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Case 20 HUMAN RESOURCE MANAGEMENT PRACTICES A Small Business in a Transition Economy Kamal Fatehi and Foad Derakhshan INTRODUCTION had been growing steadily for some years and was expected to continue in the future. The South Sugar Company (SSC) was a sub- In the sugar industry, modernization efforts sidiary of the Southern Corporation, a mul were expected to result in complete self- tinational corporation. It was located in a sufficiency. developing country in Asia. The country had embarked on an economic development and modernization process. It was interested HUMAN RESOURCE PRACTICE in becoming self-sufficient in many areas, particularly in food production. The SSC The SSC offered good wages and fringe was one of several sugar companies, which benefits, including health insurance, to its together produced 60% of the country's employees. It also had a profit-sharing sugar requirement. The remaining 40% was plan. Most of its employees were long-term imported from other sugar-producing coun- employees. Except for department heads tries. The SSC was one of the lowest-cost and agricultural specialists, most of its producers in the country. Consequently, it white-collar workers were not college was able to expand its sales and production graduates but had learned their work every year. In the 4 years prior to the events through years of experience. described in this case, its tonnage sales had The company had identified this lack of increased at an average of 20% each year, formal training and education as a prob- its sales in the local currency by 23%, and lem and began hiring college graduates profits by 7.5%. for administrative positions. The need for Despite this record, some managers business graduates was particularly appar- were complaining that the SSC was not ent, and they were hard to recruit. SSC gaining its rightful share of the country's facilities were located in rural areas, and it growing economy. The country had an was especially difficult to get college grad- economic development program that uates to leave the amenities and opportu- aimed at the modernization of agriculture nities of modern living in the cities to live as well as industrialization, financed by in rural locations. growing exports of raw materials and min The SSC had been successful, through erals. The gross domestic product (GDP) offering a higher-than-average salary, in 658 hiring a college graduate to be its chief Although this was unpleasant, he ignored accountant. This person, Byan, served suc it because it did not affect him. One morn- cessfully for 2 years. At that time, Malak, ing in February, Byan called Malak to his a young business school graduate, inter office. Byan told him that the VP of finance viewed for a position as a junior cost was about to leave for the home office and accountant working for Byan. During an that there was a general understanding interview with Byan's supervisor, the vice that Byan would replace him. In such a president (VP) of finance, Malak was told case, Malak would move up to Byan's that the VP was expecting to take a position position. Byan wanted assurance that a new in the home office of the parent corporation accountant who had been hired recently and expected that Byan would replace him. could perform Malak's duties. Malak Based on this interview, Malak decided assured Byan that he had been training the that the SSC would provide him with new accountant and grooming him to opportunities for growth and progress. assume additional responsibilities in antic- The company was expanding, and there ipation of such an eventuality. In fact, the seemed to be ample opportunities for pro new accountant was doing well and could motion. Company policy on promotions handle the job. was based on three criteria: education, A couple of weeks later, the VP left for seniority, and performance. Malak fin the home office, and Byan was asked to ished 3 months of training and orientation assume the vacated position. He eagerly successfully. During his training, he accepted the offer and was waiting for his impressed everyone with his aptitude for formal promotion. After 2 months, how- problem solving, his flexibility toward ever, someone else from the home office was people, and above all, his friendly manner. brought in as the new VP. This was a huge After 1 year he had proved to be an personal setback for Byan. It was more efficient and valuable employec. Conse than he could tolerate. Disappointed and quently, he was promoted to the position dejected, he resigned shortly thereafter. of manager of the cost accounting depart Before leaving, Byan told Malak to plan ment. Malak was pleased with his new job ahead so that he, too, would not become the and with the fact that he now was the only victim of favoritism. After Byan's departure, person reporting directly to Byan. This Malak was appointed as chief accountant. distinguished him from other junior The new VP of finance was aware that accountants and clerks who were not col Malak was concerned over what had hap- lege graduates, and it was more satisfying pened. In justifying management's decision, to him personally and socially. he told Malak that it was the policy of the In his new position, Malak devel company to appoint its higher-level execu- oped some personal relationships with the tives from the home office. The VP of staff at the parent company, the Southern finance had to be someone who had Corporation. Now and then he would worked at the home office and had devel. receive information from his parent com oped a working relationship and trust with pany contacts concerning decisions related the home office staff. Of course, these to the firm. It was through these informal explanations and justifications did satisfy channels that he became aware of political Malak's concerns. He was uncomfortable pressure resulting in some discrimination and unsure about his future advancement in performance appraisals and rewards. with the firm. Malak stayed with the firm for one company policies. I wish some more year. During this time, he was con- day the SSC would realize what vinced that chief cost accountant was as is happening around here. high as he could advance with the com- pany. He began searching for other oppor The personnel manager wished him luck tunities, and when he received a reasonable and left for his office. Reviewing the con- employment offer from another firm, he versation with Malak in his mind and left the SSC. Before leaving the company, looking at the turnover figures for the last he had the following conversation with the few years, he wondered what he could do. personnel manager, Zamen. Zamen: Well, we surely will miss you DISCUSSION QUESTIONS here. I wish you would stay with us, but I assume you have 1. What are the consequences of a given it enough thought and multinational company policy that are doing what is best for you. allows staffing of key positions only Malak: You know, Mr. Zamen, that with people from the home office? I would stay if I had a chance 2. Given the remote location of the SSC for future progress. I am not and its position within a foreign sub- the only one who is disap sidiary, what can the personnel man- pointed with the firm. Look at ager do? your turnover figures. 3. What policy recommendations would Zamen: I can see your point, but I do you have? How would you deal with not accept that everybody the trust factor? leaves the firm for that reason. Lots of people simply receive 4. Once the company had identified a better offers or get tired of liv- lack of formal training as a problem ing in this part of the country. and had hired college graduates to solve this problem, why did it deny Malak: Yes, I know that, but I am sure these graduates advancement oppor- that I am not the only one who tunities? What do you think caused has resigned because of the this inconsistency