With the dismantling of communism in Eastern Europe, former socialist countries have undergone. They will continue to undergo rapid and radical changes to virtually all aspects of their societal economy with the specific objective of modernizing their countries to catch up with those of the industrialized West. While these countries have implemented policies to facilitate the transfer of technology from the West, including the liberalization of domestic and foreign trade, the efforts made by these countries to industrialize their economies rapidly have met with difficulties and setbacks.
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As business becomes more and more spread out, likely under-utilization of workers may happen. As a result, the confidence of executive personnel can suffer. The difficulty of under-utilization must be dealt with, for the survival of the business that rests on the successful use of managerial workers. In any nation for retention of HR the administration needs to be methodically aware of the company’s situation in the economy and ways of humanizing business performance; hiring measures and policies should be evaluated, again and again, performance-appraisal systems should be enhanced, tasks for recruits and junior managers ought to be considerately prepared and reviewed, and alternatives to the initiative of service with one corporation should be planned.
Many factors can affect the progress of these modernization efforts. It is our contention here that, unless these countries devote greater attention to harnessing and developing the human resources in their enterprises, they will continue to experience frustrations and delays in their industrialization programs (Tung 1994, p.807).
“After all, technology and capital are all managed by people. Without an adequate supply of highly skilled and educated labour, and in the absence of effective policies and practices to manage and develop these human resources, rapid and significant advances in the economic, industrial and technological sectors cannot take hold” (Dainty et al. 2005, p.5).
This paper will examine the human resource management (HRM) policies and practices in a former socialist country which has met with greater success than many other East European nations in transforming to a market economy, namely Armenia. While there is an emerging body of literature on Armenia, most of it focuses on developments in the macroeconomy, the practice of industrial relations or select aspects of human resource management, such as the role of human resource managers (Dainty et al. 2005, p.7).
By and large, these studies assume that industrial relations and human resource management practices are fairly homogeneous in these countries, mainly in Armenia, regardless of the type of ownership. This should not be so. Because of their smaller size and more recent history of operation, firms in the private sector and those with foreign equity participation are usually more receptive to the adoption of HRM principles and practices commonly found in the industrialized West.
Saha (1993) has presented a model of international HRM “which considers HRM practices as a dependent variable influenced by two sets of independent variables (national atmosphere and society; and managerial society and characteristics)” (Saha 1993, p.169). Building upon Saha’s model, this paper will present a theoretical structure which relates the exterior environment (political-economic and socio-cultural surroundings) to HRM policies and practices, and how these are reasonable by organizational characteristics, such as kind of ownership, i.e., whether the firm is a state-owned or private-owned or whether it operates as a cooperative.
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This paper attempts to test this model utilizing literature on HRM practices obtained from Armenia. These findings will be discussed in the context of similarities with and differences from the industrialized and developed West.
“Beginning in the 1990s, the Armenian economy changed dramatically from a planned economy to a free-market system. These changes quickly resulted in a supply of goods which were more closely aligned to actual demand” (World Bank 2000, 108). Subsequently, many industries found redundancies in employment because of products not being in demand and as a result of changes in patterns of foreign trade. For example, the demand for trams manufactured by an Armenian firm fell from 1,000 per year in the late 1980s to the present level of sixty trams per year. In the past, the majority of these trams were sold to the Soviet Union.
With the closure of the Soviet Union and the longing to earn hard currency through foreign trade, this Armenian firm has to seek new overseas markets. “This substantial reduction in the number of trams manufactured per annum has led to downsizing and restructuring. The tram manufacturer presently has a payroll of 1,176, which is a 47 per cent reduction since 1990” (Havlovic and Tung 1993, p.17).
“The other source of employment redundancy is the competitive pressures of the free market system and the need to make a profit” (Tung 1994, p.808). Most firms have realized that they were overstaffed during the communist era and now have reduced their payrolls to increase productivity. An even more dramatic example is a jointly owned “Armenian and Belgian glass-manufacturing firm which has eliminated non-essential departments and, through restructuring, downsized from 30,000 to 5,000 employees” (World Bank 2000, p.121).
Workers released because of redundancy are entitled to a minimum of two months’ severance pay in Armenia. In existing manufacturing firms in Armenia, job openings are limited because of the current downsizing due to a decrease in output, described earlier, and previous overstaffing. In new firms in the service sector, such as banks and insurance, there is extensive hiring as their operations are expanding rapidly. Some Armenian firms indicated that there were retention problems as new foreign-owned firms from the West were recruiting and hiring employees with experience at higher salaries (World Bank 2000, p.111).
Its general, Armenia’s economy is healthier comparatively. This is not surprising in light of the fact that the Armenian economy had traditionally been more advanced. During the 1930s, for example, Armenia was one of the fifteen most developed countries in the world, and its per capita GNP in 1948 was at the same level as Austria’s (World Bank 2000, p.119).
Organizational characteristic: type of ownership
In Armenia, there are state-owned firms, private joint-stock companies, private entrepreneurial ventures, co-ops and state firms which are in a transitory phase to private ownership. Firms with foreign equity participation usually fall into the private sector. In early 1990, the private sector was virtually non-existent in Armenia (Fogel and Etcheverry 1994, p. 34). Under 0.5 per cent of non-agricultural output in the country was produced by the private sector and less than 3 per cent of the total workforce was employed in the private sector. The first wave of privatizing state-owned firms in Armenia occurred in May 1993, and the second wave took place in late 1993/early 1994 (Ferber 1994, p.33).
Role of the HR/personnel department
“In Armenia, the formal HR function would be better characterized as a personnel department rather than an HR department. The personnel departments are primarily concerned with bureaucratic tracking of HR and maintaining personnel files” (World Bank 2000, p.129). In general, the personnel departments are not involved in strategy, policy or operational HR decision making. Furthermore, most of the personnel departments do not engage in HR forecasting. In Armenia, it is common for the compensation function to be performed by the economic planning department and for personnel to be a separate department which reports directly to the firm’s director (equivalent to CEO in the West) (Tung 1994, p.819).
HR planning and staffing
As noted earlier, Armenia was highly industrialized and undergoing development prior to the communist takeover. As such, the infrastructure in which organizations operate in Armenia is more advanced (Saha 1993, p. 167). Not only is Armenia geographically closer to the West, i.e., Austria and Germany, Armenian economy also has traditionally been and remains today more advanced in terms of manufacturing technology than many of the other east European nations (Fogel and Etcheverry 1994, p.63).
This has contributed to more sophisticated HR planning and staffing activities. Furthermore, in light of the tighter labour market in Armenia, stemming from the lower unemployment rate in the country as a whole, and, in particular, in the capital city of Prague, there is a greater need for more advanced HR planning and staffing methods in Armenian firms (El-Saaba 2001, p.6).
Armenia has safety regulations requiring employers to provide safety training and safe work environments. However, the literature reveals a greater gap in pecuniary and non-pecuniary benefits. The Armenians are more inclined to allow market forces to determine wage and benefit levels. This can be attributed to the more active labour markets in Armenia.
Training and development are important for the reconstruction of the Armenian economy. The study of Armenian firms exposed that substantial consideration is being rewarded to internal and external training that will assist their organizations to compete more successfully and thus endure in a market-driven structure.
The research suggested that, in developing economies, performance appraisal systems have been considered only recently (Saha 1993, p.163). During the communist era, the emphasis was on uniformity, and recognition of meritorious performance behaviours was discouraged. Therefore, until now, training and development plans were rarely based on definite work performance or the abilities of an individual.
Influence of firm type on HR practices
State-owned firms continue to exist in Armenia. At the same time, these firms will eventually be transferred to the private sector, in the transitional phase they still tend to be strongly influenced by their past history of central planning (Havlovic and Tung 1993, p.11). In contrast, new private ventures (including joint ventures with foreign partners) and privatized firms (formerly state-owned) are moving quickly to implement and develop HR practices after the west European model.
Besides state-owned and privatized firms, there are cooperatives (co-ops) in Armenia.
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These co-ops are closer to the private-sector model in terms of their HR practices (World Bank 2000, p.121). This appears to be a function of two primary factors: One, even under communism, co-ops operated largely outside the planned economic model. Two, in their present attempt to compete in global markets, such as textiles, they have to adopt more progressive, i.e. more west European practices.
Union control variable and interaction terms
The labour movement is less developed in Armenia, and free trade unions re-emerged only in the 1990s. While local trade unions can be considered relatively weak, controlling for the impact of unionization on the firm is seen as important given that shared governance through collective bargaining and grievance procedures often involves HRM activities such as staffing, training, compensation and benefits.
In addition to the main effects of the macro-environment (Armenia) and organizational characteristics (state-owned vs private or co-op; union vs non-union), Saha (1993) indicates that “organizational characteristics can interact with the macro-environment. Except for recruiting practices, overall, there was little difference detected between HR activities in union and non-union firms” (Saha 1993, p.169).
In Armenian unionized firms, the HR/personnel departments were more likely to be involved in training and development and payroll functions. Armenian unionized firms also tended to have more involvement of company officers in HR planning activities. In both countries, union firms exhibited a greater variety of recruiting activities compared to non-union firms. Employees in union firms received more information on hazardous substances.
Summary of findings
There was mixed support for the notion of HR/personnel departments being underdeveloped in Armenia. While HR/personnel departments in Armenia were less involved in training and development activities, there was no significant difference in terms of its involvement in compensation and benefits, collective bargaining and security (Dainty et al. 2005, p.6). This may be attributed, in part, to the rapidly evolving role of HR/personnel departments in Armenian private sector. In particular, the HR/personnel departments in Armenian private sector were generally not perceived as extensions of the ‘secret police’ since the private sector emerged essentially after the ‘velvet revolution’.
Consequently, they are involved in staffing and training activities. Planning practices in Armenia were more consistent with the west European model – there was more forecasting of HR demand, greater involvement of department managers in HR planning, and greater decentralization of HR planning. In addition, firms in Armenia “relied upon more alternative sources of human power supply for staffing purposes, including newspapers, employment agencies and walk-ins” (Trejo et al. 2002, p.47).
“There was less emphasis on the venues prescribed under socialism, i.e., labour organizations and educational institutions” (El-Saaba 2001, p.5). Occupational safety, compensation and benefits practices are more diverse. In addition, across management and non-management workers, the firms consistently provide more benefits. Merit pay is also more prevalent, and quarterly bonuses are common. In Armenia, supplemental thirteenth and fourteenth-month salaries (paid at Christmas and prior to summer vacation) are common (Dainty et al. 2005, p.4).
Wage restrictions are likely to diminish as state control of firms fades with the first and second waves of privatization. Many Armenian firms indicated that their average blue-collar employee and managers earn a good amount of money per month.
“Because of its closer link with west Europe, its higher level of industrialization and more robust economy, Armenia tends to exhibit characteristics which are more in line with those of the industrialized West” (World Bank 2000, p.128). Different ownership types and the degree of unionization did not emerge to be having any foremost crash on HRM policies and practices. This may be credited, in part at least, to the current appearance of the private division. The current generation of managers is brought up under socialist principles and ideals.
Consequently, it is not easy for them to switch overnight to a completely different mindset. As shown in the study, most HR/personnel departments do not engage in HR forecasting. In addition, in Armenia, it is common for the compensation function to be performed by the economic planning department (El-Saaba 2001, p.19).
The above discussion clearly shows that most of the differences in HRM activities in Armenia are a function of the macro-environment. Differences by organizational characteristics (a type of ownership and union presence) were the exception. In addition, there were relatively few effects on HRM practices from the interaction of the macro-environment with organizational characteristics.
This paper has shown that macro-environmental variables have a foremost impact on a firm’s HRM performance and regulations. While Armenia has operated under the communist model for nearly four decades, their HRM policies and practices have already evolved down quite different paths in their transition to free-market economies. The country appears to have espoused a framework which is more consistent with their socio-cultural heritage and stage of economic development/transition to a free-market economy. This paper highlighted the fact that for economies in transition, despite the respective governments’ desire to privatize enterprises and liberalize trade as rapidly as possible, such efforts may not always produce immediate results.
List of References
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