Today you can read from a wide variety of sources about multinational companies in transitional economies. Often the opinions reported are not always flattering. Several sources of literature state that international companies often apply far more efficient and modern Human Resource (HR) methods in comparison with their local counterparts (Hiltrop, 1991 and Horowitz, 2011). These methods have recently been not only efficient, but also begin to contribute significantly to the development of the host-country's workers' competencies (Kuddo, 2009). This integrated collection of research articles will describe our collective experience over the past years related to changes in the HR practices of foreign owned firms in the Central and Eastern European (CEE) region. For each country we will first review the socio-economic situation of countries surveyed and evolution of foreign direct investments in this region. Second, we outline our research model. And last, but not least, we present the empirical experiences, which we received on the subject from seven CEE countries - Croatia, Estonia, Hungary, Poland, Romania, Serbia and Slovakia.
Before 1989, hardly any foreign direct investment had been injected by the multinational companies of the developed West into the former socialist countries. Even the former socialist countries urged carrying out foreign direct investment within the economic association of former socialist (COMECON = Council for Mutual Economic Assistance) nations. But, with few exceptions, these forms of investment were not typical. Rather, each country has invested at home. This situation changed radically after the regime changes of the late 1980s. Of course, this process took place in different intensity in the examined countries. Usually the introduction of foreign capital was very closely tied to the privatization process.
Let's see what the numbers show. Several times global peaks of foreign capital investment have occurred. The historical record worldwide for such investments over the last twenty years occurred in the year 2000. The next major peak was in 2007. In the past three years, the volume of FDI was a shadow of previous volumes. A recent positive trend has started again in this regard. The countries surveyed have progressively increased the amount of FDI during the years examined. Initially, Hungary was leading the list. Later, Poland took over as regional leader in foreign direct investment. In recent years, the Southern-European countries are catching up in this regard.
It's worth a brief look at the most important economic indicators for our focal nations. Analyzed before the crisis, most countries – with the possible exception of Hungary - have grown at a pace exceeding the developed countries. Moreover, these countries have kept up with the pace of emerging countries. The crisis has also has drastically impacted these countries. Everywhere except in Poland an overall economic downturn has occurred. Most of the countries are heavily export-oriented and closely linked to the German economy. This strong economic connection has helped. The economic growth in these countries started increasing again.
The institutional systems of the countries examined here have much in common, but, because of the historical and national traditions unique to each nation, there are several institutional differences. They share the historical heritage of socialism, the majority of them (except Croatia and Serbia) share EU full membership (2004: Estonia, Hungary, and Poland, while in 2007, Romania), and therefore we find many of the same institutional solutions in HR-related areas. Differences exist in the areas of unemployment or tripartite interest reconciliation systems. There are significant differences in the field of pension, personal and corporate taxation policies as well.
The Western public for some time has treated and considered the former socialist countries as a homogeneous block. The Czech-Slovak peaceful split, the secession of the Baltic States from the former Soviet Union and last but not least the disintegration of the former Yugoslavia after the Balkan civil wars, all show that this simplistic view is not appropriate.
In the last decades, years of ongoing cultural studies have reached this region. Both Hofstede (2001) and the GLOBE research both provide empirical evidences of the complex and multifaceted nature of cultures within and across regional and national boundaries. The impact of “the culture factor” in determining the investment potential of the region in the eyes of multinational firms is a critical ongoing question.
All countries surveyed want to modernize, and this modernization will require a great deal of capital. Besides the EU community funds, the other logical potential source is foreign capital. Of course, many of these countries also worried about the strong influence of foreign capital in the economy – the “sovereignty” question. Many political parties and interest groups are explicitly campaigning against FDI, but the more dominant political forces in the region have always sent consistent signals of balance, neither totally for nor against foreign capital. Rather, all governments more or less give legal benefits to foreign investors. Hungary in the past few years has tried to get significant tax incentives to lure foreign capital into the country. The current government - as well as previous governments - has tried to support job creation programs associated with foreign investors. The former Slovak government offered tax incentive programs and infrastructural facilities (e.g. employee homes, roads etc.) to the biggest foreign investors in the car industry.
Our model is built on three components. First, we relied on the widespread perception of international management, besides the external influencing factors the HR activities of a subsidiary, factors related to firm size, maturity, firm country of origin and strategic orientation. Given the context provided by these dimensions we examined how different HR variables (e.g. presence and size of HR professionals, 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 was that we compared the similarities and differences on HR practices of foreign owned companies in the countries surveyed.
Pécs, Gödöllő and Richmond (Kentucky), July 2011.
Farkas, F., Poór, J. and Engle, A.D.