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The HR guide to emerging markets: Part one

Emerging markets are forecast to achieve phenomenal economic growth, making them attractive prospects for Western companies seeking to expand – but these countries all come with unique issues for HR to grapple with. Part one of our three-part guide explains why.

Every corporation is looking for growth, but where to find it? Western markets have been sluggish, even stagnant, in recent years. In 2012, the UK economy grew by a pitiful 0.2%. So it’s no surprise companies are looking to more emerging markets to realise their growth aspirations.

Economies across Asia, Africa and Latin America might also have suffered a recessionary slowdown, but they are still worth banking on, a 2013 report from Standard Chartered Bank claims. According to the report, 70% of global economic growth between now and 2030 will come from emerging economies – such as the BRIC markets (Brazil, Russia, India and China) and the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa).

Thanks to an expanding middle class and rapid urbanisation, the share of these countries’ world GDP could rise to 63% by 2030, up from 38% today.

Such growth is tempting, but doing business in these economies comes at a price. Growth itself presents difficulties. “One HR director in China recently told me she can’t keep up,” says Mark Spears, global head of people and change at KPMG.

And when entering these countries, it’s not as simple as imposing fully formed operations. “Lots of ?these markets aren’t looking to the West any more,” says Wayne Clarke, the founding partner of the Global Growth Institute. “To assume they should learn from Western business is a very arrogant way of thinking. Look at how many companies have failed in China.”

While each country has its own quirks and challenges, experts agree there are some common people issues across the fast-growth economies. And much of that comes down to talent, or lack of it, as Clarke points out. “In these markets, the war for talent is on,” he says. “They might have big populations, but there is only a small pool of high-?quality talent.”

For HR, then, the pressure is on. “Sometimes you have to make tough choices in emerging markets,” warns James Cullens, group HR director at recruitment firm Hays. “Some companies will do things off-piste – paying staff money in a brown envelope. You can end up not getting the best people because you want to pay them legally, but if you don’t set yourself up as an honest employer, it will come back and bite you.”

With talent tough to find, many companies grow their own. “We put a lot of focus on growing talent in these markets,” says Mark Sandham, SVP of organisational effectiveness and HR operations at Thomson Reuters. “We have a rotation programme where we move people north to south and east to west. You need to give high potentials an experience of the broader organisation.”

Oil and gas company Tullow Oil does much of its exploration work in Ghana, Uganda and Kenya. When it was struggling to find Ghanaian talent, and under government pressure to give more jobs to locals, it looked to the diaspora in Houston, Texas, a popular destination for immigrants working in the oil industry. “It’s hard to get local seasoned senior management,” says chief HR officer Gordon Headley. “So we’re trying to find Ghanaians in Houston who are interested in coming home.”

Once you have got the people, keeping them presents another challenge. Attrition rates are typically high. According to PwC data, the average voluntary resignation rate in China last year was 17.6%, more than 10% higher than in the UK. Clarke says attrition rates of 20% are “accepted” in China and Brazil.

“People will poach from you,” warns Headley, adding that, in immature markets, “there is room for speculation and game-playing”. Cullens agrees: “You are in a constant war for talent with your competitors. People work out they can move on in six months and double their salary.”

That makes investing in long-term L&D even more important – Cullens calls it “the carrot of training and development”. While going on a training course in the West can be seen as a chore, says Clarke, “the thirst for knowledge in fast-growth economies is like nothing I’ve seen”.

That is partly because emerging markets typically have a young population, which is eager for career development and needs a different management style. “The younger generation wants ?to be constantly challenged,” says Spears. “Traditional management capability is struggling to keep up.” He advises moving people sideways and building strong career paths, as at Thomson Reuters. “Local leaders need to be able to work in a global way,” he adds.

When entering these markets, either alone or through acquisitions, the importance of HR should not be underestimated, says Sandham. “Having trained, talented and versatile HR colleagues with key language skills is important if you are to move fast to build bridges between cultures and work out what it will take to integrate effectively,” he explains.
And although there are some lessons that can be carried across borders, there is nothing more critical than local knowledge. As Spears puts it: “Get to grips with the nuances of the market. Don’t take a generic approach.”

That’s why, over the following two days, HR magazine presents a guide to what HRDs need to know to succeed in eight of the world’s hottest emerging markets, with insight from the people doing it.

Check back tomorrow for the inside scoop on Brazil, Russia, Turkey and Indonesia in part two of our emerging markets guide.