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Global Economics

Russia Faces Management Shortage

Executives fund b-schools and offer incentives as a growing economy and shrinking population combine to leave the country with a dearth of skilled workers

Russia has a management crisis.

And it's not who will lead the country after President Vladimir Putin ostensibly steps down early next year. It's who will lead the country's businesses over the coming decades.

Skyrocketing economic growth, a thinning population that has fallen 3 percent since 1992, and a dysfunctional education system have created a severe shortage of skilled workers in the Russian labor market. Over the next two decades, experts predict Russia will need to import around 20 million immigrants to compensate.

Today, the problem is most acute at the management level, as skilled, experienced executives are growing increasingly scarce in a surging economy the International Monetary Fund predicts will grow 7 percent this year. And, for companies trying to remain competitive in this environment, the problem is dire.

"The people problem is a serious one," says Andrew Somers, president of the American Chamber of Commerce in Russia. "If I had to pick one issue that general managers worry most about, it's not bureaucracy, it's not corruption, it's where do I get my next marketing manager from?"

Besides dominant Gazprom, Russia is home to other domestic and foreign-based major corporations such as TransMark, a subsidiary of the brewer SABMiller, Colgate-Palmolive, and Deutsche Bank.

Companies are trying to fill the gap by writing bigger checks to lure the best people -- wages are rising as much as 15 percent annually -- and over-hiring so they have a replacement pool when employees inevitably leave. They're also once again luring expats, who filled the offices of top Russian corporations in the early 1990s but have tapered off in recent years as companies transitioned to hiring locals. These foreigners are getting fat hardship packages.

But these are desperate, short-term remedies that do nothing to change the fact that talent will only become increasingly scarce as the economy continues growing and demographic decline takes its toll on the entire labor market, making it impossible for Russia to sustain its current growth in the long term. If over the next 10 or 20 years businesses are going to have the employees necessary to continue driving the rapidly expanding Russian economy, they're going to have to work from the bottom up, particularly by investing in the Russian education system.


Indeed, a major reason the talent pool is so thin in Russia is that the education system is "broken," in the words of Brook Horowitz, who worked in Moscow for General Electric in the 1990s and is now executive director of the Russia Partnership at the International Business Leaders Forum (IBLF).

"Companies are trying to deal with this, but the education system is broken," Horowitz says. "Graduates aren't ready for any kind of a business career."

Russian universities have foundered in the last 10 years because of a lack of financing and decentralization, according to the World Bank. Business schools in particular lack practical instruction on basic business principles, programs to help students get internships and career counseling departments. As evidence of this, Horowitz cited a recent study of company directors, 60 percent of whom said graduates lack practical skills.

The Russian government appears to understand the need for education reform. It's created a national project to improve universities that includes partnering with several companies on establishing the Skolkovo-Moscow School of Management, which is planned to open in 2009.

The private sector is also taking the initiative in small steps. Russian investment management company Basic Element gives funding to both the Plekhanov and Moscow State University business schools, and the IBLF is trying to get private money for programs to help budding business people plan their careers.

Overall, however, the kind of close cooperation between the private sector and universities that the World Economic Forum cited as a reason for pushing the United States from sixth to number one in its recently released Global Competitiveness Report 2007-2008 remains low in Russia, which ranks 58th.

Russian academia is skeptical of getting involved with the private sector, which often wants a hand in shaping the curriculum in exchange for financial backing. But an even bigger reason for the lack of cooperation today is an overriding sense of complacency in the ranks of government and business alike.

All the petrodollars flowing into Russia are making everybody rich, but also awfully shortsighted. As a result, Horowitz says, there's little to no interest in planning for the future by strengthening business education through internship partnerships between universities and top corporations or using private money for career planning.

"We're pushing an agenda the country isn't ready for," he says.

It better get ready fast. One man might be enough to manage the country, but not its businesses.

Provided by Transitions Online—Intelligent Eastern Europe

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