multinational companies: Volkswagen Group, PSA Peugeot – Citroën

and Kia Motors. Slovakia’s three car factories manufactured more than 973,643 cars in 2014. In December, 2015 Jaguar-

Land Rover finalized a contract with the Slovakian government about the new (€1.406 billion) plant. In the first stage, the

car-factory plans to extend their capacity for 150,000 vehicles annually and create up to 2,800 jobs. Further investment

would be to raise the capacity to the maximum 300,000 vehicles per year. Construction work of Jaguar-Land Rover plant

should begin by the end of 2016. The first vehicles will come off the Nitra´s production line in late 2018. (Homola, wardsauto.

com) The project is a boost to Slovakia, one of the poorest but fastest growing euro zone countries with a heavy focus on

manufacturing. The car industry represents 43 per cent of Slovakia industrial output and the quarter of the country export.

According to the Automotive Industry Association the country will be able to produce more than 1 million cars in 2016.

The growth of the car production is stimulating investments on the part of other world producers of automotive parts and

accessories with a positive impact on the whole economy and national employment levels.

Table 278: Structure of FDI in Slovakia by sector in thousands EUR (2014)

Order Sectors FDI Volume %

1. Industry 13 689 933 33,4

2. Financial services and insurances 10046633 24,5

3. Trade 3716321 9,1

4. Real estate 3188730 7,8

5. Administration and services 3086860 7,5

6. Researching 1625760 4,0

7. Telecommunication 1592440 3,9

8. Energy industry 1520651 3,7

9. Transport and storage 1165112 2,8

10. Building industry 433685 1,1

11. Other sectors 903113 2,2

Total 40969239 100

Source: Slovak Statistical Office 2015 http://datacube.statistics.sk/TM1WebSK/TM1WebLogin.aspx

Sectors as industry, administrative and support service activities, wholesale and retail trade sector, information and the

telecommunication sectors are highly saturated by foreign capital and controlled by foreign firms (see table 279).


244


Table 279: The sectoral structure of firms operating in Slovakia (2015)

No. Sectoral groups Number of firms %

1. Wholesale and retail trade 47096 24,4%

2. Professional, scientific and technical services 33348 17,3%

3. Administrative and support service activities 18824 9,7%

4. Building industry 16073 8,3%

5. Manufacturing industry 16067 8,3%

6. Real estate 11746 6,1%

7. Information and telecommunication 10233 5,3%

8. Transport and storage 9781 5,1%

9. Hotel and catering services 7369 3,8%

10. Agriculture, forestry and fishing 6520 3,4%

11. Health and social support 6463 3,3%

12. Other services 2463 1,3%

13. Education 2445 1,3%

14. Arts, entertainment and recreation 2400 1,2%

15. Water industry 907 0,5%

16. Financial services and insurance 803 0,4%

17. Energy, gas, steam and air condition 526 0,3%

18. Mining 187 0,1%

19. Public administration and defense 11 0,0%

TOTAL 193262 100%

Source: Slovak Statistical Office, regional statistics, (2015). Bratislava http://datacube.statistics.sk/TM1WebSK/TM1WebLogin.aspx

From the total number of 193,262 firms captured in the report, almost 15 per cent are foreign owned companies. According

to the database of Slovak Statistical Office (2015) the number of foreign owned firms in Slovakia was 29,857 – see table 280.

Table 280: The number of foreign owned companies operating in Slovakia (2015)

No. CountyTotal number of enterprises

Foreign enterprises

International firms

Foreign and International

1. Bratislava 64667 11416 2 729 14145

2. Trnava 17048 1831 600 2 431

3. Trenčín 15513 1159 487 1 646

4. Nitra 21154 3 969 676 4 645

5. Žilina 20150 1 506 598 2104

6. Banská Bystrica 17125 1 132 529 1 661

7. Prešov 17744 771 429 1 200

8. Košice 19861 1 391 634 2 025

Total 193262 23175 6682 29 857

Source: Slovak Statistical Office, regional statistics, (2015). Bratislava http://datacube.statistics.sk/

It is interesting to note that this distribution of firms varies significantly by region of the country. 76,6 per cent of foreign firms

are located in Western Slovakia, 12,6 per cent in Central Slovakia and just 10,8 per cent of them are located in Eastern Slovakia.


245

14.2.5 EMPLOYMENT IN FOREIGN-OWNED FIRMS

Foreign direct investment was very important for economic development, employment and economic growth of Central

European countries on their way to a free market economy. Slovakia, which is the smallest economy among the four Visegrad

countries, (the Czech Republic, Hungary, Poland and Slovakia) recorded very rapid economic growth over the past years due

to its economic reforms and relatively high level of FDI inflow. This growth had a positive impact on the unemployment rate

which is still a national problem. This concern with employment levels are exacerbated as these investments are unevenly

distributed geographically in the country and the economic recovery is still rather slow after the 2008 crisis.

The total economically active population in 2014 were 2 721 800 persons. Economic activity rate was in total 59,4 per cent

(of which: 68,2 per cent Men and 51,1 per cent Women).

According to table 281, the number of foreign-owned companies in 2014 was 36407 (18,6 per cent of all companies in

the competitive sector). These companies employ 19.74% (448282 people) of the total economically active population in

Slovakia.

Table 281: The number of employees at foreign enterprises with interest in Slovakia (2014-2015)

(2014)Number of

employees %

Employees in

foreign firms% of the total

number

Production 920 200 41,3 230824 10,37

Services 815 100 36,6 197 901 8,89

Public sector 489 540 22,1 908 0,04

Total (2014) 2 224840 100 429633 19,30

Total (2015) 2 270426 448282 19,74

Source: Slovak Statistical Office, Organizational Statistics; www.statistics.sk/Produkty/Publikácie - ISBN 978-80-8121-382-3; ISBN 978-80-8121-474-5;

We can see that from the point of view of employment, the number of new jobs created by FDI is very important. The Slovak

Government and the Slovak Agency for Development of Investment and Trade have ongoing plans to steer future FDI to less

developed regions of Slovakia. In spite of these plans and goals, the most part of FDI has been received by the western part

of the country.

In period from 2014/Q1 to 2015/Q2 more than 60 700 new jobs had been created in Slovakia. The amount of new jobs

created directly by the FDI in this period was 18649.The number of unfilled job opportunities was 12562 (2014/Q4) and

13838 in 2015/Q4.

http://www.statistics.sk/Produkty/Publikácie%20-%20ISBN%20978-80-8121-382-3


246

Table 282 below shows the relative percentage of new jobs created between 2014 and 2015 in the eight self-governing

regions.

Table 282: Places of new jobs created in Slovakia (2014-2015)

No. Region %

1. Trenčín 20

2. Trnava 19

3. Nitra 18

4. Žilina 11

5. Banská Bystrica 9

6. Bratislava 9

7. Košice 8

8. Prešov 6

Total 100

Source: Slovak Statistical Office; and SARIO (Slovak Agency for Development of Investment and Trade) 2015.

The uneven regional spreading of new jobs are clearly illustrated on the figures upon. In Western Slovakia (in counties

Bratislava, Trnava, Nitra, Trenčín) 66 percent of new jobs have been created. In Central Slovakia (in counties Banská Bystrica

and Žilina) 20 percent have been created and only 14 per cent in Eastern Slovakia (Košice and Prešov). This disproportion is

partly caused by asymmetric model of the state organization (the capital city /Bratislava/ is located in the western boundary

of the state, only 60 kilometers from Vienna). Finally, we observe that the mountainous geographical character of the

country combines with the rudimentary highway network, complicating transport between the two regions of Eastern and

Western Slovakia.

In 2015 the Slovak Agency for Development of Investment and Trade attracted about a third more companies that confirmed

their investment in Slovakia. It shows that Slovakia is still attractive for investors.


247


Some 17 foreign-owned, legally independent subsidiaries participated in the questionnaire survey.

14.3.1 COMPANY SIZE

In 2015-2016 - according to the data shown in table 284 below the number of full time employees working in the subsidiaries

participating in the survey, is more than 3736 persons. According to the data shown below (table 285), we can say that the

sizes of most of the companies are small and medium. Because of the majority (some 76,5%) of the companies participating,

have fewer employees than 250 persons.

Table 283: Number of employees and revenue of the participating companies (n=17)

Year Number of employees

2015-2016 3736




Total number of employees of

the companies

2011

Frequency

Percentage

distribution

(%)

Below 250 13 76,5

251-1 000 3 17,6

1 001-2 000 1 5,9

2 001-5 000

Total 17 100



248


We have also examined in our survey, an assessment of the local role of control of value chain, controlled by these organizations

(subsidiaries), so called subsidiary mandate (table 286).

Based on the responses, it can be stated that the largest portion 76,7% of the subsidiaries state that they play a limited,

subsidiary role (mainly the Production and Services segments of the larger value chain). The other important portion 40%

and 36,7% of the participants, control only a part of the value chain (Acquisition and Sales). In Slovakia, the final portion

of the respondents 26,7% and 26,7% of these subsidiaries control only two elements of the processes of the value chain

(namely Development and Marketing).


Roles and mandates of your subsidiary Frequency

Percentage

distribution

(%)

Mandate 1(Sales&Marketing) 10 58,8%

Mandate 2 (Production/Operation) 15 88,2%

Mandate 3 (Purchasing) 2 11,8%

Mandate 4 (R&D) 4 23,5%

Mandate 5 (Other) 0 0%


* Multiple answers were possible to choose

14.3.4 THE NUMBER OF THE SUBSIDIARIES OF THE MULTINATIONAL COMPANIES, PARTICIPATING IN THE SURVEY (N=17)

Table 286: The number of the subsidiaries (n=5)

The number of the subsidiaries Frequency

Percentage

distribution

%

Only 1 operating subsidiary of respondents to the

survey of the country0 0%

More than 1 subsidiary of the respondents in that

country5 100%

Total 5 100%


Although the practices of the Multinational Companies are different, almost the three fourth (75%) of the respondent firms

operate only one legal form in Slovakia.


249


The subsidiaries participating in the survey came to Slovakia from 13 different countries (see table 288). Approximately 40%

of them came from Austria and Germany, meanwhile the rest 60% are from another 11 countries.

Table 287: Origin of the parent companies of the participating firms (n=17)


Germany 4 23,5%

Austria 1 5,9%


Holland 1 5,9%

Norway 1 5,9%

Hungary 2 11,8%

USA 1 5,9%

Canada 1 5,9%

Spain 2 11,8%

Others 2 11,8%

Total 17 100%


This composition, which can be seen above, it is quite similar to the sequences that have been issued by the Slovak Statistical

Office. Because the investors from Germany, France and the USA play an important role in the Slovak economy and they are

the main participants in the sample of the survey as well. But, in this survey there are no participants from the Netherlands

and Luxembourg at all.

If we have a look at the management cultures of the companies, we can see that the German 46,7% and the Eastern

European 16,7% management cultures of the companies represent the main percentage of the sample. The role of the

traditional multinationals (Latino, South-European and Anglo-Saxon) is very limited 13,3% and 10%, a pattern seen in the

other Slovak research reports.

Table 288: Management cultures of parent companies (n=17)


parent companiesFrequency % distribution

Germanic 8 47,1%

Eastern-European 4 23,5%

Latino and South-European 2 11,8%

Anglo-Saxon 1 5,9%

Nordic 1 5,9%

Others 1 5,9%

Total 17 100%



250

Table 289: Tradition of parent companies (n=17)

Tradition of parent companies Frequency % distribution

Traditional multinationals (American, Western

European, Japanese)12 70,6%

Emerging and transition countries 5 29,4%

Total 17 100%



Between 1990 and 1995 more than one third 34,5% of the subsidiaries have been acquired via majority ownership control

or carried out as greenfield investments by the foreign owners. Between 1996 and 2000 20,7% of them settled in Slovakia

and the remaining sampled firms 27,6% of the sample arrived between 2001 and 2005.

Greenfield investments have been established by 41% of the foreign owners of these companies, participating in our survey.

Far more 59% of the firms obtained majority control in Slovakian companies during the period of initial national privatization

and acquisitions (see table 291).


Year of

establishment of

the subsidiaries

Merger,

acquisition

Greenfield


Before 1990 0 0 0 0%

1990-1995 1 1 2 12,5%

1996-2000 1 1 2 12,5%

2001-2005 1 1 2 12,5%

2006-2010 5 3 8 50%

After 2010 0 2 2 12,5%

Total 8 8 16 100%

% distribution 50% 50%



The majority of the organizations 56,7% are engaged in traditional manufacturing activities, while the other significant area

43,3% is in trade and services.


251

14.4. THE MAIN DIRECTIONS OF DEVELOPMENT OF THE COMPANIES IN THE PERIOD EXAMINED

According to the topic indicated in the subtitle, we examined the importance of three strategic orientations:





Fully 50% of the Slovak respondents indicated in table 291 that they were seeking growth and portfolio expansion during

the survey period. The stability, efficiency improvement, revenue retention, and adapting to the market situation were also

important 50% of the subsidiaries. None of the subsidiaries chose the redundancies and rationalization option.







Redundancies, rationalization 0 0%

Other 0 0%

Total 16 100%



252


The quality of workforce was chosen most frequently by 66,7% of the respondents from amongst the listing of most

important competitive factors of companies – table 292. The quality of management (53,3%), production technology

(43,3%) and low labor cost (43,3%) were also chosen as important and relevant competitive factors.

The optimal plant/organization size was deemed as the fifth most important 36,7% factor, which was followed by financial

resources (23,35%) and other factors 6,7% each.


Competitive factorsFrequency of “yes”

answers distribution

Quality of workforce 11 64,7

Quality Management 6 35,3


Low labor costs 8 47,1



Others 0 0

Source: Primary research by the authors. Multiple responses available, hence totals to more than 100%

14.4.3 EVALUATION OF MAIN COMPETITIVE DRIVERS OF THE SUBSIDIARIES

We have examined the main competitive factors in that period. The results are contained in table 293. The factors of

profitability 48,3% and the quality of the service 55,2% are considered better than average. The firm’s innovation rate

41,4% and the environmental cases 53,6% are regarded as same as the competitors have.

Table 293: Competitive factors (n=17)

Competitive factors WeakBelow

average

Same

as the

competitors

Better

than

average

Out-

standingTotal

Profitability 70,6% 11,8% 17,6% 100%

Quality of service 23,5% 52,9% 23,5% 100%

Innovation rate 5,9% 52,9% 29,4% 11,8% 100%

Environmental cases 47,1% 41,2% 11,8% 100%



253



» Number and workload of the HR staff




Overall 110 persons were served by one HR professional in 2016 in the sample of Slovakian subsidiaries.

Table 294: Number of employees and HR staff in the participating companies (n=17)

HR staff

Employees per

HR positionYearNumber of

employees

HR professional

HR administration staff


2016 3736 34 110


Generally speaking the HR departments of the companies comprising the sample 71,4% are relatively small; the number of

HR staff is predominantly less than five persons (1- 4). See table 295 for the distribution. Bigger HR departments (over 20

persons) have only been operated by two companies.



(persons)

2011


None 4 23,5%

1-4 persons 11 64,7%

5-10 persons 1 5,9%

11-15 persons 1 5,9%

16-20 persons 0 0%

Over 20 persons 0 0%

Total 17 100

Average



254


The labor cost – operating cost ratio is one of the most frequently analyzed indicators of the importance of the HR function

in the company’s life. According to many researchers, the effects of HRM have a stronger and more direct influence on

the company’s performance if this ratio is higher. As presented in table 298, about 33% of the subsidiaries participating in

the survey fall into this category (that is, where the labor cost ratio is higher than 40%). But the vast majority 67% of the

companies operated with a relatively low (under 30%) labor cost ratio. This may be explained by the sectorial distribution of

NMCs in the Slovakian economy described earlier.

Table 296: Labor cost as a % of the operating cost (n=12)

Labor cost as a % of the

operating cost

2015


Under 5 % 1 8,3%

5-10 % 0 0%

11-20 % 7 58,3%

21-30 % 2 16,7%

31-40 % 2 16,7%

41-50 % 0 0%

Over 50 % 0 0%

Total 12 100%



Many HRM researchers consider the relative size of the training budget (compared to the entire annual labor cost) as an

important indicator of modern and effective HR activity.

The relative size of the training budget was relatively low, under 5-10% in 70% of the firms examined.

In our sample, some 30% of the subsidiaries report they spent less than 1% of the annual labor budget on training for their

employees.

Table 297: Annual training budget of the entire annual labor cost (n=12)

Annual training budget in % of

the entire annual labor cost

2015


Under 1 % 5 29,4%

1-3 % 5 29,4%

3-5 % 6 35,3%

5-10 % 1 5,9%

Total 17 100%



255



We found several different functional roles and responsibility sharing practices between the HR unit locally and the corporate

HR center among the companies examined.

» Some 37,9% of respondents reported that the HQ-HR department provides general guidelines and

framework for actions for the local HR departments of the subsidiaries.

» Some 31% of respondents stated that although HQ-HR expects information and reports while acting as

an auditor, their system provides complete freedom (decentralization) for the local HR departments of the

subsidiaries.

» Finally 24,1% of respondents said that the function of the HQ-HR is to provide the subsidiaries with detailed

HR model, policies, procedures and rules. See table 298 for all details.



answers


response

Hands-off, provide complete freedom 0 0%


for actions0 0%


procedures and rules2 100%


decisions0 0%



256


The results are confirmed by our current survey, which were also established in other studies (CRANET, 2006 and Karoliny et

al. 2009; 2010) that the members of the local line management hierarchy have larger responsibility and control in some HR

decisions, while the local employees of the HR department have larger responsibility in other functional areas.

Table 299: Responsibility of decision making in key functions of HR(n=17)

Key functions of HR

Local line

management

%

Local line

management

consulting

with the HR

department

%

Local HR

department

consulting

with local line

management

%

Local HR

department

%

Human Resource Planning 47,1% 23,5% 23,5% 5,9%

Recruitment 35,3% 11,8% 35,3% 17,6%

Selection 35,3% 11,8% 29,4% 23,5%

Performance Evaluation 47,1% 35,3% 5,9% 88,2%

Training and Development 47,1% 17,6% 23,5% 11,8%

Talent management 47,1% 17,3% 17,6% 17,6%

Compensation and Benefits 41,2% 29,4% 29,4% 0%

Industrial-Labor Relations 35,3% 5,9% 35,3% 23,5%

Employee Communication 47,1% 11,8% 23,5% 17,6%

HRMS/IT 47,1% 5,9% 17,6% 29,4%

Occupational Safety and

Health (OSH)43,8% 6,3% 18,8% 31,3%

Others 20% 0% 20% 60%


As the data above reflects, the majority of the respondents regard most of the interventions in the key functions of HR as

the result of a joint decision in which the final decision is made most often by the local line management. This approach is

particularly true in the areas of Performance Evaluation and Compensation and Benefits. The main responsibility of decision

of local line management, consulting with the HR local department is only found in the areas of Human Resource Planning

and Industrial-Labor Relations. The responsibility of the local HR department consulting with local line management is in

Recruitment and Occupational Safety and Health (OSH). In Slovakia the professionals of the local HR department have the

greatest freedom of making decisions on Industrial-Labor Relations.


257

14.6.3 IMPLEMENTED TRANSFORMATIONS IN THE HR DEPARTMENT

We were interested in conversions made in the activities, priorities and responsibilities of the local HR department (table

300). The areas in outsourcing of the tasks in HR department 28,6% and the increasing HR as a role of business partner

28,6% “have done their best” were widely reported. Management reacquired a responsibility for HR tasks in 25% of the

responses. The issues of self-service HR for the management 21,4%, and the implementation of HR as a role of business

partner 21,4% have been realized. The HR SSC (Shared Service Center) in corporate and regional areas 14,3%, the Self-

service HR for employees 10,7% and the whole HR SSC 7% are less often reported.

Table 300: Implemented transformation in HR departments (n=8)

Implemented transformations

in HR department

Completed

Frequency of

“yes”

answers

distribution

Outsourcing of the tasks in HR

department0 0%

Increasing HR as a role of business

partner3 17,6%



Implementation of HR as a role of

business partner0 0%

HR SSC * in corporate and regional

areas1 5,9%

Self-service HR for employees 0 0%


Source: Primary research by the authors. Multiple answers allowed, hence column sums to more than 100%

* SSC = Shared Service Center


258



traditional HR consultants, an increasing number of service providers appear who enters the market offering new services

(e.g. labor leasing, outsourcing, interim managers, etc.).

External service providers were most often used by the companies in the area of Occupational Safety and Health (OSH)

activities. They were also often involved in training and development, reported by two third of the participants of the survey

(see table 301). They were also used in the area of Industrial-Labor Relations, HRMS/IT, Recruitment, Human Resource

Planning, Talent management, and Selection.

Table 301: Role and use of external service providers in the different key functions of HR (n=17)

Key functions of HRIncreased

%

Decreased

%

Same

%

External providers

not used

%


(OSH)31,3% 6,3% 62,5% 0%

Training and Development 47,1% 0% 29,4% 23,5%

Industrial-Labor Relations 5,9% 0% 47,1% 47,1%

HRMS/IT 5,9% 0% 41,2% 52,9%

Recruitment 11,8% 0% 35,3% 52,9%

Human Resource Planning 5,9% 0% 17,6% 76,5%

Talent Management 17,6% 0% 35,3% 47,1%

Selection 11,8% 0% 17,6% 70,6%

Employee Communication 29,4% 0% 23,5% 47,1%

Performance Evaluation 5,9% 0% 23,5% 70,6%

Compensation and Benefits 11,8% 5,9% 23,5% 58,8%


Recall that multiple categories of functional HR areas, which were possible and these figures do not reflect percentages.


259

14.6.5 LACK OF HR MANAGER

Very often the Chief Executive also acts as HR manager 43,3% in those companies where is no HR manager at all. Less often

the task devolved to the head of the Finance department 20%, and the Production manager 13,3%.


Position

Frequency of

“yes”

answers

distribution

%



Head of the Finance department 0 0%

Production manager 0 0%

Head of Marketing/Sale 1 5,9%


14.7. CRITICAL HR ISSUES

14.7.1 CHANGES IN THE IMPORTANCE OF MAJOR HR ISSUES

Recruitment and Selection (2,9 out of 5) was the first in the ranking of HR areas considered to be the most critical during the

period examined. The areas of Human Resource Planning, the Industrial-Labor Relations and the Training and development

(2,8/5 each) were chosen as less important area. And the areas of Compensation and Benefits, Employee Communication,

Performance Evaluation and Talent Management (2,7/5 each) were chosen as marginally less important issue of HR of the

subsidiaries. Note how close the priorities are, as only slight differences exist across the HR issue spectrum. See table 303

below for full details.

Table 303: Critical HR issues (on a 1-5 scale, on average) (n=17)

(Explanation: 5= critical ⇒ 1 = not critical at all)

Critical HR issues in (2011)Average of the

answers

Recruitment and Selection 2,9

Human Resource Planning 3,2

Industrial-Labor Relations 3,3

Training and Development 3,3


Employee Communication 3,2





260



in table 304.

Respondents report that it is easy to find manual workers in labor market: 32,1% of the respondents said that it is a

characteristic of their environment. It is less easy to find well-trained technical workers (in the labor market): 46,4% of

respondents said that it has low level characteristics. Foreign language skills are not problem in most of the jobs: 35,7%

answered that it is not typical at all. We can keep talent easily: 35,7% of the respondents said that it has large feature.

We can offer competitive wages for our employees in every job: it is considered by 35,7% of them report that it is a minor

feature. The Significant influence of the trade unions is said by 37% of the participants to have no feature at all.


HR issues in 2015

No feature

at all

%

Minor

feature

%

Large

feature

%

Full

feature

%

Easy to find manual workers in labor

market17,6% 11,8% 58,8% 11,8%

Easy to find well-trained technical

workers23,5% 58,8% 17,6% 0%

Foreign language skills are not

problem in most of the jobs23,5% 52,9% 17,6% 5,9%

We can keep the talents easily 5,9% 58,8% 23,5% 11,8%

We can offer competitive wages for

our employees in every job17,6% 29,4% 41,2% 11,8%

Significant influence of the trade

unions70,6% 17,6% 11,8% 0%



261

14.8. INTERNATIONAL ASSIGNEES AND ROLES

14.8.1 FOREIGN ASSIGNMENTS

Foreign expatriates have not been employed in non-manager positions by the vast majority 93,3% of the Slovak subsidiaries

participating in the survey. In those companies that did employ permanently foreign expats in non-manager positions, the

number of them ranged between 2-3 persons

The presence of expatriates being employed in non-manager positions is more significant but the majority of the respondents

have not employed foreign expatriates in such positions. Where they were present, the number of them ranged between

one and three persons.

Table 305: Number of foreign delegates (expatriates) (n=17)

Number of expats

Manager position Non manager position

FrequencyDistribution

%Frequency

Distribution

%

None 0 0% 0 0%

1 person 0 0% 1 50%

2-3 persons 0 0% 1 50%

Total 0 0% 2 0%


14.8.2 SLOVAK DELEGATES

We can see below the number and position of Slovak expatriates. As stated above, very few Slovakian nationals go “out” on

long term international assignments. This lack of transfers back to corporate HQ or to other subsidiary sites has implications

for the development of globalized human capital originating in Slovakia.

Table 306: Number and position of Slovak expats (n=8)

Number of

Slovak expats

Manager Employee

FrequencyDistribution

%Frequency

Distribution

%

None

1 person 2 25% 2 100%

2-3 persons 3 37,5%

4-5 persons 2 25%

6-10 persons 1 12,5%

11-15 persons

16-20 persons

Total 8 100% 2 100%


In our sample we can see that only two expats have been appointed abroad in management position. Beside these, there

weren’t any companies, which would have sent more than ten persons in non-manager position.


262

14.8.3 TYPICAL HR COMPETENCES FOR SUCCESS

According to the supplemented list of HRM competency areas identified by one of the most well-known HR consultants Dave

Ulrich (et al. in 2009), the most important competencies are considered by the respondents:

» Personal credibility: effectiveness, efficient connections and communication skills (78,6%)

» Use of HRMIS - Information Technology (64,3%)

» HR services: recruitment-selection, training, performance evaluation, HR measurement, etc. (60,7%)

» Communication in foreign languages (60,7%).

Table 307: Ranking of key competencies of HR managers (n=17)

Ranking of the importance of key competenciesVery important


Personal credibility

(effectiveness, efficient connections, communication skills)7 41,2%

Use of HRMIS (IT) 3 17,6%

HR services

(recruitment-selection, training,

performance evaluation, HR measurement, etc.)

4 23,5%

Communication in foreign languages 10 58,8%

Business knowledge

(value chain, value creation)6 37,5%

Strategic contribution

(culture management, quick changes, strategic decision making)4 23,5%


Multiple responses result in totals of more than 100%.

According to the respondents’ answers in table 309, we note that gaining business knowledge (understanding the value

chain, firm value creation), and providing a Strategic contribution (culture management, quick changes, strategic decision

making) are perceived as important areas of competencies.


263


Knowledge management refers to the management and sharing of the collective, strategic and business based knowledge

(know-how, skills and intellectual abilities) of a certain organization’s employees in an integrated way. In connection with

knowledge management specific to the field of HR, we examined the following three areas:

» Methods of personal competency development in HR

» Enablers of HR knowledge flows

» Directions of HR knowledge flows


The Slovak respondents found that local HR training and development (3/5) to be the most important method of personal

competency development in the field of HR. They thought that HR training and development in headquarters (2,8/5),

informal learning in HR department of the subsidiary (2,6/5), and formal learning in headquarters (2,5/5) also played very

important role in HR professional development. HR training and development that occurred at other subsidiaries (2,1/5) and

informal learning in HR departments of other subsidiaries (1,9/5) were seen to be the least important method of competency

of development in HR.




the answers

Local HR training and development 3,2

HR training and development in Headquarters 2,3

Informal learning in HR department of the subsidiary 2,5

Informal learning in Headquarters 2,9

HR training and development in other subsidiaries 1,8

Informal learning in HR departments of other subsidiaries 2,1



264


The respondents ranked the HR knowledge flows from parent to subsidiary (3,4/5) and HR knowledge flows in HR department

of the subsidiary (3,2/5) as the most important forms of the different HR knowledge flows.

The lowest value was assigned to HR knowledge flows between the local Slovak subsidiary and other subsidiaries (2,1/5).



HR knowledge flows in HRThe average of

the answers

HR knowledge flows from parent to subsidiary 3,7

HR knowledge flows in HR department of the subsidiary 2,6

HR knowledge flows from subsidiary to parent 1,9

HR knowledge flows between subsidiaries and other departments 1,9

HR knowledge flows between yours and other subsidiaries 1,7



265



The following problems and trends have been considered to be important by the responding HR managers for the upcoming

12-24 months:

Table 311: Key business challenges in HR


• The economic crisis has had serious impact on the financial situation report of companies, which has resulted in

a corresponding decrease in labor

• Reduction in the HR department

• Maintaining/increasing the market share of the company. Flexibility during the introduction of the new Labor

Code. Increase the HRMS user-friendly application

• There is no activity devoted to the development of the HR of the company at all. The company has not had any

developing tendencies in its current form in any field yet. The insurance subsidiary established in Slovakia, has been

subtracted by the parent corporation and it will be only operating as a branch of a foreign insurance company.

• We will reduce the number of our staff, because of the crisis.

• The recruitment functions of the HR department will be growing, if the demand of the companies’ products is

increased by, and the parent company gives new projects to their subsidiaries. But, this task will be fulfilled easily

as the number of unemployment has been increased in this region.

• Because of the existing uncertainty in the EU, we reduce production and probably the number of staff as well.

• Political instability and high expenses will be a problem. Changes to the tax system increase instability.

• HR knowledge transfer between the subsidiary and other departments is an issue. Communication

development, expansion and believing in better cooperation are key topics.

• Slow administration, in case of an accident is of concern.

• The main problem is in our company that our employees have been attracted by our competitors.

• Staff reduction, the economic crisis, the growing engagement of the parent company is of concern.

• The HR tasks are carried out by one person, so he/she has a large task. In the future the HR department is

expected to develop and expand, and the processes may be complicated.

• Rising labor costs, economic downturn in hospitals, the migration of doctors, and disadvantageous regulatory

(legal) conditions characterize our industry.

• Labor shortages exist in all areas of the production.

• There are not enough skilled workers.

• Language courses, acting according to the laws, communication with the managers and employees and

information transfer are important topics to come.

• We will start additional training programs.


266


We have also examined demographic characteristics, the professional qualifications and the characteristics of the HR

professionals responding to our survey as well.


Almost all the interviewees participating in the survey have university, college or equivalent qualifications.



University (PhD) 0 0%

University (MA/MSc) 13 76,5%

College (BA/BSc) 1 5,9%

Other 3 17,6%

Total 17 100%


Half of the respondents have degree in Social Sciences. Less than half of the Slovak respondents obtained qualifications in

Engineering and Natural Science (43,8%%), The remaining group has other degree (6,3%).



Engineering 6 37,5%

Social sciences 8 50%


Other 1 6,3%

Total 16 100%



267

The HR respondents have not been in their present positions for very long. Almost half of the respondents 44,4% have been

working in their current positions for less than three to five years. And 29,6% of them have been spending in their positions,

for fewer periods than 3 years.



0-3 years 4 23,5%

3-5 years 8 47,1%

5-10 years 3 17,6%

10-15 years 1 5,9%


Total 17 100%



268

15. APPENDICES

15.1. APPENDIX – COMPANIES PARTICIPATING IN SURVEY

15.1.1 BULGARIA

Some 17 foreign owned companies participated in the current survey 4 companies remain anonymous.

Table 315: The list of the companies participating in the survey from Bulgaria

No Name of subsidsaries No Name of subsidsaries

1 AMRO Bank Bulgaria 8 Jumbo ES.B.EOOD

2 AndreasStil EOOD 9 KIA Bulgiaria

3 Coca-Cola Bulgaria EOOD 10 Sea Export Bulgaria EAD

4 Ekxpirin Bulgaria EAD 11 Sumitomo Electric Bordnetze

5 EVH Bulgaria 12 Teleciti Group Bulgaria EAD

6 IBM Bulgaria 13 Telus International Europe

7 ING Bank Bulgaria


269

15.1.2 CZECH REPUBLIC

Some 93 foreign owned companies participated in the current survey.50 companies remain anonymous.

Table 316: The list of the companies participating in the survey from Czech Republic

No Company names No Company names

1 A. PÖTTINGER, spol. s.r.o. 23 LAPP KABRL, s.r.o.

2 AC Nielsen CZ 24 LPP Retail Czech Republic s.r.o.

3 Anheusen-Busch Inbev Czech s.r.o. 25 MAKRO Cash & Carry ČR

4 Bauer Media v.o.s. 26 MAN Truck and Bus ČZ

5 Bauer media v.o.s. 27 MARSH s.r.o.

6 C. Steinweg Tschechien, s.r.o. 28 Materna

7 ComAp a.s. 29 mBank

8 Creditinfo Solutions 30 MEDPACE

9 CRM Factory GmbhH 31 Merck

10 DPD CZ s.r.o. 32 Nestlé

11 Dr.Max 33 Nutricia a.s.

12 EMIL FREY ČR 34 Obermeyer Helika, a.s.

13 Fabory CZ Holding s.r.o. 35 Pekařství PAUL

14 GFK 36 Quiksilver

15 Global Travel s.r.o. 37 RAG Health Care

16 Globus ČR, k.s. 38 Röchling

17 Hays ČR 39 Sonnentor, s.r.o.

18 HDS retail czech republic a.s. 40 TOTAL ČR s.r.o., Pobřežní 3, Praha 8

19 Hewlett Packard Enterprise 41 UniCredit Bank Czech Republuc and Slovakia, a.s.

20 Hyundai Merchant Marine (Deutschland) GmbH 42 Value Transformation Services

21 IBM ČR 43 Windowstar

22 Komerční banka


270

15.1.3 HUNGARY

Some 85 foreign owned companies participated in the current survey.35 companies remain anonymous.

Table 317: The list of the companies participating in the survey from Hungary


1 Aegon Premium 23 Lagarde SA

2 Air France-KLM FSSC Budapest 24 Linamar Hungary Zrt

3 Arval Magyarország kft 25 Magyar Telekom

4 Audi Hungária Motor Kft 26 Metro kereskedelmi kft

5 Aventics Hungary Kft 27 Nalco- Ecolab Company Hungary Kft

6 Balluff-Elektronika Kft. 28 Reckitt Benckiser Kft

7 BDO Magyarország 29 Robert Bosch Kft

8 Beiersdorf Kft 30 Sabil Circuit Magyarország Kft

9 Berskka Kft 31 Salesianer Miettex Magyarországi Kft.

10 Blum Hungária Kft 32 Samsung Electronics Magyar Zrt

11 Bonafarm Zrt. 33 SG Eszközfinanszírozás Magyarország Zrt

12 Confidence All Kft. 34 Sopron Bank Zrt.

13 Continental Autonomdrive Hungary Kft 35 SSC kft

14 Erste Bank Hungary ZRT 36 STILL Kft.

15 Eurest Kft. 37 Swicon Zrt

16 Nalco Hungary Kft. 38 Systemax Business Sevices Kft

17 French Retail cCo 39 Tesco

18 Fressnapp Hungária Kft 40 Teva Gyógyszergyár Zrt

19 GE Power 41 Tízpróba Magyarország Kft

20 Groupama Biztósító Zrt 42 TNT Express Worldwide Hungary Kft

21 Grundfos 43 Trenkwalder Kft

22 Infineon Technologies Kft. 44 T-systems Magyarország Zrt.

23 International Hotels Hungary 45 Unicredit Business Integrated Solutions Hungary

24 IT Szolgáltató Kft 46 UPS Magyarország Kft

25 K&H Bankcsoport 47 Van Graaf BT

26 Kayser automotoribe Hungary kft 48 Volvo Autó Hungária KFt

27 Knorr-Bremse 49 Wellnes Hotel Gyula

28 Kromberg Sjhnibert 50 ZF Hungária Kft



271

15.1.4 KAZAKHSTAN

Some 38 foreign owned companies participated in the current survey. 4 companies remain anonymous.

Table 318: The list of the companies participating in the survey from Kazakhstan


1 ERG 18 Marketing Research Agency

2 2DayTelecom 19 Nestle Food Kazakhstan

3 2ДейТелеком 20 Rixoz

4 Almaly 21 TNS Central Asia

5 Almaty Recruiting agency 22 TOO "UNIVERSAL LOGISTICS"

6 Borusan Makina Kazakhstan 23 Vitalmar

7 British American Tobacco Kazakhstan 24 Алматы Менеджмент Университет

8 CAT Central Asia Trading 25 Архимед

9 DBAO Bank Home Kredit 26 ДБ АО "Сбербанк"

10 Deloitte LLP 27 КПО б.в.

11 Efes Kazakhstan JSC FE 28ОФ "Казахстанский Центр социальных

технологий"

12 Henkel Central Asia and Caucasus 29 ТОО "КННК Интернационал в Казахстане"

13 Holiday Inn hotel 30 ТОО ARISTAN EPc, ТОО STRATA GROUP

14 HR Practice kz 31ТОО Иностранное Предприятеи "СЖС Казахстан

ЛТД"

15 IT Project Development 32 ТОО Энергия Плюс

16 kimep 33 ТОО"Food solutions Kz"

17 KPMG Audit LLC 34 Филиал ООО "Джонсон & Джонсон"

18 Fressnapp Hungária Kft 40 Teva Gyógyszergyár Zrt

19 GE Power 41 Tízpróba Magyarország Kft

20 Groupama Biztósító Zrt 42 TNT Express Worldwide Hungary Kft

21 Grundfos 43 Trenkwalder Kft

22 Infineon Technologies Kft. 44 T-systems Magyarország Zrt.

23 International Hotels Hungary 45 Unicredit Business Integrated Solutions Hungary

24 IT Szolgáltató Kft 46 UPS Magyarország Kft

25 K&H Bankcsoport 47 Van Graaf BT

26 Kayser automotoribe Hungary kft 48 Volvo Autó Hungária KFt

27 Knorr-Bremse 49 Wellnes Hotel Gyula

28 Kromberg Sjhnibert 50 ZF Hungária Kft


272

15.1.5 POLAND

A total of 57 foreign owned companies participated in the current survey. Some 9 of them remains anonymous.

Table 319: The list of the companies participating in the survey from Poland


1 Autoliv Poland Sp. z o.o. 25 Credit Swisse

2 Gerresheimer Bolesławiec S.A. 26 Kaufland Polska Markety Sp. z o.o.

3 3 M 27 Vermeiren Polska Sp. z o.o.

4 LG Chem Poland Sp. z o.o. 28 Synexus Polska Sp z o.o.

5 Global Colors Polska S.A. 29 Capgemini

6 GKN Driveline 30 Sitech Sp. z o.o.

7 Castorama Sp. z o.o. 31 Volvo Polska Sp. z o.o.

8 Voith Industrial Services Sp. z o.o. 32 Lincoln Electric Bester

9 Lyreco Polska S.A. 33 NB Polska Sp z o.o.

10 K&L Gates Jamka Sp. K. 34 CEWE Sp. z o.o.

11 Dr Schneider Automotive Polska 35 Ahlers Poland Sp. z o.o.

12 Adra Polska 36 Fresenius Medical Care

13 Nokia 37 Ipsen Logistics Sp. z o.o.

14 Orange Polska 38 Eclipse Poland Limited Sp. z o.o.

15 UBS Sp. z o.o. 39 Hilti Poland Sp. z o.o.

16 ART Płakowice Sp z o.o. 40 DPS Software Sp. z o.o.

17 Wabco Sp. z o.o. 41 Gefco Polska Sp. z o.o.

18 Mine Master Sp. z o.o. 42 Bank Zachodni WBK

19 Reform Capital 43 Alior Bank S.A.

20 Chassis Brakes International 44 Objectivity Bespoke Software Specialists

21 MK Sp. z o.o. 45 Nationale Nederlanden

22 Raiffeisen Leasing Polska S.A. 46 MAS Polska Sp.z o.o.

23 Gegenbauer Polska Sp. z o.o. 47 Capgemini Polska

24 Raiffeisen Polbank 48 Schneider Electric



273

15.1.6 ROMANIA

Some 47 foreign owned companies participated in the current survey. Some 1 of them remains anonymous.

Table 320: The list of the companies participating in the survey


1 Kaufland 24 Integrated Mobile Cummunications SRL

2 GENPACT 25KESZ Epito es Szerelo Zrt. Szeged Sucursala Cluj-

Napoca

3 AROBS TRANSILVANIA SOTWARE 26 Leoni Wiring System

4 Auchan Romania SRL 27 Leoni Wiring Systems RO

5 Austin Powder Exploziv 28 LightSoft

6 Beton & Rohrbau C.F. Thymian Gmbh & Co. KG 29 Lugera&Makler

7 Bombardier Transportation 30 Mondelez International Romania

8 BUW Romania SRL 31 MONSANTO

9Centru de servicii partajate al unei

companii multinationale IT32 Office Depot

10 Coats Odorhei 33 OTP Bank Romania SA

11 Confidential 34 Raiffeisen Bank

12 DEKRA Certification SRL 35 ROLIT Solution SRL

13 DEUTEK 36 SC Auchan Romania SA

14 E.ON Business Services Cluj SRL 37 SC MOL Romania Petroleum Products SRL

15 Emerson 38 SC PrintMasters SRL

16 Endava 39 SC Rainbow Force One SRL

17 Ernst & Young Services SRL 40 SC SODEXO SRL

18 GENPACT 41 STEELCASE

19 Grup West Arad SRL 42 Sykes

20 Heco Schrauben 43 Sykes Enterprises Eastern Europe

21 Hoomworks 44 Sykes Enterprises Eastern Europe

22 HR Franchising 45 TRUMPF LASER + MACHINERY SRL

23 HRSSC 46 Wolters Kluwer Financial Services Romania

24 Raiffeisen Polbank 48 Schneider Electric



274

15.1.7 RUSSIA

Some 13 foreign owned companies participated in the current survey. Two companies remain anonymous.

Table 321: The list of the companies participating in the survey from Russia


1 A.T. Kearney 7 Ritter Sport (ООО «Риттер Спорт Шоколад»)

2 AstraZeneca 8 GLOBUS

3 Coca-Cola Hellenic 9 Русфинанс Банк (Societe Generale Group)

4 Unicredit 10 GlaxoSmithKline

5 JTI 11 DBAO Ban Haum Kredo

6 RBS

15.1.8 SERBIA

Some 32 foreign owned companies participated in the current survey. One company remains anonymous.

Table 322: The list of the companies participating in the survey from Serbia


1 Tarkett d.o.o. 17 Roche

2 NIS a.d. 18 Orox 3latox

3 Raiffeisen Bank 19 Delphi

4 Sephora Cosmetics d.o.o. 20 Danulabs

5 Schneider Electric DMS NS 21 Flash SRB

6 SR Technics 22 Credit Agricole Banka Srbija

7 Piraeus Bank AD Beograd 23 Popovic

8 Mehler Protective System d.o.o. 24 OTP Banka NS

9 Sintelon 25 Grah Autoimotive

10 Skundric 26 Studio Moderna

11 Contitech Fluid Serbia 27 Grundfos Srbija D.O.O.

12 Gordon 28 Delotte doo

13 SAP 29 Sport Vision

14 Interprom 30 Emilio Shether DOO

15 DDOR Novi Sad 31 Raiffeisen Banka

16 Wiener Städtische Osiguranje



275

15.1.9 SLOVAKIA

A total of 17 foreign owned companies participated in the current survey. .. Some 3 of companies remain anonymous.

Table 323: The list of the companies participating in the survey from Slovakia


1 CARISMA s.r.o. 8 RD Slowakei s.r.o

2 DIGI Slovakia sro. 9 Shindler Dunajská Streda a.s.

3 Gebrüder Weiss s.r.o 10 SLK "Elektro"

4 JOHNSON CONTROLS SLOVAKIA 11 SlovenskoTelecom s.r.o.

5 Magna Slovteca, s.r.o. 12 Vicente Torns Slovakia a.s.

6 Osram a.s 13 Webasto Edscha Cabrio Slovakia s.r.o.

7 Raycom s.r.o


s. r. o. companies with limited liability (spoločnosť s ručením obmedzeným)

a. s. public limited companies (akciová spoločnosť)


276

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