HRD Practices in Innovatively-Active Companies: Evidence from Russia

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HRD as a factor of developing of international competitiveness of Russian MNCs

Victoria S. Tsybova

Research Associate,

Graduate School of Management, St. Petersburg State University

Address: 199004, Russia, St. Petersburg, Volkhovskiy Per. 3.

E-mail:

Elena K. Zavyalova

Professor,

Graduate School of Management, St. Petersburg State University

Address: 199004, Russia, St. Petersburg, Volkhovskiy Per. 3.

E-mail:

Stream: Strategic HRD and Performance

Submission type: Working paper

Abstract

Purpose – The focus of this paper is the review of the existing approaches to the defining factors that foster and prevent firm’s international competitiveness. The paper is based on the analysis of HRD as a key factor for international competitiveness. This is a pre-phase of the major project on empirical investigation of HRD practices used in competitive Russian MNCs.

Design/methodology/approach – The paper relies on a quantitative data received from the structured interviews with the representatives of 20 Russian MNCs, which were identified according to the certain criteria. The questionnaire contains 9 sections and 62 items.

Findings – Expected results should show that HRD activities are the driver for the company’s internalization and able to foster international competitiveness of Russian MNCs.

Research limitations/implications – The paper highlights relevance of further research on Russian MNCs and outlines research directions. The limitation is that here is presented only theoretical phase of this research.

Practical implications – The paper points out the role of using particular HRD practices for increasing international competitiveness.

Originality/value – Despite the important role of HRD for developing company’s international competitiveness, there are few researches aimed to highlight particular HRD practices in Russian competitive MNCs. Therefore, the objective of this paper is to fill in gaps in the literature regarding this research area.

Key words – HRD, international competitiveness, Russian MNCs.

Introduction

In the context of the global economy, the competitiveness of companies operating in international markets is extremely important. The strategic competitiveness refers to the ability of the company to operate successfully and develop in the long period in terms of competitiveness (Kleiner, 2012). There are numerous studies of Russian economists which treat it at different levels – macro, micro and meso-economic. Depending on the angle of the analysis authors suggest that there are many factors that facilitate and increase the competitiveness of companies. For instance, most researchers agree that competition of Russian companies is prevented by the fragmentation of the Russian economy, the obsolescence of equipment and technology, lack of the attention of the state to industrial sectors. But equally important factor is the lack of knowledge and skills in the field of management (Kleiner, 2012; Hudokormoff, 2005).

The comprehensive nature of this problem requires the use of the modern developments in the field of strategic management theory, especially the resource-based approach. Availability of external and internal resources can be considered as the cornerstone of the company's competitiveness. However, in practice, the availability of resources may not be sufficient: no less important factor is how well the company's management is able to use the available resources (Medvedev, 2012).

In the modern theory of strategic management considerable emphasis is made on the internal organizational variables as determinant of the competitive position of the company. One of the variables is the quality of the human resources in the company and management's ability to allocate these resources. So the main purpose of this study is to investigate the role of HRD for international competitiveness of Russian MNCs.

Theoretical Background

The source of International competitiveness

The openness of national markets, the reduction of trade barriers and the whole process of globalization and internationalization have led to such intense competition that companies everyday face new threats. These could be new substitute products, the bankruptcy of suppliers, changes in tax legislation, exchange rates, the global crisis, and etc. So the topic of international competitiveness is currently central and is studied by many researchers from various economic disciplines. There is no generally accepted definition of "international competitiveness". Based on the analysis of some of them, we suggest that international competitiveness is the actual or potential ability of the company to meet customers’ needs in the foreign markets and compete with other market players by product’s quality, price, placement, etc.

The world's leading researchers in the field recognize that the main criteria for identifying competitive company are the market share and profitability. The positive dynamics of these indicators in the long term, says that the company's product is in demand that means – it’s competitive, the industry in which the company operates is strengthening in the domestic or foreign markets, and it contributes to the national economy as workplaces, taxes, fees and other payments (Snowdon and Stonehouse, 2006).

The most complex system of sources of competitive advantage has been proposed by the scientist in the field of strategic management R. Grant (2002). One suggested approach is to the allocation of the internal and external sources. The external sources include, for example, changes in consumer tastes, the emergence of new products and services on the market, the new directions of foreign policy, changes in world oil prices, and etc. The internal sources of the company are its resources and business processes that determine the nature and speed of reaction to external changes. So the quality of the internal environment also leads to an increase or a loss of competitiveness.

Since the company’s environment is uncertain and unstable, it is almost impossible to control or even predict future changes and to be proactive. That is why the need to build a competitive business on the basis of internal resources and competences became a topical issue in the 90s. According to this approach, the company is seen as a special combination of resources and expertise, and these resources and competences are the primary determinants of its strategy (Barney, 1991). Thus, the company should not neglect the importance of the internal resources to ensure the competitiveness and not merely to improve its quality for the benefit of current business, but also look for new opportunities to use the available resources.

Moreover, the company receives a competitive advantage, not when implementing the strategy that creates value and can not be simultaneously introduced by competitors, but when competitors can not duplicate benefits of this strategy. On the basis of this statement, there are four properties required of the internal resources, particularly human resources to create competitive advantage (Barney, 1991):

• value: created by correlating individual competences of the candidate to the requirements of the organization and work, because an employee can contribute to the success of the company, and it is difficult to replace him by another employee;
• rarity is associated with cognitive abilities of employees, for example, the number of talented employees is limited, and many companies are now faced with a shortage of talented employees they need;
• inimitability: the competitors can not identify the specific source of competitive advantage in the mass of human resources. Moreover, they can not copy a unique situation as a result of the history of this company, as well as the norms and values that now influence the behavior within the team;
• not substitutable: human resources can be replaced in the short term by technology, but in the long term – not, because the same human resources can be used in the production of various goods and services (as opposed to technology).

Lepak and Snell (1999) conclude that the resource-based view emphasizes the strategic importance of competencies based on knowledge, in terms of their direct connection with achieving and maintaining a competitive advantage. Key competences should be developed within the organization, while other may be submitted for outsourcing. We can say that human resources play a key role because it is the only resource that can accumulate, apply and transfer existing knowledge. The knowledge generated by the company itself or acquired by it, which allow to predict changes, to create innovations and to make the strategic decisions, gives the competitive advantage to the company. In the XXI century, the ability to create, share and increase knowledge replaces possession and / or control of the assets as the primary source of competitive advantage (Klochko, 2012). We suggest that now the ability to create, accumulate, share and transfer knowledge is a core source of international competitiveness.

So as employees are the only resources of the company that are able to create, accumulate, share and transfer knowledge, human resources is seen as main source of value, economic growth and international competitiveness (Barney, 1991; Pfeffer, 1994; Prahalad and Hamel, 1990). The competitive position of the leading international companies are increasingly determined by the knowledge, experience, activity, disclosure of creativity involved in a common cause and responsibility of key personnel. Thus, to be able to meet market and organization developments, employees need to develop as well.

HRD as factor for developing company’s competitiveness

In recent years, companies seek to increase the effectiveness of human resources through the creation of optimal working conditions and enhancing knowledge workers. Training and retraining, skills development is directly related to the problem of creation, preservation and maintenance of the company's global competitive advantage. Investments in the human resources are seen as investments in the company's competitiveness.

However, Kleiner (2012), as one of the major obstacles enhances the competitiveness of Russian companies, calls "dis-management" that presents at all levels of governance. At the company’s level it is manifested in the conflict of interests of major groups: owners, managers, professionals and employees, which significantly reduces the efficiency of the using of human potential. Significance of the "dis-management" exacerbated in the modern situation of the labor market. Most current research on issues of strategic human resource management focuses on the global problem of skills shortages (Grant Thornton International…, 2011). One of the most effective approaches to solving the problem of attracting, retaining and effective use of qualified personnel is the development and introduction of the concept, which is called “human resource development (HRD)”.

The literature presents two approaches to the problem of HRD. First, a narrow, refers to the development of such practices as learning, career planning, training. This direction is characterized by the following key terms: “education”, “learning”, “knowledge acquisition”. The second approach is systemic in nature and refers to HRD as to “integrated and holistic, conscious and active approach to improving knowledge of the working activities and behavior with using a wide range of teaching methods and strategies” (Joy-Matthews, Megginson, and Surete, 2006). The key definitions it uses are “release of latent possibilities and potential”, “improving or enhancing the organization object”, “realization of potential”, “movement towards better, more complex and developed state”. It is obvious that this approach is consistent with the requirements of strategic management in a modern innovative economy based on knowledge.

Due to the relevance of this issue, in the current literature there are many definitions of "HRD". It is related to the fact that different authors treat it depending on the subject and the object of their study. Some authors believe that HRD is an integrated process to improve the efficiency of organization by combined use of training and development, career management and organizational development (McLagan and Suhadolnik, 1989). Others suggest that HRD can be seen as the process of development and disclosure of employees’ expertise to improve individual, team, process and organizational performance (Swanson and Holton, 2009). Mankin (2009) highlights that HRD includes a number of organizational practices that focus on learning: education, development, job training, career management and continuous professional training, organizational development, knowledge management and organizational learning. Furthermore, based on the deep literature review, Hamlin and Stewart (2011) point out four key elements of HRD:

• improvement of individual and group performance;
• improvement of organizational performance;
• development of knowledge, skills and competences;
• strengthening of human potential and personal growth.

Analyzing presented definitions we can suggest that basically for organization HRD means that new knowledge has to be learned and skills trained. According to Marrewijk and Timmers (2003): “learning is established when organizations structurally determine the need for knowledge and a collective competence profile, and use this as a basis for human development”.

Swanson and Holton (2001) argue that HRD is process of employees’ skills development which is aimed to increase company’s effectiveness. So HRD practices are aimed to promote new approaches to management and organization of activities in which commitment and flexibility of employees and their willingness to respond quickly to changing market conditions are assumed to be a key source of competitive advantage (Ezzamel et al., 1996).

Research on the influence of HRM on organizational performance such as productivity, efficiency and profitability became the object of attention of many authors (MacDuffie, 1995; Youndt et al., 1996; Pfeffer, 1998; Collins and Clark, 2003). Authors highlight the importance of organizational learning in the relationship between HRM and performance; and they suggest that innovation is promoted and sustained where HRM practices are in place to manage the three stages of the organizational learning cycle – the creation, transfer and implementation of knowledge (Shipton et al., 2005). In the modern literature, there are also a number of studies devoted particularly to the interdependence of HRD and companies’ performance and competitiveness. For instance, Ruona (2000) finds a mediating effect of personnel qualification and efforts on relationship between HRD practices and organizational effectiveness. Many authors point out that the aim of HRD is to improve company’s performance and effectiveness (Swanson and Arnold, 1996; Swanson, 1996; Adhikari, 2010). Some authors study HRD in a particular context and find out positive relation between specific HRD practices and performance management (Buchner, 2007; Adhikari, 2010). Others admit the importance of HRD for the company’s competitiveness and effectiveness and offer ways for HRD improvement by examining HRD strategy; improving perceptions of HRD; improving performance results; and improving HRD roles and client relationships (Gilley, 1998).

Thus, we believe that the use of specific HRD practices, combined in HRM system, lead to the creation of certain type of employees’ behavior, which in turn should contribute to achieving organizational goals and meet the organization’s business strategy.

Methodology

Much attention is now being given to the theory and practice of HRD in developing countries, which include Russia. Nevertheless, the analysis of information sources shows that to the date there is no systematic research, combining the concept of strategic management and HRD as a means of achieving the objectives of competitiveness of Russian MNCs in the global environment.

The purpose of the pilot study is to find out particular HRD practices, which is used in competitive Russian MNCs.

Following criteria was used to identify competitive MNCs:

• the share of international operations;
• number of employees;
• raise of the operational profit for the research period.

Table 1 presents the sample that is going to be analyzed in the pilot study.

Table 1 Sample characteristics

Research Design

Empirical data will be collected via structured interviews with company’s representatives. The questionnaire contains 62 items which is divided in 9 sections:

Section 1. The objectives of the organization (11 questions)

Section 2. Decision-making process (3 questions)

Section 3. Training of employees (10 questions)

Section 4. Management (6 questions)

Section 5. Assessment (4 questions)

Section 6. Human Resource Management (4 questions)

Section 7. The values of the organization (1 questions)

Section 8. Management and development of talented employees (7 questions)

Section 9. Information about the organization (16 questions)

There are different types of questions – open, multiple-choice, closed, with a Likert-scale answers. The questionnaire is a comprehensive tool for assessment of all the spheres of company’s activities.

Expected Results

Our previous studies devoted to the problem under consideration (Ardishvili, Zavyalova and Minina, 2011; Zavyalova, Ardishvili and Kosheleva, 2012) showed that there are differences in the management of human capital and human resources in both developed and developing countries, which is manifested both at the macro- and microeconomic level. Despite the fact that several researchers indicates among the factors that increase the competitiveness of Russian companies, the quality of education and the creative potential of Russian employees (Kleiner, 2012; Hudokormoff, 2005), there is a danger that with traditional management technologies this advantage will not be used.

The number of Russian MNCs is significantly lower than in developed countries. But, large Russian companies are already active abroad, including organizing its subsidiaries there.

In a line with the concept of R. Ramamurti (2009), among a large group of Russian MNCs can be represented as natural-resources vertical integrators. Some Russian firms focused on operations in the CIS countries can implement a strategy that is close to the local optimiser strategy. With the rising prices of factors of production in Russia, for Russian firms it is increasingly difficult to play the role of low-cost partner. In the activities of Russian metallurgical corporations can be found some of the elements of the strategy of the global consolidator. Only a limited number of Russian companies actually implementing a strategy of global first-mover and owns the advanced technology that could find the global application, although the idea of technological leadership lies in the concept of increasing of national competitiveness of Russia. So the purpose of the future empirical research is the study of approaches to the use of human resources in Russian companies with different strategies in international markets and to identify the most effective strategies.