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Modern Human Resource Issues in Russia
13 September 2007
Modern Human Resource Issues in Russia

Modern Human Resource Issues in Russia
By Marc Hackel
Recruitment Consultant and International Project Manager
Euro Personnel recruitment agency, Moscow, Russia

 

US-Russia HR IssuesModern human resource issues in Russia, and in particular recruitment issues, are influenced by both Western expectations and Russia's unique mix of characteristics. Western companies entering Russia often encounter surprises, not all of them pleasant, which represent the tip of the iceberg of "Russian specifics." We in recruitment are often riding that tip, meeting Westerners who fly into Moscow for the first time from Berlin or London Ц a short plane ride away in terms of time but a huge leap in terms of environment.

While the general economic picture for Russia is good, and growth is brisk, companies coming to Russia should be prepared for unexpected surprises. There are, for example, cases such as Ben & Jerry's ice cream which attempted to enter Russia in the early 1990's - with an excellent product to one of the largest ice cream markets in the world. Almost inexpiably, they met with catastrophic failure. Despite the fact that Russian fast food is growing phenomenally, KFC and Subway have also not fared well. While there are many reasons for these individual cases, the moral is clear: success is not guaranteed and careful planning and a flexible mindset is a must. This article will cover a few points that companies should keep in mind concerning issues of personnel in Russia, which can make or break a company.

The "Russian Mentality"

Perhaps the most important element of the Russian mentality, at least when it comes to money, is the "live for the moment" attitude. This is due to both the unpredictable nature of the country and a keen awareness that even a good life is regularly tempered with hardship; Russians do not wear rose-colored glasses. The ruble default and resulting crisis in August 1998, still fresh in the minds of the Russians whose bank accounts it obliterated, only reinforced the notion that all good things can come to an end. Russian salaries are rising, but Russians also rank very low in terms of savings. They spend money almost as soon as they have it.

In fact, a Western company with grand plans to conquer the country would be well-advised to test the waters by first opening a representative office to establish a presence in Russia but without engaging in commercial activity right away. Russians are becoming much more discerning and fickle consumers, and a thorough study of market habits and trends is necessary. Starbucks is just entering the Russian market, for example, but many people (including me) predict dismal results due to the outrageous real estate prices in Moscow combined with the fact that two well-established Russian chains are already dominating the market.

To return to issues more directly related to HR, "live for the moment" can also be detected in the willingness of Russian employees to participate in illegal salary schemes. The vast majority of Russian companies pay tax only on a portion of the employee's salary, paying the rest in an envelope in cash. This discrepancy between official salary and real salary is what a candidate means when he or she says that, for example, 10% of their current salary is "white" and 90% of it is "black." Accountants also usually run "black books" and "white books," two separate systems. A combined system like this is called "grey." Western companies, especially those with an established Russian legal entity, tend to pay "all-white" salaries, as do large Russian behemoths that are regularly under the scrutiny of the Russian Tax Inspectorate. Russians also generally prefer white salaries now, as white salaries can often mean better access to credit. However, if given the choice of working illegally for a much higher sum, they will likely chose to work illegally.

Since the collapse of the Soviet Union everything is basically for money, the concept of taxes and getting something for your tax money really doesn't apply here. Although the Russian government has been billions of dollars in the black for years, social programs are still under-funded, pensions are a joke, roads are inadequate, and the list goes on and on. Russians could generally care less if their employer pays the government taxes Ц because the widely-held opinion is that the money will not result in a better life for anyone if given to the government.

However, Russians are willing to do this because it poses no danger to them. The director and the chief accountant could be prosecuted if the scheme were discovered, but the employee would not be guilty. Russians, when not engaged in soul-searching conversations until three in the morning, can be very realistic and by nature are averse to taking risks. Grand plans don't mean anything - what counts are the actual results. This natural aversion to risk means that a Russian employee will not cancel or try to juggle around a business trip with a current employer to meet with a potential employer. Even if the CEO of General Electric were to fly in to personally interview a sales manager, an unexpected plane trip to Siberia demanded by the current employer would mean that the CEO would likely be left sitting alone in the hotel lobby.

Russia and the Bottom Line

In deciding an HR budget, however, companies should take into account that Moscow is now a very expensive city. A company established for decades in the West and just coming into Moscow might not quite understand why Russian employees, even those who are less experienced, are asking for salaries that are as high or higher than those earned by their Western counterparts. However, there are market realities, and Russians love leisure time more than anything else. Unlike, say, American candidates, they are not going to stay at any job where apartment rents, car expenses, and taxes eat up a majority of their gross income. For them going out to eat with friends, going shopping, and especially taking vacations abroad is important. Although they often appreciate the stability, support, and training they can get from a western company, the time they really value is time spent with friends and family.

Despite the high rents and expenses, Moscow should not necessarily be avoided when deciding where to place a business. Moscow is "the center" and other parts of Russia are "the provinces." Some companies actually request trying to find someone "who has just rolled in from the provinces," as these people are usually cheaper (at least for the first few months). People come to Moscow from all over the former Soviet Union to seek work at all levels. Very seldom will professionals move in the other direction as Moscow is simply more prestigious and offers higher salaries and more opportunity. Therefore, psychologically, it is difficult to convince people to pick up and leave Moscow except for a significantly higher salary (St. Petersburg being somewhat of an exception). Generally, the best and brightest workers are in Moscow. This will be the case indefinitely, and it should also figure in any company's long-term plans for regional development.

Cultural and Linguistic Issues

Westerners still think of Russians as a source of cheap labor, and Russians resent this to the extreme. The perfect way to instantly bury any employee trust Ц and this happens all the time Ц is to offer a written employment contract with a salary that is different (i.e. lower) than what was orally agreed upon. Any company coming here would be extremely well-advised to treat Russians exactly the way they would treat employees in their home country.

Another crucial issue of "cultural sensitivity," is that the sarcastic or denigrating comments about how things are done in Russia, no matter how ridiculous they might seem at times, should be kept in a closed jar, only to be opened at home. It can be taken, essentially, as complaining about your host's housekeeping. Not only is it neither respectful nor courteous, an employer can garner a lot of loyalty by accepting weird circumstances gracefully, and by casually brushing off Russian apologies for the same.

In addition to this "cultural sensitivity," employers should also be language conscious. Although armies of Muscovites now speak English, learning Russian to do business in Russia is increasingly important. Not only does it show employees that the boss are willing to work with them and "meet them half way," it also opens doors that you may find otherwise closed. In interviewing Russians, I have found that they are extremely good at telling an employer exactly what he or she wants to hear; they are excellent psychologists. Therefore, I always interview both in Russian and in English. Often, when switching to Russian, I feel as if I have broken through to the "real" core of the candidate's personality. In any event, any employer who plans to be in Russia for the long-term without any doubt needs to learn the language, or at least genuinely try.

Employers, however, will have to walk a fine line. While being respectful of the "Russian way" of doing things, certain aspects of basic business culture are currently absent from much of Russia and employers will have to work diligently and respectfully to train new employees. For example, the message-taking culture is largely absent in Russia. I often come into the office and am told "some lady called" with no further information available either because nothing was written down or, just as frequently, the person calling views a secretary as basically a living answering machine and declines to give information. As in many Asian countries, Russians see answering machines as completely useless. You can hardly find them anywhere for sale, and without exaggeration one person out of three thousand has an answering machine. There is no substitute for a real, direct conversation.

But Ya Gotta Love ItЕ

Frankly speaking, people from the West often make a much bigger deal of problems, setbacks, and difficulties then the situation warrants. Just accepting things for what they are saves a lot of money on antacids. Occasionally, serious opportunities are lost and loss of income or investment can be hard to take. However, the same thing can happen in the West Ц maybe not always for the same reasons, but losses happen.

Russians often love to mysteriously and somewhat mischievously project their mix of specifics to the West; their way is the only way to do things Ц it's always been this way here, how can it be any different elsewhere? Westerners abroad also often complain as if there are no problems in their native countries, conveniently forgetting about stacks of monthly bills, bureaucracy, debt, bankruptcies, etc. The truth is in the middle somewhere Ц but maybe nobody knows exactly where.

That is, however, precisely why I love working here. This is a country with, as I call it, one foot behind a plow and another foot in outer space. If you are prepared to pull out some hair, be very flexible, and be curious without asking too many questions, working and doing business in Russia can be much more rewarding than in the West. If you react to Russian specifics with a chuckle instead of getting irate, your Russian colleagues will respect you all the more and this respect can be your most valuable business asset.

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