The State of Human Resources in Latin America

For Latin American companies facing global competition, the key to success may be to change personnel policies. In their new book, Best Human Resource Practices in Latin America, Marta Elvira, professor at IESE, and Anabella Davila analyze the relationship between personnel strategies and business success. In an interview with Universia-Knowledge at Wharton, Elvira discusses the state of HR in Latin America and the important role that multinational corporations and governments can play in the search for better labor practices.

Universia-Knowledge at Wharton: What are the challenges facing Latin America in the area of Human Resources?

Marta Elvira: Human Resources provides an indispensable foundation that companies can use in order to adjust their strategies for dealing with the global economic crisis. Today, we see the following challenges:

• supporting a strategy of competition through personnel while also conserving the values of the corporation;
• preserving the loyalty of employees while making possible adjustments in the size of the enterprise;
• minimizing the impact of corporate economic adjustments on staff;
• utilizing this period of crisis to open new areas for promoting innovation and continuous improvement;
• establishing strategic alliances with educational and governmental institutions, and with international organizations, in order to train specialized personnel; for example, in technology, and
• working together with various stakeholders in the community to generate alternative strategies for collaboration in such a way that the social function of the company continues to be key during the economic crisis.

UKnowledge at Wharton: What are the main changes resulting from these challenges?

Elvira: It seems clear that, more and more, the strategic adjustments of companies are founded on support from Human Resources. It is interesting to point out that Human Resources practices are becoming more and more specialized, in order to assure a balance in which companies can find the sort of people who are not only competent but also honest and have integrity.

Other changes include the following:

• Subsidiaries of multinationals in Latin American are centralizing their operations in such a way that they can share resources and strategies for dealing with the crisis.
• Firms that work throughout Latin America are using this period, when markets are contracting, to train and develop personnel.
• Small and midsize companies are demanding more solutions in their efforts to efficiently administer personnel in ways that are appropriate for their size.

UKnowledge at Wharton: When it comes to HR, how much influence do companies from the U.S. and Europe have on companies in Latin America? What models do these countries follow? What are the differences among them?

Elvira: Within what we call a ‘hybrid model of management,’ Human Resources is being more and more influenced by three types of foreign practices in the United States or Europe, including:

• practices that contribute to labor equity — such as, for example, systems for hiring and evaluating performance by competency and extent of advanced training;
• styles of corporate leadership that are more daring and more democratic, and
• practices oriented toward a strategy of social responsibility focused on the major themes of global problems — for example, environmental protection.

Nevertheless, Latin American multinationals have a disadvantage. Many people feel that they are rooted in the region more because of its economic convenience than because of the company’s commitment to development [in the region]. That is to say, [people believe] their operations can easily be moved to other markets, leaving the region deprived of both jobs and investment.

Studies show that the main difference between American and European investment [in Latin America] lies at the institutional level: While investors from the United States seek Latin American support for their political agendas, investors from Europe try to strengthen the institutions of the region to protect their investments from cycles of political and economic instability. Nevertheless, in both cases you can find multinational companies that fail and wind up embroiled in legal disputes as a result of a shortage of local regulation. The same thing happens to companies that are ignorant of the importance of key stakeholders in Latin American culture.

UKnowledge at Wharton: Is the progress of HR in Latin America dependent on the presence of multinational firms in the region? Or, on the other hand, has there been sufficient internal progress in HR practices? Have the companies of the region developed their own approaches to HR?

Elvira: We deal with this subject in depth in our first book. Progress [in HR practices] takes place both via the multinationals that are in the region, and because of the internal development of local companies. There are also other factors that influence the development of Human Resources in the region. Some examples:

• The transformation of the region’s economy, long focused mainly on agriculture, into an industrial economy, beginning with the 1930s. This has led to radical advances in Human Resources practices because industrial companies need personnel who are technologically advanced.
• The development of higher education in the region; specifically, universities now offer instruction in management sciences – including HR management — within their schools of social and economic sciences.
• The establishment of labor laws in each country of the region, and their transformation to support the deregulation of their economies, mainly during the 1980s and 1990s.
• The adoption of information technology to manage practices in Human Resources.

UKnowledge at Wharton: What relationship exists between policy, economic development and HR practices? Has there been progress in Latin America in that sense, and how far along is the region now?

Elvira: Without doubt, the field of Human Resources is very closely interrelated with the labor policies of Latin American countries. The region has been characterized by a constant concern for dignified employment. Naturally, that has an influence on economic development. We can cite two outstanding examples to demonstrate the relationship between economic development and HR practices. One is the case of Mexico’s Grupo Monterrey. The economic history of that Mexican industrial city [Monterrey] reveals that large companies with a humanistic ideology innovated social benefits for their employees long before Mexico’s labor law established norms in that respect [during the 1930s]. These benefits included systems for educating workers and their children; housing loans [to workers] and health clinics [for workers]. Currently, the city of Monterrey is distinguished by institutions of higher education that are highly competitive on a global level, as well as by extensive urban development. It also has specialized hospitals oriented toward health research.

Another example is the Colombian agribusiness, and how it has dealt with constant violence for more than three decades. These companies have also had a strongly humanistic orientation, and they frequently use cooperative mechanisms. They have managed to develop a working culture based on continuous training of their personnel and a commitment to maintain their personnel despite any external threats. Today, these companies are highly respected, and they are contributing to the transformation of Colombia.

UKnowledge at Wharton: Have all the countries of Latin America experienced the same evolution? What countries have the furthest to go when it comes to HR policies?

Elvira: It is hard to rate all the countries of Latin America in terms of their policies for developing Human Resources. Nevertheless, we could propose a sort of index for being able to figure out the degree to which HR practices have been developed. This index would depend on evaluating these sorts of practices:

• institutions of higher education and technology that offer programs for managing Human Resources;
• nationwide and local professional associations that promote the professionalism of HR practices;
• the commitment of federal and local governments to provide modern labor laws that are appropriate for the economic policy of the country;
• the level to which companies are investing in information technologies, and
• the degree to which local companies are globalizing.

Generally speaking, we can say that those companies that score more points regarding these factors have more advanced practices in Human Resources.

UKnowledge at Wharton: What successful examples do you mention in your book? Why should they be considered best practices?

Elvira: In the book, we decided to focus our research on companies that have learned how to manage Human Resources problems even during unstable and uncertain times. Normally, these are the same companies that show up in the various international rankings of “Best Companies.” We’ve noticed that the companies that have the most success are those that bring together multiple stakeholders [in their management of HR]. Among those are the Colombian companies cited earlier; Brazilian banks; a pharmaceutical company in El Salvador; a Mexican consultancy in information technology; a Danish multinational, and Telefónica from Spain. Another factor affecting the success of these companies is that all of them have locally modified universal best practices to meet their particular local needs. They have created a hybrid model that works in practice. Finally, we found that those companies are flexible enough to change. They employed various kinds of practices until they could figure out what was working for them and what was giving them results.

UKnowledge at Wharton: What is the importance of properly managing HR in a company — especially in a Latin American company?

Elvira: Without doubt, in times of crisis, there are some factors that HR managers must always consider strategic. Companies need to find innovative ways to maintain their competitive advantage in terms of the talent of their personnel. Whenever there is a crisis, the commitment of employees to the company and its goals becomes at risk. In turbulent environments, better-trained employees are the ones who can find different options [for employment]. Economic competition among various countries puts at risk many social factors that damage employee relationships. It is the responsibility of Human Resources departments to look beyond the economic interests of the company and propose a balance between people [who work for the company] and the organizational realities of work. This approach enables countries and companies to achieve long-term competitiveness.

UKnowledge at Wharton: When it comes to managing talent, what are the region’s strengths and weaknesses?

Elvira: The region’s strengths include a serious and effective commitment to the individual and his or her job; a willingness to provide social benefits to employees via the company, since governments have few resources to offer them; a culture in which managers transform companies into centers for community development; and a willingness by companies to support community development.

The weak points involve several opportunities that we recommend companies tackle:

• developing HR policies that properly reflect the economic deregulation of the region;
• creating alliances with educational and technological institutions for the training of personnel;
• cooperating with governmental institutions in order to deal with violent and turbulent conditions;
• increasing corporate investment in HR-related information technology, and
• developing HR practices that are more appropriate for the size and resources of small and midsize companies.